Op-ed by Steven Cronig, Hinshaw & Culbertson, Miami Herald, June 21, 2019
Real estate, finance and insurance experts, along with local government, academia and community leaders, recently convened in Miami to discuss climate change and sustainability at Hinshaw’s third annual Sea Level Rise and Climate Change Conference. Below are some of the key takeaways for businesses.
The symbiotic relationship between the private sector, government and academia regarding climate risk mitigation and resiliency is more apparent now than ever before. Local governments are installing water pumps, raising roads and strengthening building codes. Global institutional real estate investors, such as Heitman and DWS Group, have begun to include climate risk into their pricing models through the use of big data, mapping and how local government is investing in resilience and mitigating climate risk.
Institutions such as FIU’s Sea Level Solutions Center play an important role in supplying necessary information used for planning. The combination of metrics and historical data are needed to develop an area’s long term real estate development and to review its existing built-on environment. Investors who are not yet factoring in climate risk see it as a timing issue. They may be in a holding period but the issues are top of mind and being considered when looking at their overall portfolio.
Businesses are getting more educated and asking the right questions. Will the real estate loan of the future be underwritten differently? Will federal flood insurance be available for my business or home and at what cost? What building improvements are being made to reduce the cost of flood insurance? How are cities currently funding investments in resilience? When will the federal government step in?
The answers are complex and the issues are evolving. The underwriting for a 30-year commercial real estate loan may look different than a 15-year loan depending on historical data, mapping, government intervention and the amount of risk in the investor’s entire portfolio. The National Flood Insurance Program’s new rate restructuring goes into effect April 1, 2020 for residential and Oct. 1, 2020 for commercial. The new rates will be previewed in the coming months.
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