Takeaways:

  • Climate change is forcing developers and owners to rethink their investment decisions
  • Data platforms that assess risk are key in planning
  • Panelist noted that the bar to meet ESG obligations has steadily risen
  • Steps on the building and planning side include drought-resilient development and landscaping, heat-resistant structural design, and the use of aqua fences

From South Florida to San Francisco, the rising number of climate-related impacts are reshaping how developers and owners approach long-term planning and investment decisions. Multifamily sponsors and their financial partners, among others, are tapping into new management tools and data platforms to help lower their carbon footprints and prepare for local challenges such as increasing storms, wildfires, flooding, and water scarcity. Climate change could erase more than $100 billion in property values throughout the country, according to one recent study from Climate Central, a nonprofit research group.

For owners and operators looking to take proactive steps toward climate resiliency and mitigation, a key measure is to build out comprehensive data platforms that allow for consistent assessments of risks across their region as well as their apartment portfolios. Monitoring these risks allows one to better respond to local crises and can help our industry conduct up-to-date market analyses and push for logical solutions for all.

Opportunities to plan for, and not just react to, climate change were major through lines at this year’s Urban Land Institute fall conference in Dallas October 24 to 28. Thousands of industry players and policymakers gathered in-person and online to share their insights on the leading trends and challenges heading into 2023.

“It seems like the number of billion-dollar disaster events each decade is doubling, and it’s forecasted to double again in 2025,” Andrew Warren, director of real estate research at PricewaterhouseCoopers, told the audience in Dallas during one of ULI’s daily general sessions.

“It’s time to be proactive and not just rely on insurance to rebuild, because some day that might not be there,” he added.

Sustainability and resiliency are top of mind in real estate, and the bar is steadily rising when it comes to meeting environmental, social, and governance (ESG) obligations, as many ULI panelists noted. Companies that are susceptible to climate impacts and carbon output regulations may need to invest more heavily in ESG and performance-driven design.

On the building and planning side, drought-resilient development and landscaping, heat-resistant structural design, and the use of aqua fences to help prevent flooding are some of the many ways that property owners can protect their tenants and assets. From third-party planning firms to government agencies, there are many private and public resources available for owners and investors that feel unequipped to tackle climate concerns on their own.

Equity Residential, one of the largest multifamily owners in the U.S. with more than 300 rental communities, has made climate evaluation an integral part of its business strategy. Rebecca Becker, the company’s environmental director, said her team launched its assessment and response program in 2018 to better evaluate climate risk and determine how it can evolve over time. In 2020, Equity Residential began working with a third-party consultant to run a pilot study in Boston to evaluate climate impacts on both high-rise and low-rise properties and help meet energy reduction goals for its existing portfolio and future investments. The multifamily giant now integrates climate-risk data into all of its high-level investment decisions, including acquisitions, development, and capital deployment.While the industry faces a growing number of challenges, one of the most significant developments of the past decade is the steady increase of data that allows for more informed decisions. Prior to 2012, much of that research was government-driven and government-funded, noted Brian Swett, a principal at the global engineering and planning firm Arup. Now, there are a growing number of partnerships in both the public and private sectors fueling the availability of reliable data.

Looking ahead, decarbonization remains a long-term goal for multiple industries, but there are a handful of immediate climate impacts that developers and owners must contend with right now. During one ULI session titled “Demystifying Climate Preparedness,” a group of architects and planning experts spoke about what property owners and investors can do to stay attuned to the biggest threats.

“We [need to] understand our consumers and what they’re thinking in terms of what’s happening now,” said Rives Taylor, who co-leads resilience initiatives at the global architecture, design, and planning firm Gensler.

Long-term multifamily owners and investors can make their assets more resilient and provide the right internal tools for their management teams. Short-term holders may need to evaluate the relationship of resiliency to underwriting risks if they plan to sell assets in the near future. Lenders, insurance companies, and government-sponsored enterprises are all gauging the impacts of climate change more closely every year. At the same time, climate-related zoning, carbon regulations, and design policies will have a bigger impact on our industry, according to some of the insiders who spoke at ULI.

Lument is ready to support clients of all sizes—no matter their goals or level of protection required. With the growing pressures on the economic side right now, the firm knows it is a complex equation and believes in taking a holistic approach on the lending side. Understanding the many implications of climate change and knowing the latest ways to adapt is critical for seamless development and financing. Talk to our team if you’d like to hear more on how to stay ahead.