An international real estate developer, with an USD 2.5 billion portfolio developed to date, had several near-misses when it came to extreme weather events. Then, in 2017 the company redeveloped an office park in a large U.S. city. The new tenants insisted that the real estate developer take out flood insurance.

Several weeks later a hurricane hit, causing billions in damage to the city according to the National Hurricane Center. The hurricane caused USD 45 million in damage to the new office park, which was covered by the insurance.

Extreme weather is not uncommon for the real estate developer. The company has real estate in North Carolina, New York, Miami and several Caribbean islands, all of which have been hit by extreme weather in the last several years and where climate models predict that extreme weather events will happen more often in the future.

Like many companies, the developer is not unaware of sustainability. It promotes sustainable design and operating practices, uses naturally cooling buildings, energy-efficient lighting, etc. But climate change is a new mega-trend that requires looking at your portfolio in new ways. For example, real estate value in Miami’s coastal areas are decreasing vis-à-vis areas inland as climate change causes regular sunny day flooding and the local authority is increasing taxes to pay for adaptation.

Response
The real estate company is now reviewing its portfolio against climate risk using GIS mapping and forward looking climate models. This will enable the company to assess how vulnerable the portfolio is and prioritise interventions to enhance its resilience. Also, a climate risk assessment will become a standard feature in the due diligence of the company in evaluating new real estate development opportunities.

Banks are increasingly insisting that real estate developers include a climate risk assessment when applying for loans. Furthermore, the company is assessing whether climate change can create a strategic advantage by ensuring that its buildings are green and climate smart.