Climate Risk and Real Estate a Review of Urban Land Institue
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  • Climate Risk on Multifamily Evaluations 
    November 29, 2020 | Urban Land Institute
    Sharpline Equity for many years has added certain factors to its disqualification parameters for investing in real assets. 

    They are:
    • Not in Flood zones.
    • No coastal

    The reason for the above is the nature of the uncontrollable expense variables. Flood zone insurance can go up at a % much greater per year than any realistic proforma. In coastal areas we see insurance premiums increasing and or deductibles increasing to reach the same feasible insurance premium cost. 

    If one has a long-term view on real estate holdings one must add climate risk as a factor to consider in the longer-term evaluation on the asset. For those looking to hold beyond 10,20 even 30 years, insurance premiums in the future will most likely be impacted by climate risk and cause pressure on evaluations.

    The Urban Land Institute does a great job analyzing this risk in its PDF below. Also, there is a reference to some empirical data on a new term called Climate Gentrification which is an interesting term worth further exploration. 

    Sharpline Equity has acknowledged this risk for a few years now and is focusing on areas where this risk has the best chance of mitigation.