Heavy rains from Hurricane Florence caused flooding in Lumberton, N.C., last year. Photograph by Joe Raedle/Getty Images

Climate Change Matters for Real Estate — Just Not the Way You Might Think

Climate change will affect coastal businesses. But don’t bet on it hurting their landlords.

Analysts have spent years warning that the costs of climate change will pile up for real estate investors, as rising sea levels cause severe weather and flood damage. Morgan Stanley joined that chorus in a March note, while arguing that climate change will make it riskier to invest in commercial real estate debt. After all, the bank pointed out, investors own $56 billion of bonds backed by mortgages on commercial properties that are on coasts and vulnerable to flooding.

History says otherwise.

Consider the case of Hurricane Harvey, which caused heavy flooding in Houston in 2017. The storm serves as a good example of the potential consequences of climate change; it displaced more than 30,000 people and damaged or destroyed more than 200,000 homes and businesses.

The storm was estimated to be the second costliest in U.S. history. And just days before it landed, researchers published a report that showed 75% of historical flood damages in Houston’s suburbs occurred outside of the Federal Emergency Management Agency’s flood hazard zone. That matters because property owners often use FEMA’s map to determine whether they need to buy flood insurance.

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