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USA - The Climate Factor in CRE Investment Strategy

As losses mount and premiums rise, risks posed by extreme weather are drawing heightened scrutiny from industry stakeholders.

Commercial real estate investors are starting to evaluate how extreme weather is affecting the value of their portfolios, acquisitions and developments. Some investors have already indicated that they are avoiding exposure in locations that present high risks to property operations or asset appreciation.

These findings and more are detailed in Climate Risk and Real Estate, the second report on climate issues and investment decisions released by the Urban Land Institute and Heitman. Since the organizations published the initial edition in early 2019, the number of investors and developers pursuing methods to assess climate risk has grown significantly, said Billy Grayson, executive director at ULI’s Center for Sustainability and Economic Performance.

“When we embarked upon the latest report this summer, we found that the majority of REITs and other real estate investors had done some level of a climate-related assessment of the physical risks in their portfolios,” he said. “It was a pretty dramatic change from the first report.”

Investors are focused on assessing the impact of physical “shocks”hurricanes, rising sea levels, extreme rain and inland flooding, tidal and coastal flooding, and wildfiresas well as “stressors” like extreme heat and drought and wildfire smoke. Investors are also beginning to measure a market’s resiliency and the ability of local governments to respond to catastrophes.

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