Real estate, finance and insurance experts, along with local government, academia and community leaders, recently convened in Miami to discuss climate change and sustainability at Hinshaw’s third annual Sea Level Rise and Climate Change Conference. Below are some of the key takeaways for businesses.
The symbiotic relationship between the private sector, government and academia regarding climate risk mitigation and resiliency is more apparent now than ever before. Local governments are installing water pumps, raising roads and strengthening building codes. Global institutional real estate investors, such as Heitman and DWS Group, have begun to include climate risk into their pricing models through the use of big data, mapping and how local government is investing in resilience and mitigating climate risk.
Institutions such as FIU’s Sea Level Solutions Center play an important role in supplying necessary information used for planning. The combination of metrics and historical data are needed to develop an area’s long term real estate development and to review its existing built-on environment. Investors who are not yet factoring in climate risk see it as a timing issue. They may be in a holding period but the issues are top of mind and being considered when looking at their overall portfolio.
Businesses are getting more educated and asking the right questions. Will the real estate loan of the future be underwritten differently? Will federal flood insurance be available for my business or home and at what cost? What building improvements are being made to reduce the cost of flood insurance? How are cities currently funding investments in resilience? When will the federal government step in?
The answers are complex and the issues are evolving. The underwriting for a 30-year commercial real estate loan may look different than a 15-year loan depending on historical data, mapping, government intervention and the amount of risk in the investor’s entire portfolio. The National Flood Insurance Program’s new rate restructuring goes into effect April 1, 2020 for residential and Oct. 1, 2020 for commercial. The new rates will be previewed in the coming months.
Private flood insurance may also be an option. Developers and cities today are applying a methodology called Landscape Infrastructure, a multi-functional, high performance system, which can result in lower flood insurance premiums.
Local governments are using taxes, taxing districts, state and federal grants, bonds, loans and public-private partnerships to fund activities. Long term, federal funding is needed to fortify infrastructure, reduce carbon emissions and incentivize investment tied to climate action.
There are signs that attitudes toward climate change are changing.
The State of Florida has named Thomas Frazer its first-ever chief science officer. Gov. Ron DeSantis is creating an office focused on resilience and coastal protection to address climate impacts like sea level rise. The ban on the words “climate change” seems to be ending, and the DeSantis administration has set forth the environment as a priority. Although time will tell, climate experts in Florida are cautiously optimistic.
Globally, all coastal cities are facing threats from extreme weather and sea level rise.
The City of Miami Beach, City of Miami, City of Coral Gables, Miami-Dade County and Broward County are providing leadership in their resiliency initiatives aimed at reducing risk in the long term. Their efforts are being looked at by the rest of the country and should be applauded and encouraged. It is important for businesses to support and join forces with government and academia regarding climate risk.
South Floridians are accustomed to living with water and I have no doubt that, while South Florida may look different 50 years from now, it will still be a great place to live, work and play.
Steven Carlyle Cronig is a Miami partner with the national law firm of Hinshaw & Culbertson. His practice is concentrated in the areas of real estate development and investment. firstname.lastname@example.org.