A business can go under due to flood damage, study finds. Here’s how tenants stay afloat
Flood damage goes beyond immediate expenses of cleanup and business interruption.
A business can lose on average 5% of shareholder value after suffering flood damage, according to a 2020 study by the Rhode Island-based FM Global and the London-headquartered Pentland Analytics.
Researchers analyzed the 10-K tax filings for 71 U.S. companies that made $3 billion or more in revenue and reported financial losses due to flood damage from 2015 through 2019. Companies often lost $1 billion or more. The study included the impact of Hurricane Matthew in 2016 on businesses across Florida and the Caribbean.
“When an organization sustains flood damage, that could mean they may not be able to continue with regular business. They have to slow down. Competitors can come in and steal customers and market share,” said Katherine Klosowski, vice president of FM Global’s natural hazards and structures engineering division.
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South Florida has seen a number of floods in recent years, and the risk is growing. That is particularly true in Miami Beach, Brickell and Fort Lauderdale Beach due to low elevation and poor drainage, said Nick Limner, director of real estate management services for Colliers International, via email. Areas with higher elevations, such as Coral Gables, are less vulnerable.
Still, office investors remain interested in buildings across the market, said Ryan Kratz, president of Colliers International’s southeast region, by email. One recent example: Northwood Investors, based in Santa Monica, California, bought two office buildings at Brickell City Centre for $163 million in July.
“Investors manage this risk over time through physically improving their assets for resilience and insurance,” wrote Kratz. “The attractiveness of owning real estate in this dynamic South Florida market, with its growing population, expanding commercial base, and lifestyle advantages has always outweighed any drawbacks, which is proven through the continuously higher pricing that buildings sell for when they trade hands.”
Preventative measures include adding sand bags in front of building entrances and electrical rooms, permanent flood gates and raised elevations, Klosowski said. Developers can construct buildings on stilts or add material to the first floor that can withstand water, to lessen the amount of damage after a flood.
“Resilience is possible,” Klosowski said.
This story was originally published August 3, 2020 at 7:00 AM.
