How to better understand climate risks in real estate (ULI/LaSalle)

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The Urban Land Institute (ULI) and LaSalle Investment Management (LaSalle) have just released a report titled “How to Choose, Use, and Better Understand Climate-Risk Analytics*.” This report offers steps for real estate practitioners to better manage climate risks for their portfolios and suggests ways in which climate risk experts can better address the needs of the real estate industry.

“At a time when real estate investors are becoming aware of the need to integrate the physical risks associated with climate change (fires, hurricanes, etc.) into their economic models, it is increasingly important to have data and tools for reliable analysis to facilitate this process,” ULI and LaSalle emphasize.

Thus, this report provides a pathway for climate risk assessment by professionals seeking to optimize their risk mitigation practices. In particular, this roadmap should help the real estate sector to evaluate the main variables among climate risk data providers in terms of the robustness of their approach and their ability to meet their strategic objectives, as in their trade and regulatory compliance. But also to interpret the results of physical climate risk assessments, including the value at risk, or the possible financial repercussions of damage caused to a property by the climate. Finally, this roadmap enables the integration of the risk assessment strategy in the procurement, development, financial information and asset and portfolio management teams.

“In recent years, climate analysis tools have revolutionized the way investors are able to assess, price and mitigate climate risk,” said Billy Grayson, executive vice president for Centers and Initiatives at the ‘ULI. As with all new tools, real estate developers and investors will need time to identify the best ways to use these tools in the real estate decision-making process. Learning from the successes and challenges faced by early adopters will help the real estate community as a whole, and we hope that this report can serve as a guide for anyone looking to better leverage these tools to manage climate risk in their assets. and wallets. »

Elena Alschuler, sustainability manager of LaSalle in the United States, adds: “Climate risk management is a collective effort as we all benefit from consistency and transparency. Consistency of key terms and methodologies is essential in front to the industry’s stated drive to assess and address climate risks, which should ultimately benefit investors through better returns.”

Key elements of climate risk assessment

In addition, this report provides four key recommendations on the status of climate risk assessment in real estate. According to the report, current measures of risk are inconsistent. “Often, different climate risk analyzes produce very different risk scores for the same asset, scores that sometimes differ dramatically.”

Also, the gap between science and “business” must be bridged. “Translating the complexity of climate science into practice applied to the real estate industry is still in its infancy, with companies trying different approaches to integrate climate risks into investment strategies, asset management and assignment.”

In addition, the impacts of the market value grow exponentially: “While the impact of climate risks on the current real estate prices is not yet visible in the market, institutional property managers are beginning to take into account. That is why many believe that these repercussions will be increasingly visible.”

Finally, transparency is essential, according to the report. “A better understanding and strengthening of the public discourse on physical price risk will bring the industry closer to uniform practice and standards.”

“Investors today face many challenges when it comes to factoring climate risks into their portfolios,” said Lindsay Brugger, Vice President of Resilience at ULI. The industry lacks clear guidance on how climate risk data providers should be selected and how to integrate this information into their business strategy. This report provides a comprehensive set of guidelines so that real estate professionals can simultaneously mitigate the effects of climate change while remaining competitive in a rapidly changing market. »

“We strongly believe that the impacts of climate risks are paramount to the performance of our investments and that they must be proactively taken into account to ensure that our investments are ready to face future risks, legislation and customer demand clients, explains Brian Klinksiek, head of . European research and global portfolio strategies at LaSalle. While there remains some uncertainty in the market regarding data transparency, which tools to use, and possible political impacts, one thing is clear: now is the time to have these conversations and act,” concludes Brian Klinksiek, Head of European Research and Global Portfolio. Strategies at LaSalle.

* Report attached.

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