Climate Risk Resilience: What CRE can do to fortify assets and reduce risk

By: Dana Weiss, Ying (Paris) Mo and Julie Jacobson. Edited by Simone Fraid.





Decades ago, if temperatures spiked unexpectedly high in temperate climate regions, building owners and managers could reasonably consider these extreme events to be anomalies and their inability to respond quickly was, perhaps, understandable. Now, between climate modeling, regional risk assessments, building resilience assessments, warnings from the United Nations, and compounding news stories, being caught off guard is no longer a valid excuse for not being prepared on an asset level. In this article, we will examine recent climate change-fueled weather to identify strategies Commercial Real Estate (CRE) professionals can implement at their properties today to prepare for the next extreme weather event.


Creating Resilience for CRE Assets

Improving the resilience of individual assets cannot be done overnight or ad hoc. Selecting and implementing resilience strategies requires careful planning and assessment, as described below.


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Strategy 1: Have a plan

Develop a roadmap for your resilience program.

Any successful program starts with a sold plan and detailed roadmap for reaching the ultimate goal— in this case, asset resilience and portfolio risk reduction. The graphic above shows a sample roadmap developed by Verdani Partners. It accounts for early-stage and future-state planning as the resilience program matures over time.

The plan should include specific targets and metrics to ensure that your team knows what the objectives are and can measure them accordingly. For instance, specific targets relating to resilience against extreme heat might include:

  • Reviewing current climate-related risk projections (including extreme temperatures) for 100% of assets by end of year 2022

  • Reducing peak energy demand on average by 15% from a 2019 baseline by 2025

  • Developing a property-level emergency action plan that accounts for extreme heat events and other high-risk climate-related events for 100% of assets by April 2023


Strategy 2. Assess your risk

Know how resilient you are - identify asset risks, weaknesses and strengths.

CRE risk is nothing new to property owners, developers and managers. Conducting mandatory and voluntary reviews on crime statistics, seismic concerns, environmental contaminants and more has long been a part of the industry’s risk management standards.

What is new to the market are resilience specific tools, vendors and emerging standards to assess both asset- and portfolio-level resilience. At Verdani Partners, we work with our clients and their asset management teams to:


Identify the regional climate risks

Ex: A regional climate risk assessment of a property located in coastal Florida may indicate a high risk for nearer-term sea level rise due to its low elevation and exposure to storm surge from more intense and frequent tropical storms.

Understand asset characteristics that strengthen resilience

Ex: In regions with high surface flood risk, a properly graded property that does not locate critical infrastructure at or below the inundation level for flooding has characteristics of resilience, as this layout lowers the risks of property damage, business interruption and economic and health impacts caused by heavy rain events.


Understand asset characteristics that weaken resilience

Ex: A property with an asphalt roof and black asphalt parking lot will create a heat island effect during periods of moderate to high temperatures, driving the on-site temperatures up and increasing the heat stress of the building and its occupants.


The annual costs to repair or replace damaged commercial buildings could grow by roughly 25% from $13.5 billion in 2022 to over $16.9 billion by 2052 due to climate change.[i]

Strategy 3: Target high-risk assets

Zero in on your high-risk assets to perform additional assessments.

An effective approach to resilience for owners of large portfolios and multiple properties is to start by identifying and tackling the most vulnerable properties through property-level resilience assessments, investing in mitigation strategies, and creating emergency plans to cover key risks for these high-risk assets. The results of the initial risk assessments noted in Strategy 2 lay the foundation of a portfolio’s resilience risk mitigation strategies.


Verdani Partners typically direct clients to consider the following at this stage:

  • Identify high-risk assets with one or more moderate to high climate risks. Keep in mind that some climate risks are compounding. For instance, heat stress can further exacerbate existing droughts and can cause wildfires if combined with high winds.

  • Perform asset-level assessments at high-risk assets to examine the on-site conditions that could increase or decrease an asset’s vulnerability to climate risks. Such assessments should include a document review and on-site inspection to verify building materials, age of construction, on-site sensitivities and vulnerabilities to identify the extent of the risk. The site inspection may incorporate data on climate hazards identified, including heat stress, flood, earthquake and/or others, to deliver asset-specific risk assessments and offer custom solutions for risk mitigation. Some assessments also provide general cost range estimates for mitigation solutions and improvements, which offer key intelligence on the asset’s improvement potential for the owner’s long-term investment decisions and budgeting.

  • Estimate and budget for costs of mitigation and future losses. Mitigation and loss estimates can inform the long-term investment strategies and investment time horizon of high-risk assets and should be considered in budget planning. For example, an asset with high fire risk may face high exposure to permanent loss of property value, relocation costs, business interruptions, high insurance premiums and stressors on tenant health and ecosystem services. In this situation, mitigation measures that could be considered for operational and capital budgets include:

  • Installing back-up power generators

  • Retrofitting air-intakes and vents with ember protection

  • Using fire-resistant materials

  • Clearing of debris, flammable materials, and easily ignitable vegetation from the building perimeter

Financially investing in proven resilience strategies is a critical step for operationalizing resilience risk management and is especially crucial for high-risk assets.


Strategy 4: Fortify your Portfolio

Once you have incorporated the costs of risk management for your high-risk assets into the asset budget, you can identify ways to further fortify your assets.
“For every dollar invested, six dollars can be saved. This means that investing in climate resilience creates jobs and saves money.” - UN Secretary-General António Guterres [ii]

For every climate risk, there are tailor-made fortification strategies you can implement at the asset level to limit or prevent damage. For example, some of the many retrofits and changes that can be made to ensure building occupants stay cool and safe as temperatures rise in a heat-stressed environment include the following:

  • Take advantage of nature’s air conditioner. Studies dating back to the early ‘90s show that the use of trees and vegetation for shading and absorbing heat through evapotranspiration can reduce the temperature of shaded surfaces by 20-45ºF[iii] and reduce peak air temperatures by 2-9ºF. [iv],[v]

  • Bring nature inside. Indoor plants help cool indoor spaces the same way they cool the exterior, while also serving as natural air filters and increasing indoor oxygen levels.

  • Conduct an energy audit and identify opportunities to increase energy efficiency through strategies such as increasing building insulation. Buildings that use less energy can help reduce the strain on the power grid, which in turn can help prevent blackouts and brownouts. Additionally, a more efficient building will be able to better capitalize on the installation of renewable energy and backup energy systems.

The following diagram represents a selection of potential strategies that contribute to overall improved building-level resilience.


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Strategy 5: Achieve Self-Reliance

Tailored, proactive emergency plans for each asset save time and lives.

During a climate-related event, the highest priority is the safety and well-being of building occupants and local community members. Thinking ahead about what occupants need most during these situations help to minimize the impact of the event.


This is especially critical for occupants with conditions that may render them more vulnerable during extreme weather or who may need assistance during an evacuation.


Primary considerations – First and foremost, an emergency plan designed to prevent deaths and injuries to building occupants should be in place for each asset. The plan should include:

  • Identifying and locating persons at greater risk during climate-related events and ensuring that personnel are assigned to provide additional assistance to these individuals, if needed

  • Installing back-up power for critical building systems for all (or a portion) of the asset (e.g. generators, solar panels with battery storage)

  • Designating emergency gathering spaces and ensuring that they are connected to back-up power for lighting, heating and cooling needs at minimum

  • Having a supply of potable water, unexpired emergency food (for adults, babies and seniors), and hygiene supplies available

  • Keeping ample first aid supplies and safety equipment on site, including automated external defibrillators

  • Testing automated emergency communication systems regularly

Secondary considerations – Once you have the basic health and safety needs planned, consider other ways to help your building’s occupants stay as comfortable as they can be:

  • Providing battery powered cellphone charging stations

  • Keeping a small supply of games, books and other forms of non-electronic entertainment

  • Maintaining ample movable seating that could be relocated to a gathering space if needed

  • Installing stand-alone heating and air-conditioning units connected to your back-up power system serving your emergency gathering spaces so they can serve as warming/cooling rooms during extreme temperatures and power outages. If you have assets located in areas where air conditioning is less common, do not assume the heat will never rise to temperatures that require it. Furthermore, do not assume your central systems will maintain power in an emergency.

  • Pre-contracting with charter bus companies that could serve as emergency mobile warming/cooling zones or transportation if deemed safe to evacuate. Don’t assume all occupants will have personal vehicles or that public transportation will be operational; be inclusive of all socio-economic levels in your planning.


Strategy 6: Build partnerships

Be a part of the climate solution, locally and globally.

As CRE professionals we are in a unique situation to significantly help turn the tide on climate change. Over 40% of emissions worldwide come from the building sector. [vi] It is within your power to reduce your portfolio’s greenhouse gas emissions and shrink commercial real estate’s negative impact on the environment.


Within your community:

  • Collaborate with adjacent properties and businesses to share resources. Creating a resource map in collaboration with businesses and properties within a one-mile radius will help you pre-plan to work with your neighbors during emergencies and improve your collective resilience.

  • Work with your local governments to improve community-wide resilience.

  • Leverage the power of your supply chain and create business relationships you can reach out to for help before, during and after climate-related events. Offer help to others where you can.

For global impact:

  • Seek out industry partnerships to share best practices and scale climate solutions within CRE.

  • Keep up to date on financial perspectives on climate change through the UN Environment Programme’s Finance Initiative.

  • Demonstrate transparency by aligning to and reporting on Task Force on Climate-Related Financial Disclosures (TCFD) recommendations. Verdani will share additional details about TCFD in an upcoming article.

As humankind battles climate change, commercial real estate professionals have a particular responsibility to our building occupants, our tenants and our stakeholders to maintain business continuity, safeguard health and well-being, and collaborate to strengthen our community resilience. CRE organizations should heed the warning signs from recent and increasing extreme weather activity and take action to prepare their assets to withstand future climate-fueled events.



 

Sources:


[i] First Street Foundation & ARUP. (2021, December). The 4th National Risk Assessment: Climbing Commercial Closures. Retrieved from https://assets.firststreet.org/uploads/2021/11/The-4th-National-Risk-Assessment-Climbing-Commercial-Closures.pdf

[ii] UN Secretary-General António Guterres. (2019, October 13). For Every Dollar Invested in Climate-Resilient Infrastructure Six Dollars Are Saved, Secretary-General Says in Message for Disaster Risk Reduction Day | Meetings Coverage and Press Releases. United Nations. Retrieved from https://www.un.org/press/en/2019/sgsm19807.doc.htm#:%7E:text=There%20is%20a%20strong%20economic,creates%20jobs%20and%20saves%20money

[iii] Akbari, H., D. Kurn, et al. 1997. Peak power and cooling energy savings of shade trees. Energy and Buildings 25:139–148.

[iv] Huang, J., H. Akbari, and H. Taha. 1990. The Wind-Shielding and Shading Effects of Trees on Residential Heating and Cooling Requirements. ASHRAE Winter Meeting, American Society of Heating, Refrigerating and Air-Conditioning Engineers. Atlanta, Georgia.

[v] Kurn, D M, Bretz, S E, Huang, B, & Akbari, H. The potential for reducing urban air temperatures and energy consumption through vegetative cooling. Retrieved from https://doi.org/10.2172/10180633.

[vi] Global Alliance for Buildings and Construction. (2021). Global Status Report for Buildings and Construction: Towards a zero-emissions, efficient and resilient buildings and construction sector. Retrieved from https://globalabc.org/sites/default/files/2021-10/GABC_Buildings-GSR-2021_BOOK.pdf



 

About the Authors


Dana Weiss

Dana currently serves as an ESG Director for Verdani Partners and leads Verdani's Resilience Committee. She brings 15 years of experience in sustainable design and corporate responsibility. She has developed and implemented ESG policies and protocols for clients across the real estate sector and is currently advising on ESG for over $35 billion in client assets under management. Dana holds a Bachelor of Landscape Architecture and an MBA in Sustainable and Socially Responsible Business.




Ying (Paris) Mo

Paris is an ESG Manager for Verdani Partners where she leads portfolio level ESG programs for real estate clients, supporting activities such as ESG strategy development, reporting activities and stakeholder engagement. She has a MS Real Estate and MBA from the University of San Diego School of Business. Paris is a member of Verdani's Resilience Committee..


Julie Jacobson


Julie is a Senior ESG Manager at Verdani Partners, as well as the Executive Director of VIBE (Verdani's educational nonprofit). She leads portfolio level programs and ESG strategies for Verdani's real estate clients. Julie chairs a local branch of USGBC-LA, was the green home advisor to Redfin, and was a commercial project developer for SoCal for SunWorks. She holds a B.A. degree from UC Berkley and an MBA from USC with a real estate finance concentration.



 

Disclaimer:


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The information contained within this article was developed in accordance with best industry practices. This article was prepared without reference to any specific property or scenario and is not intended to substitute for the professional advice of an attorney, engineer, or other climate change professional. This article should not be relied on exclusively when conducting risk assessments or developing response plans. Neither Verdani LLC nor its employees or agents can be held responsible for the use or misuse of the information contained herein, and Verdani LLC hereby disclaims any liability for damages arising from the use of this information, including without limitation, direct, indirect, or consequential damages including personal injury, property loss, loss of revenue, loss of opportunity, or other loss.