Feb 23, 2023

Real estate climate risk: What are your Property Resilience Measures (PRMs)?

Flood | by Maddie Kornfeld | 5 Minutes

The growing intensity and frequency of extreme temperature and weather events due to climate change presents both short and long term challenges to commercial real estate. Proposed SEC requirements for risk disclosure underscore the importance of being forward thinking when it comes to mitigating climate-related risks. Building with resiliency can reduce costly damages and protect property value. Adopting Property Resilience Measures (PRMs) can improve outcomes and reduce financial burden.

Climate change poses physical risks ranging from damages to total loss. It can also affect property values through changes to policies and regulations, impacting insurance premium costs, market preferences and more.

Climate risk data provider ClimateCheck and our client Partner Energy, an energy and sustainability consulting firm, have outlined key methods for assessing and mitigating possible risks to commercial real estate in a recent report.

ClimateCheck and Partner Energy advocate a two-pronged approach to assessing possible physical and financial risks to assets, as outlined in the report. Our approach is aimed at assessing overall risk to your portfolio, as well as unique risks to individual properties.

The first step is to leverage ClimateCheck’s portfolio analysis tool to screen your whole portfolio for climate risks and find hot spots; the next is to drill down deeper into the data to understand risks to individual properties and take appropriate actions. ClimateCheck’s property reports provide a risk rating across five different climate risks: flood, fire, heat, storm, drought. Our instant, actionable portfolio analysis and reportsmap risk down to the individual property level.

Together, these two approaches can inform investment strategy and help you determine which individual properties need further on-the-ground assessment and mitigation in the form of Property Resilience Measures (PRM).

What is a Property Resilience Measure (PRM)?

Property Resilience Measures (PRMs) can reduce the risk of physical damage or financial burden on an asset caused by climate-related hazards. These measures can be prioritized by considering the frequency and intensity of a climate hazard and the cost of damage per event. For example, implementing a PRM that would lessen the impact from a high-intensity hazard that would cause costly damage would be a higher priority than a PRM aimed at addressing hazards that are less costly and intense.

Determining the right PRMs for your properties

Before you can determine which PRMs will provide the greatest value for a particular property, you must conduct a Property Resilience Assessment. A PRA determines how prepared a property is to withstand different environmental hazards. Partner Energy offers a comprehensive PRA strategy. The strategy starts with leveraging data to identify climate hazards. The next step is collecting site-specific information through methods such as interviewing and reviewing site plans and specifications.

Firms can use data from ClimateCheck to prioritize properties for further on-site risk assessment based on level of climate risk. ClimateCheck offers a 1-100 rating for climate risk to properties across the U.S., based on their future risk of climate-related hazards, with a higher rating indicating that climate change is likely to negatively impact that home. The rating is based on future risk and how much the risk level will change over time. ClimateCheck covers five hazards: heat, storm, fire, drought and flood. We provide both whole-portfolio scores with heat maps showing risk concentration, as well as individual property scores.

Once Partner Energy identifies property-specific risks through on-site inspection, the next step is to determine PRMs that respond to those specific risks.

Examples of Property Resilience Measures (PRMs)

ClimateCheck and Partner Energy’s report outlined several examples of PRMs. Below we list five of them. You can read the report for further examples, or contact ClimateCheck to learn how assessing risk can help your firm determine specific PRMs that may be appropriate for properties in your portfolio.

1. Developing and implementing an emergency response plan

It is crucial for building owners and managers to assess risks and develop a plan in the case of a climate-related emergency. Emergency response plans can be implemented for many types of extreme weather or natural disasters. This can be a relatively lower cost measure to implement, and protects both the property and people living or working there.

2. Securing rooftop HVAC system

This PRM is important in the context of high wind events. Using fasteners, tie-downs, reinforcements and anchors ensures mechanical equipment stays mounted to the roof.

3. Designating emergency cooling/heating room with back-up energy generator

This measure helps blunt the impact of extreme temperature, high wind events or flooding on a building’s systems. Owners and managers can build or retrofit a common space indoors with a backup generator to keep lighting, hot water and the HVAC systems running in case of an interruption of power due to extreme weather.

4. Stress testing HVAC systems for extreme temperatures

Testing a sample of HVAC systems provides information about the system’s capacity for operating when temperatures become extreme. Identifying a system’s threshold can help property owners and managers decide whether they need to make changes to the equipment or building insulation.

5. Watertight ground level windows and doors

In areas prone to flooding, property managers and owners can protect ground levels from water damage by making sure windows and doors are sealed.

Identifying high-priority PRMs

On-the-ground assessments help investors identify high-priority PRMs or mitigation actions. Data from ClimateCheck narrows down which properties are at highest risk for which climate risks, enabling investors to determine where they should prioritize resources for specific in-person assessments.

After obtaining climate risk and site-specific assessments, investors, owners and managers can obtain additional reports, depending on their needs. For example, an investor may focus on sending HVAC technicians to properties at high risk for wind events to determine if building HVAC systems can withstand strong winds during major storms. The investor may then invest in better securing HVAC systems as needed.

Resilience measures empower investors to avoid costly repairs when disaster hits, and can improve property value. ClimateCheck’s mix of high-level and ground-level data helps investors plan a comprehensive resilience strategy. With the right information, investors can make targeted choices about where to spend on property improvements and risk mitigation, while also adapting their overall investment strategy to a changing climate.

Read the full report from ClimateCheck and Partner Energy