With COVID-19’s impact winding down, CRE investors should be aware of another challenge that never left.
COVID-19 has been on everyone’s mind for the past year. And for CRE investors, the pending return to “normalcy” and economic recovery are crucial topics. But the pandemic has taken a lot of attention away from a long-term issue to which there isn’t a definitive solution.
Climate change is a problem that could significantly impact our lives, particularly in coastal areas. We could be approaching a point where sea levels reach dangerous levels and mega-storms batter properties on the shoreline multiple times per year.
Here’s a look at how climate change affects South Florida right now and what we might expect in the future.
Florida’s climate-change problem
Climate change is the result of an increase in the amount of carbon dioxide in the air. And estimates suggest that we have 40% more CO2 than we did in the late 1700s, warming the lower atmosphere and the planet’s surface in the process.
Temperatures in Florida have increased by over one degree Fahrenheit in the last century. While this might seem like a minor difference, we live in a very sensitive ecosystem—and throwing off this balance even slightly can have significant impacts.
Because of the increasing temperatures, sea levels in Florida are climbing one inch per decade, and storms are becoming more severe. Since 1958, the amount of precipitation during intense rainstorms has increased by 27% throughout the Southeast, bringing heightened flood risks to inland locations, too.
Scientists aren’t certain whether the recent surge in massive hurricanes is a long-term trend. But there have been more of them in the last 20 years, and warming ocean levels contribute to a storm’s potential energy. All signs point to climate change causing issues in South Florida in the decades to come.
The cost of climate change
In terms of solutions, problems, and financial safeguards, climate change isn’t cheap. Increasing storms and flooding alone have a very high economic cost.
In 2019, storms caused $45 billion in losses. While that number is high, it was down from the $91 billion in losses from 2018 and the record $306 billion in 2017. The numbers for 2020 aren’t official yet, but it was the most active storm season on record. Twenty-two storms caused at least $1 billion in damage apiece, and estimates suggest that the total cost could approach $100 billion.
The direct expenses are significant. And the bad news for commercial real estate investors is that insurance premium increases often follow as insurers assess the risk they’re taking on in these areas. Because of this risk, investors in specific areas should double down on protecting their buildings from severe storms.
Proactive measures CRE investors can take
Those with CRE investments in hurricane zones should closely evaluate the current climate change assessments and what they mean for the future. And some proactive measures can reduce property damage in the event of a major storm.
First, have a contractor regularly check all roofs for damage. The better a roof’s condition, the more likely it is to protect the rest of the building during the storm. Installing perimeter flashing is also a good idea because it protects the roof’s edge, keeping the cover in place. If necessary, replacing a roof with hurricane-resistant materials may be a solid investment.
Buildings with equipment on the roof will want to make sure it’s appropriately mounted so it can’t slide, lift, or overturn in heavy winds. Not only will this equipment damage the building if it isn’t securely fastened, but it can also become a danger to people in the area if it’s blown off the roof. This, of course, could cause a tragedy and expose a building owner to liability.
You’ll also want to make sure any commercial doors on the building are securely connected to their frames and install retractable hurricane shutters over the windows. Hurricane-proofing a building, to the extent possible, mitigates damage and may result in lower insurance costs.
Investors can also do their small part to reduce climate change effects by pursuing LEED certification and other green-building certifications. Tax incentives may offset these expenses. Another benefit of sustainable buildings is that they can attract tenants and improve indoor air quality, an appeal that has gained renewed focus during COVID-19.
Examples of LEED-certified buildings in Miami include Brickell World Plaza, 1 Hotel, and Met II Office Core & Shell.
The South Florida outlook is concerning but mixed
Despite the effects that climate change is sure to have on South Florida, this isn’t a hopeless situation. Technology and science are advancing quickly, and there are some potential solutions to these issues on the horizon.
One possible step is the 13-foot-high seawall that the Army Corps of Engineers has proposed for downtown Miami. This wall would protect buildings in that area from incoming storm surges and, hopefully, reduce flooding. And researchers are raising the alarm that investments in climate change protection are necessary, noting that every dollar spent will save or generate many more in the form of jobs and less property damage.
Morris Southeast Group is watching South Florida trends and strives to provide valuable insight and expertise for commercial real estate investors. Call us at 954.474.1776 for more information. Ken Morris is also available directly at 954.240.4400 or kenmorris@morrissegroup.com.
