Commercial Investment Real Estate July/August 2019 | Page 25

Transition risks include changes in market preference, increasing costs of energy and water, reduced economic activity in vulnerable markets, and increasing compliance costs. Insurance will generally cover physical risks, but it may not address losses from transitional risks. As the ULI and Heitman report explains, “insurance will cover dam- ages from catastrophic events; it will not cover loss in value from a reduction in the asset’s liquidity.” For properties in locations especially vulnerable to flood- ing, fire, or other climate-related risks, it is unclear how long insurance coverage will be adequate to protect against such risks. An October 2018 Wall Street Journal article noted, “Big insurers are expanding teams of in-house climatolo- gists, computer scientists, and statisticians to redesign models to incorporate the effect of the warming earth on hailstorms, hurricanes, flooding, and wildfires.” It remains challenging to predict such risk with precision, because his- torical data cannot dictate future risk. While the impact of these risks on the insurance industry is not entirely clear, the ULI and Heitman report notes that volatility in premiums will likely increase, though mitiga- tion measures can lower premiums or temper their increases. These measures could include additional cooling systems, building hardening to secure building structure in the face of heightened weather risks, and increasing elevation. Climate resilience measures can mitigate climate risk’s impacts. “The insurance and real estate industries should be asking if they are building things the right way and in the right places,” says Greg Lowe, global head of resilience and sustainability for Aon, in the ULI and Heitman report. Resiliency Planning and Infrastructure Policy President Donald Trump and Congressional leadership have indicated support for a comprehensive legislative pack- age to address the nation’s deteriorating transportation and water infrastructure systems. The public sector can play a vital role in ensuring investments in infrastructure utilize climate-resilient strategies that consider extreme weather, rising sea levels, and increasing heavy precipitation events. Upticks in periods of extreme temperature, heavy rain, and strong winds impact roads, bridges, railways, and runways. A report from the International Institute for Sustainable Development explains how increasing temperatures can soften asphalt and place additional stress on railway and bridge joints. Investments in infrastructure should also plan for redundancies in transportation systems to account for climate-related events that might disrupt one mode of transportation. As Congress considers an infrastructure package, these climate-related factors must be evaluated and taken into consideration. Investments to current and new systems need to not only employ climate-resilient mea- sures, but also consider clean energy strategies. CIREMAGAZINE.COM Energy Efficiency Measures While building owners will need to consider the physical risks related to increasing extreme weather events, govern- ment policies can incent energy efficiency in properties and help accurately measure energy efficiency. The sec- tion 179D deduction for energy efficiency encourages the construction and rehabilitation of new and existing com- mercial buildings to state-of-the-art efficiency levels. The deduction has been a temporary part of the tax law since 2005, but it has expired and been reinstated five times, most recently at the end of 2017. One of CCIM Insti- tute’s legislative priorities is advocating for the retroactive and long-term extension of the deduction. In addition, the Environmental Protection Agency’s Energy Star brand indicates a building’s energy efficiency. Demonstrating a property’s reduced carbon footprint can increase its value by confirming lowered utility costs and by increasing appeal to tenants and responding to market preferences for environmentally friendly buildings. Climate change presents many challenges to all Ameri- cans, including the commercial real estate industry. Aware- ness of these risks can allow commercial real estate profes- sionals to make better informed investment choices, reduce potential risks by utilizing climate resilient building strate- gies, especially in vulnerable markets, and improve energy efficiency in properties to mitigate negative contributors to the climate. Elizabeth Vincent is the government affairs liaison for CCIM Institute. Contact her at [email protected]. Resiliency in the Nation’s Capital In April, Washington, D.C., released a resiliency strategy to address the challenges faced by modern cities, including climate risks like flooding and extreme temperatures. Strategies discussed in the report include retrofitting buildings to better withstand flooding, extreme heat, or a lengthy power outage and processes to relieve regulatory burden without weakening green building requirements. In 2016, Washington, D.C., was selected to be part of the 100 Resilient Cities network, which is a global network founded by the Rockefeller Foundation in 2013, to assist cities in becoming more resilient to the physical, social, and economic challenges of the 21st century. Other U.S. cities in the network include Boston, New York, Norfolk, Pittsburgh, and Tulsa. New York has implemented a Cool Neighborhoods Initiative that incorporates green infrastructure efforts with communication efforts to protect residents from extreme heat. Cities that have implemented climate resiliency efforts might prove more attractive to real estate investment. For more information, visit www.100resilientcities.org. July | August 2019 23