Investors are turning to a new breed of high-tech start-ups that can measure the risk climate change poses to real estate — from an hour to decades into the future.
"We're essentially physically modeling what's happening with the atmosphere and the water or the fire at a very specific level of detail, and typically at the asset level, which is now only possible because computers have gotten so powerful and relatively inexpensive," said Rich Sorkin, CEO of Jupiter.
"We're seeing a dramatic expansion in large corporations coming to us, unsolicited, and saying, 'We need to understand the risk to this office complex or the risk to this hotel, or the risk to this power plant, or refinery, or neighborhood where we have hundreds of millions of dollars of mortgages out,'" Sorkin said.
in a groundbreaking study on climate risk and real estate decision- making. It concluded that overall the real estate markets "are far from understanding climate risks enough to price them in today ... but those who are prepared have the potential to outperform." This summer, the firm was acquired by Moody's, a major ratings agency. Like Jupiter, it tracks risks including hurricane, heat, extreme precipitation, and sea level rise. So far Four Twenty Seven has tracked climate impact on at least 2,000 companies and 320 REITs in 196 countries.
"Markets are just waking up to the need to do this kind of risk assessment," said Frank Freitas, chief development officer at Four Twenty Seven. "For real estate, what people want to know in addition to the scores and relative exposure, is what is the world going to look like at this location in 10 years, 20 years, 30 years.
And the risk is not just in the wind or rain or drought or fire. It is also in the cost of protecting real estate from all of them.What we've added into the mix is what if your insurance costs quadruple? What if your property taxes quadruple, or further beyond that quadrupling? And does the investment still make sense under that scenario? " Ludgin said.
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