In a recent webinar hosted by Nareit, experts shared insights into how REITs can build more resilient properties in the face of severe weather events.
Jessica Long, Nareit senior vice president of environmental stewardship & sustainability, moderated the panel, which featured insights from: Rebecca Becker, vice president of environmental and climate adaptation at Equity Residential (NYSE: EQR); Curtis Dubay, chief economist at the U.S. Chamber of Commerce; Daniel Kaniewski, managing director of the public sector at Marsh McLennan; Kelly Meissner, vice president of corporate ESG and sustainability at Ventas, Inc. (NYSE: VTR); Jeremy Porter, head of climate implications at First Street; and Elliot Stultz, senior vice president, deputy general counsel, and assistant secretary at Allstate Insurance.
Reducing Economic and Financial Costs
Stultz kicked off the panel by emphasizing the importance of focusing on pre-disaster mitigation and preparation. “Many weather events are occurring at times and places we didn’t expect them,” he said. “The conversations we need to have occur after these disasters have happened. Yet there is value in focusing more of the conversation on pre-disaster mitigation and preparation,” he added.
Citing a recent study from the U.S. Chamber of Commerce, Dubay noted that for every dollar invested in preparedness, cities can reduce the cost of damages by $6 and save $7 in negative economic impact. “If you put those together, you can save $13 for every dollar invested in preparedness,” he said.
REITs’ Approach to Resilience
Against the backdrop of the study’s findings, Meissner discussed Ventas’s approach to pre-disaster mitigation and Becker outlined Equity Residential’s strategy. Meissner explained that their approach falls into three categories: strategic, operational, and physical.
“On the strategic front, our geographic diversification of our portfolio is intentional and is in itself a risk mitigation strategy,” she said. Meissner also talked about the operational component, explaining that Ventas has a cross-functional team that has a set protocol, which includes monitoring the events, identifying risk assets, having a point of contact at every property, and ensuring that communication is “going up and down the chain” between Ventas leadership and its tenants and residents.
When explaining the physical element of their disaster mitigation approach, Meissner cited Ventas’s partnership with First Street, which enables them to see which assets are most at risk so they can take a targeted approach toward making their buildings physically more resilient.
Becker focused on Equity Residential’s approach at the asset level. She explained their extensive process, which started with a comprehensive climate risk exposure assessment that enabled them to determine their greatest threats: flood, wildfire, extreme heat, and drought. Equity Residential then collaborated with an engineering firm and used building specific information to understand each asset’s risk exposure to those threats.
Finally, an Equity Residential team visited those assets to develop targeted mitigation approaches for each building. “We are very thoughtful and targeted in our mitigation approach…It allows us to do more at more properties….so we can make sure we’re spending the money where it needs to be spent so that it can go farther.”
Everyone Has a Role to Play
Stultz acknowledged that while REITs have a critical role to play in increasing resilience, “it’s too large and complex a problem for any one stakeholder to come up with a solution,” he said. It requires the public sector, private sector, and involvement at every government level, he added. Duby emphasized the importance of having policies at the federal level, because “it helps state and local governments put their resources where they’ll have the biggest impact.”
Kaniewski brought the insurance market’s perspective into the conversation and agreed, noting that there are many “co-beneficiaries” of pre-disaster mitigation and preparedness. “Often the investment falls on one person—the owner, the investor, the developer, the homeowner. They’re making the investment and benefitting, but there are many other industries and governments that are benefitting too,” he said.
The Importance of Insurance
Delving more into the insurance angle, Kaniewski emphasized that insurance and risk reduction are equally important in fostering greater resilience. Insurance is transferring risk from one entity’s balance sheet to another entity’s balance sheet, he explained. “Yet, you have to pair risk reduction with risk transfer,” he said. “It’s not an either/or, it’s a both. And both are all the more important in challenged areas,” he added.
Porter noted, based on First Street’s data, that “where insurance was in place, where the hazard was tracked properly, and people protected themselves properly, we didn’t see spikes in insurance…We ultimately see that insurance works when it’s in place.”
Porter also discussed why climate is now the “sixth C of credit,” and how the increase in both acute and chronic risks, such as heat, air quality, and drought events are impacting businesses and communities. He explained how climate risk affects both the size and demographics of populations and businesses’ abilities to serve certain industries—all of which has implications for tax revenue and property taxes. “It’s really important to think about what your risk is today and how it could change in the future, and the future consequences of that,” he said.
“If you’re building in harm’s way or constructing an asset in a way that is not disaster resilient, it will bite you,” Kaniewski added. “It will put your investment, development, and potentially residents at risk. You have to be forward thinking.”
This webinar is not available to watch on demand because of a technical issue. Please listen to the latest episodes in our REIT Report podcast special series, Building Resilience, which feature some of the panelists from this webinar.
Building Resilience Episodes