“These days, climate change is impacting every industry and real estate is no exception. As a result, climate risk data is quickly becoming a must-have resource for those who want to ensure that they are making informed decisions in their portfolio analysis.” – Todd Teta, CTO of ATTOM
With severe weather events taking up an increasing amount of space in the news cycle, it’s no surprise that climate change and its impacts are top of mind for almost everyone. We sat down with Cal Inman, the founder of ClimateCheck, and Todd Teta, ATTOM’s Chief Technology Officer to take a closer look at how the climate crisis is impacting the real estate industry and what real estate professionals can do to protect themselves against the growing climate crisis.
Understanding Real Estate Climate Risk
“We’re seeing more severe climate events on a national scale,” said Inman. “The policymakers are trying to address the root cause of climate change, but along with that, regular people are trying to learn how to adapt to it. Part of adapting is understanding the risks involved.”
In Inman’s view, the risks in real estate are two-fold. On the one hand, you have total loss scenarios, or incidents that can be insured against, such as fire or flood. On the other, there are climate events like drought and increased precipitation, which carry risk as well. While the second category of events is seemingly more benign, they are extremely likely to have an impact on real property from an OpEx perspective.
“If you own an office building and there are an increasing number of hot days each year, that’s going to affect your utility bills, especially the costs to cool the building,” Inman explained. “On a larger scale, ultimately, those increasing utility costs will also start to impact things like purchase price, disposition value, and IRR calculations. “
According to Teta, accessing climate data is the key to understanding those risks. “Communities armed with weather risk data are more likely to be protected from the physical and financial harm that comes along with experiencing a weather event,” he explains.
In particular, Teta cites ATTOM’s weather risk Index, which tracks risk levels for damage from a variety of climate events, including hail, hurricane, tornado, and wind. The data comes from U.S. Geological Survey Research and it can provide a risk assessment for entire geographical areas as well as individual properties.
“Our users can search the data by ZIP code or by a specific property address,” Teta says, simply.
Implementing Risk Mitigation Strategies
Unsurprisingly, many in the real estate industry have already started incorporating this climate data into their decision-making and risk management scenarios. Teta says that lenders, insurers, and individual homeowners are using ATTOM’s climate data to do their due diligence and to inform their decisions.
“Climate data allows construction companies to better understand the impacts of weather delays surrounding excessive rain, wind, or hail,” Teta offers. “It also helps local governments guide policy and community development decisions.”
However, it’s important to note that, on a more granular level, users are able to use the climate risk data from ATTOM to implement their own risk mitigation strategies. Inman explains:
“After analyzing precipitation data in your area, you might turn your focus to your gutters and downspouts. Specifically, you might decide to implement a regular cleaning schedule and ensure that the gutters are appropriately sized for the buildings in your portfolio. “
“Just by making those small changes, you’ll be able to mitigate some of the risk you will face from increasing levels of rainfall,”
The Future of Climate Data
As for how both men, they envision climate data will continue to impact the real estate industry in the future and believe its importance will only continue to grow.
Inman says that he feels that this information is only going to become more ubiquitous. From his perspective, real estate stakeholders will start to monitor their assets on an ongoing basis using climate data to understand the environmental risks that lay ahead.
“The whole industry is now ingesting all sorts of data sets as part of their decision-making process,” he concludes. Along with market demand and demographic information, climate risk data is set to become another important factor. At the end of the day, it adds value.”
For his part, Teta agrees. “This data isn’t going anywhere. Sooner or later, the majority of us are going to want to use it to aid our decision making.”