Four metro areas, including Portland, stand out as having the least overall environmental risk for investors in commercial real estate and multifamily, according to a new rating from Yardi Matrix.
The company said they did the study because events over the past year “have brought environmental, social and governance (ESG) front of mind for investors and experts in commercial real estate. “
Yardi Matrix said more and more weather-related disasters “that produce billions of dollars of property damage, changes in work practices spurred by the COVID-19 pandemic, and recognition of the need for equity and diversity have created an urgency for businesses to act” on environmental, social and governmental criteria.
The report also cites the 2020 Urban Land Institute report on Climate Risk and Real Estate: Emerging Practices for Market Assessment. That study by real-estate investment-management firm Heitman and the Urban Land Institute said, “Leading real-estate investment managers and institutional investors are increasingly recognizing climate risk as a core real-estate issue that is beginning to affect their decisions at the market level as well as at the asset level. As this market-scale analysis of climate risks and cities’ resilience strategies advances, investors will better assess both the economic impact of climate-related events and the cost and ability of cities to mitigate the impact of climate change through their resilience strategies.”
Ranking of factors for environmental risk for investors
Yardi Matrix graded and ranked 21 top metros for risk for commercial real estate investing using natural disasters, pollution, water quality and state and local government investment.
Combing these four risk factors, Yardi Matrix said the top four metros with the least risk were Boston, Indianapolis, Minneapolis and Portland.
“The commonality for all was being in states that are taking environmental risk seriously. Boston and Indianapolis received the highest grades in three categories and the lowest grade in one, while Minneapolis and Portland received high marks for government action and propensity for natural disasters and middle grades for pollution and water quality,” Yardi Matrix said in the report.
The 5 bottom ranked metros for environmental risk for investors
The Yardi Matrix report said the bottom five metros “include three in Texas: Houston, Austin, and Dallas, along with Tampa and Los Angeles. The Texas metros’ grades were dragged down by low scores in the “natural disasters” and “government-response” categories.
The severe winter storm that hit Texas causing massive power outages was a key factor in the ranking, including lack of government response.
“The Texas storms are a demonstration of the stakes. Texas has reaped the benefits of deregulation and low taxes/utility costs, but utility providers’ lack of investment to winterize the power grid left the state unprepared to handle extreme weather. Without collective action to mitigate environmental risk, such disasters with high damages will recur,” Yardi Matrix said in the report.
“Some will no doubt question the categories we chose, the methods we used to grade metros, or what constitutes a proper response to environmental risk. This is our intention,” the report noted.
“Our rankings are not meant as a final word on the topic, but rather, a first attempt to understand the issues and develop a model for how to approach the topic—which is of increasing importance for commercial real estate.
“We encourage all to develop their own views about which metrics will have the most impact on the property sector and the appropriate response” in regards to environmental, social and governance factors, wrote Paul Fiorilla, director of research, and Claire Anhalt and Maddie Harper, senior analysts, for Yardi Matrix.
About Yardi Matrix:
Yardi Matrix researches and reports on multifamily, office and self-storage properties across the United States, serving the needs of a variety of industry professionals. Yardi Matrix Multifamily provides accurate data on 18+ million units, covering more than 90 percent of the U.S. population. Contact the company at (480) 663-1149.