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By Jack Davis ’22 and Gianmarco Rea ’22
Professor Radley Horton joined us at the 2021 Real Estate Symposium to discuss the risk and impact of the climate crisis on the real estate industry. Professor Horton specializes, teaches, and researches the topics of climate extremes, climate impacts, and adaptation. He has collaborated closely with New York City and State towards combating the climate crisis, especially by preparation and adaptation for oncoming climate risks. During his session at the Symposium, he addressed the specific impact climate will have on real estate, highlighting the risks for cities, property markets, asset classes, infrastructure, while also offering some examples of mitigation and potential opportunities to minimize the effects of the problem through greenhouse gas emission reduction.
Future Impacts of Climate Change
Professor Horton discussed how the effects of climate change will continue to increase physical hazards, while also increasing impacts on residential and commercial real estate. He underlined that these impacts will be both inevitable and far too complicated for any model to predict with any precision. His studies have demonstrated that the impact of climate change will be localized and context-dependent, resulting in an imbalance of vulnerabilities across geographies and socio-economic lines. His studies have shown that demography, economics, and gentrification are likely already being driven by climate change, shaping the future of real estate. As a result of these potentially large-scale population shifts into and out of certain areas, cascading consequences arise. The resulting fallout could be expected to be experienced at the property level as insurance costs increase, the municipal level as tax bases shrink, and at a societal level as critical infrastructure and services don'treach the most vulnerable.
How does the built environment contribute to global warming and is there still time to correct course?
It will be increasingly crucial to place emphasis on the ways the real estate sector can work towards reducing greenhouse gas emissions, as it currently accounts for 40% of global carbon dioxide emissions – 28% from building operations and 11% from building materials and construction. Investors will continue to align their mandates more closely with ESG factors and favor low carbon- producing assets, while penalizing non-complying assets and portfolios. In New York, the Climate Mobilization Act and LA’s New Green Deal have put the real estate sector at the center of their efforts to decarbonize. Governments across the world are continuing to propose new regulations requiring financial firms and listed companies to report on the effects of climate-change for their real estate holdings and business operations, incentivizing environmentally conscious engineering and construction outcomes. Much can be done on this front, evidenced by the fact that carbon emissions generated by the lowest LEED-rated office buildings in New York City are approximately 19x higher than the top-rated office buildings. Much of the challenge lies here as many new developments are being constructed to a LEED standard, but the majority of the city’s built environment will require arduous and expensive retrofitting to achieve LEED quality. Not only does decarbonizing reduce emissions, but it improves the quality of life among tenants, employees, and the surrounding community. Professor Horton made it clear that if we don’t reduce emissions enough, the entire populace, regardless of geographic location, is vulnerable. He offered several solutions including the mainstreaming of adaptation, geoengineering, implementing renewable power in buildings, improving insulation, and more.
Jack Davis ’22 is a second-year student at Columbia Business School. He is currently an Acquisitions Associate at InTrust Property Group, a private equity group which invests in multifamily value-add opportunities in southwest markets. He was previously an Analyst in the Fundamental Equity Group at Goldman Sachs Asset Management. Jack graduated from the Arizona State University, where he studied Accounting and Economics.
Gianmarco Rea ’22 is a second-year student at Columbia Business School. He is currently an Investments Associate at Welltower, Inc., a public REIT that invests in health care related real estate. He was previously a Credit Trading Associate at MUFG. Gianmarco graduated from Columbia University, where he studied Psychology and Business.