ULI, LaSalle Provide Framework for Real Estate Industry to Assess Climate Risk

A new report from the Urban Land Institute (ULI) and LaSalle Investment Management (LaSalle), a leading real estate investment management firm, outlines steps that real estate practitioners can take to better manage climate risk in their portfolios and suggests ways in which climate risk providers can better serve the real estate industry.

Based on the insights of real estate managers and climate data providers across the globe, How to Choose, Use, and Better Understand Climate-Risk Analytics comes as real estate investors are recognizing the need to incorporate the physical risks associated with climate change – including wildfires, hurricanes, and excessive heat – into their business models. Accordingly, having reliable data and analytics tools to assist in this process is becoming an increasingly important consideration. 

“Over the past few years, climate analytics tools have transformed how investors can assess, price, and mitigate climate risk,” said Billy Grayson, Executive Vice President for Centers and Initiatives at ULI. “As with all new tools, it will take some time for real estate developers and investors to identify the best ways to apply these tools to real estate decision-making. Learning from the successes and challenges of early adopters will help the real estate community as a whole, and we hope this report can serve as a roadmap for those looking to better leverage these tools to manage climate risk in their assets and portfolios.”

“Dealing with climate risk is a collective effort – we all benefit from consistency and transparency,” said LaSalle’s Americas Head of Sustainability Elena Alschuler. “Alignment on key terms and methodologies is critical to the industry’s effort to assess and address climate risk, which should ultimately benefit investors through improved returns.”

How to Choose, Use, and Better Understand Climate-Risk Analytics provides a climate assessment roadmap for practitioners seeking to optimize their risk-mitigation practices. The roadmap will help the real estate industry:

• Assess key areas of variation among climate risk providers in terms of the strength of their approach and ability to meet strategic objectives, such as business needs and regulatory compliance.
   
• Interpret physical climate risk results including value-at-risk, or the potential financial impact of a property experiencing climate-related damage.
   
• Integrate risk-assessment strategy with acquisition, development, financial reporting, and asset and portfolio management teams.

Additionally, the report provides four key takeaways on the state of climate risk assessment in real estate:

• Current risk metrics are inconsistent. Often, different climate risk analytics produce widely disparate risk scores for the same property, sometimes by orders of magnitude.
   
• Bridging the science-business gap. Translating the complexity of climate science into applied real estate industry practices is still in its early stages, with firms trying different approaches to integrating climate risk across investment, asset management, and disposition strategies.
   
• Rapid acceleration of market value impacts. While the impact of climate risk on current asset prices is not yet apparent in the market, institutional real estate managers are starting to incorporate it, therefore many believe the impacts will become increasingly visible.
   
• Transparency is key. Improved understanding and increased public discourse on physical risk in pricing will push the industry closer to uniform practice and standards.

“Investors today face numerous challenges factoring climate risk into their portfolios,” said Lindsay Brugger, Vice President of Resilience at ULI. “The industry lacks clear guidance around how climate risk data providers should be selected and how to integrate that information into business strategy. This report provides a series of guidelines so real estate practitioners can simultaneously mitigate the effects of climate change while remaining competitive in a rapidly evolving marketplace.”

“We strongly believe that the impacts of climate risk are material to our investment performance, and need to be proactively taken into consideration to ensure our investments are prepared for future risks, legislation and client demand,” said Brian Klinksiek, LaSalle Head of European Research & Global Portfolio Strategies. “While there is still uncertainty in the market around data transparency, which tools to use and what policy impacts might be, one thing remains clear: now is the time to be having these conversations and taking action.”

The full How to Choose, Use, and Better Understand Climate-Risk Analytics report is available on ULI’s Knowledge Finder platform.

About LaSalle Investment Management 
LaSalle Investment Management is one of the world’s leading real estate investment managers. On a global basis, we manage approximately $82 billion of assets in private equity, debt and public real estate investments as of Q2 2022. The firm sponsors a complete range of investment vehicles including open- and closed-end funds, separate accounts and indirect investments. Our diverse client base includes public and private pension funds, insurance companies, governments, corporations, endowments and private individuals from across the globe. For more information please visit www.lasalle.com and LinkedIn.

NOTE: This information discussed above is based on the market analysis and expectations of LaSalle and should not be relied upon by the reader as research or investment advice regarding LaSalle funds or any issuer or security in particular. The information presented herein is for illustrative and educational purposes and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy in any jurisdiction where prohibited by law or where contrary to local law or regulation. Any such offer to invest, if made, will only be made to certain qualified investors by means of a private placement memorandum or applicable offering document and in accordance with applicable laws and regulations. Past performance is not indicative of future results, nor should any statements herein be construed as a prediction or guarantee of future results.