Our rising sea levels
Sea level rise is a hot topic these days within the scientific community and although Florida Governor Scott’s office does not use terms such as: “Climate Change” or “Global Warming” within any official communications, a growing number of local governments are taking tangible steps to address current and potential flooding issues in coastal communities due to sea level rise. The question is, “does the business community care?”
Does the business community care?
In my commercial real estate practice, we routinely provide valuation advisory and external credit underwriting to major commercial real estate (CRE) lenders on billions of dollars of real estate loans secured by commercial and high-rise residential real estate situated along the particularly vulnerable coastal areas of Florida.
I also enjoy a unique perspective since I am also active in local government, being the former Mayor of a small coastal city in South Florida and current candidate for the Fort Lauderdale City Commission. Fort Lauderdale is currently addressing sea level rise in various ways as is Miami Beach and Monroe County. However, the question is, does the business community care about sea level rise? In short, no; but, they are starting to listen.
Businesses are starting to listen.
At a recent sea level rise meeting in Miami, approximately 100 business leaders from the real estate community got together to discuss risks and potential opportunities pertaining to climate change.
Four key takeaways
- Interests Are Not Aligned – Individually, developers, investors, brokers, lawyers, and others in real estate don’t have the incentive to act unilaterally.
- Costs Are Prohibitive – One major issue is the cost associated with protecting a building against surge waters. If a buyer or builder were to factor in the cost of putting a structure on a 10-foot podium they are likely to get outbid by their competitors who keep their focus on the short term.
- Global Market – The CRE industry is starting to take Climate Change seriously. That concern comes into play when comparing Miami to other major US metropolitan markets like New York and San Francisco – which compete for investment activity – and are all in the same boat when it comes to risk of water damage. Who can address it best may have a competitive advantage over the others.
- Climate Change Not Currently Part of the Buyer Discussion – Real estate agents note that while it is not part of the current discussion they expect that to change. Some buyers are starting to say, “Miami has a lot of characteristics we look for, but we have concerns about resilience.”
So under the assumption that taxpayers want their government officials to address sea level rise and the business community, what has to be done?
Four key steps
- Align Interests – Steps need to be taken to align development, investment, government and hospitality interests. Right now everyone is operating in a vacuum and there is no compelling reason for them to collaborate. This is done by providing more information about the risks and opportunities regarding sea level rise. Business will listen to economic opportunities and conversely they will listen to potential costly risks or if inaction places their market at a competitive disadvantage.
- Mess With Their Money – When the commercial real estate and hospitality space start to see tangible ways that they will lose value or a competitive edge to competing global markets, they will pay attention and possibly act. Alternatively, if you provide tangible ways to illustrate opportunities they will also listen, such as the jobs that may be created or the increase in value to their properties if properly prepared for sea level rise or storm surge.
- Elect Proactive Government Leaders – I am not taking a position here but progress will be limited until enough local elected official take sea level rise seriously and move their cities, county or regions into a more resilient state of mind. In Florida it may need to start form the ground up since the Governor’s office is not currently on board.
- Ethical Obligations and Disclosures – Right now under current law very little, if any, disclosure is required by property sellers or agents regarding the dangers of flooding. There is also very little liability to attorneys, appraisers, lenders and others in this space. However, if laws and ordinances are passed that require not only disclosure but also to measure any loss in property value, that may be the hook needed to engage the real estate community into bringing sea level rise on to the center stage.
Fiscal adaptation to sea level rise is everyone’s responsibility but until the business community takes it seriously, we are limited as to what measures are actually implemented to protect our valuable real estate and local economies for generations to come – and we are.
Unfortunately, other than select local governments, there is very little political will in Florida at this point. However, when taxes increase, property values fall, insurance costs rise and local economies are negatively impacted, you will see not only the business community but also voters pay much more attention to where candidates stand on this important issue.
Photo courtesy of Wikipedia.