Resilience is a term being heard more and more in the real estate industry as the private sector seeks ways to minimize risk and maximize value in an era of climate change and uncertainty. Population growth around the world is driving rapid urbanization—and much of it is occurring out of necessity in places with unique climate risks.
Preparing for more frequent and intense storms, wildfires, or droughts as well as for incremental rises in sea levels and water temperatures can no longer be ignored in favor of cost cutting and short-term returns, according to a panel of sustainability experts at the 2015 Spring Meeting in Houston. The panel was focused on making the business case for investing in resiliency planning to both the public and private sectors.
From a local government’s point of view, resiliency planning must go beyond disaster response or building hard infrastructure to keep the elements out. Resilience begins with having a more robust, economically diverse tax base, and greater social equity in terms of housing, job, and transportation choices. For real estate developers, investors, and property managers, up-front investment in resiliency strategies points the way to lower insurance premiums, business continuity for tenants, reduced time away from the marketplace, and a serious competitive advantage.
Moderated by Molly McCabe, founder of management consulting firm Hayden Tanner and chair of the Responsible Investing Product Council, the panel examined various dimensions of resiliency. While many interventions occur at the individual property level (elevated electrical systems and blast-proof glass) and the community level (wetlands and storm water mitigation) other tactics, such as economic diversification and housing options across the income spectrum, must be considered part of resiliency planning as well.
McCabe cited the lack of workforce housing for critical medical personnel in Estes Park, Colorado, and an overreliance on the lobster industry in Portland, Maine, as vulnerable spots in each community’s plans for the future. (Learn more about ULI Advisory Services work in Maine and Colorado.)
The panel discussed three case studies, each illustrating resiliency planning from the individual property level to the neighborhood and community levels.
Legacy Resort Property Retains Value
Jerome Speltz, vice president and director of engineering at Connecticut-based Cornerstone Real Estate Advisers, described a 35-year-old resort property on the Florida coastline that his firm manages on behalf of an investor. Sitting on 30 acres of beachfront property, the resort offers stunning views and recreational opportunities for business and leisure travelers.
Yet it was built at a time when few developers understood the climate risks the property faces, including rain intrusion, storm surges, and mold outbreaks that occur just days after the heating, ventilation, and air-conditioning system loses power and high humidity invades the property’s interior. Mold, in particular, is financially devastating, as it causes irreparable damage to building interiors and finishes.
So Cornerstone made strategic investments in the following areas: elevating the resort’s electrical system from 9 to 20 feet above sea level after determining that a Category 3 storm surge breached the property at 16 feet; fortifying the central chiller and cooling towers; and installing energy-efficient and hurricane-proof windows and doors throughout the property.
“We had a fiduciary responsibility to protect our client from climate risks,” Speltz said.
Other strategies to ensure continuity of the power systems included purchasing off-site generators; installing a desalination tank so treated ocean water could be used for the cooling towers and on-site irrigation; and creating a comprehensive disaster recovery plan. Cornerstone’s total cost to make these upgrades—some of which were planned replacements for equipment nearing the end of its useful life—was $20 million, or just 8 percent of the total $250 million replacement value of the resort. Yet the return on that investment has been substantial. Speltz estimates that Cornerstone will save $685,000 per year in lower insurance premiums and reduced water and energy bills.
Simultaneously Addressing Climate Change and Housing Shortages
Residential projects in California and Massachusetts could meet pressing housing needs in cities experiencing population booms, and do so in a way that works in tandem with natural systems instead of against them, the panel said.
Both communities—India Basin in San Francisco and the Alewife district in Cambridge—are prone to distinct climate impacts. India Basin sits along the southern edge of the San Francisco Bay shoreline in an area characterized by unstable soils and vulnerability to high tides and winds. Developer Michael Yarne of Build, Inc. is proposing to build India Springs, a 27-acre (11 ha) master-planned, mixed-used community with nearly 1,000 residential units, 20 percent of which will be affordable; retail and arts/education spaces; and 11.65 acres (4.7 ha) of open space.
Water resource management is a key feature of India Springs, with its ambitious proposal to treat all storm water and wastewater onsite and even provide a source of non-potable water to the Shipyard, a massive mixed-use development by Lennar in the adjacent Hunters Point neighborhood, said panelist Tom Bacus of Sherwood Design Engineers, a partner in the project. Major capital investments in wastewater treatment facility construction will be recouped through savings from not having to rely on municipal water supplies, which Bacus estimate will rise 8 percent per year.
As California grapples with a severe drought, developments like India Basin that take a conscientious approach to water conservation are bound to stand out in the marketplace. A key part of resilience is “looking outside the boundaries of your own site” to develop district-wide efficiencies, Bacus said.
Another critical feature of India Springs is the number of community gathering places that are part of the design. The residential portion is conceived of as an “urban village” with an intimate, short-block street grid and several parks and plazas, places where neighbors can meet and develop the strong social networks that are essential in times of weather emergencies and natural disasters. “We need to think about everyday resilience,” Bacus said. “A big part of [that] is creating community.”
In West Cambridge, the demand for urban living and proximity to transit is driving a residential building boom near the Alewife Station, the terminus of the Massachusetts Bay Transportation Authority (MBTA) Red Line. With nearly 1,000 units built last year, the amount of residential development projected to occur in Alewife from 2006 until 2024 was surpassed in 2014, according to the Boston Globe.
Cambridge’s hot, tech-based economy is spurring the boom, with residential units “springing up like mushrooms,” said panelist Jim Batchelor, a principal at the Boston design firm Arrowstreet. How Alewife is planned is “critical to the future evolution of Cambridge as a place to live,” he added.
Batchelor presented designs for a new 220-unit building in the Alewife Triangle District, which will add much-needed capacity to the city’s housing stock, while also aligning with its climate mitigation efforts. Cambridge has spent millions of dollars restoring wetlands to the north of the site to treat storm water. Arrowstreet is following suit by designing a residential project that works with the site’s natural hydrology. The Alewife district is vulnerable to major flooding because of its proximity to the Alewife Brook and Mystic River. “We’re attempting to increase the natural capacity of the land to absorb water,” Batchelor said.
Once home to steel-fabrication mills, the site was converted to a massive surface parking lot for nearby office developments. As infill development, the project is already connected to existing infrastructure. Other features include on-site surface water treatment, bike sharing and bike paths to reduce car dependency, close access to the MBTA station, and construction materials made from recycled wood.
Next Steps: Collecting Case Studies to Share
The panel also served as a preview for a publication that is in the works: case studies of properties that have mitigated loss and created value through up-front investments in climate mitigation and adaptation measures. The publication, to be released later this year, is being produced with the ULI Responsible Property Investment Council.
