Left to right: Jonathan Rose, CEO of the Jonathan Rose Companies; Lynn Thurber, Global Chairman of ULI and LaSalle Investment Management; and Hamid Moghadam, CEO of Prologis, take part in a plenary session about resilience at a ULI conference in San Francisco, Calif.

While real estate investors have always paid attention to earthquakes, floods, and other natural disasters that create uncertainty for their portfolios, few speak explicitly about “resilience” as a characteristic they’re looking for when underwriting properties, according to a panel of investment leaders at ULI’s Building the Resilient City: Risks and Opportunities conference held in San Francisco September 4–5.

“Just like sustainability was a new word in our real estate investment vocabulary a decade ago, resilience is just beginning to enter our vocabulary,” said ULI Chairman Lynn Thurber, chairman of LaSalle Investment Management, which holds $50 billion in global real estate assets.

Thurber was joined by conference cochairs Hamid Moghadam, CEO of San Francisco–based Prologis, a leading developer and manager of industrial logistics real estate throughout the world, and Jonathan Rose, president of Jonathan Rose Companies, a New York–based “green” developer, urban planning, and investment firm focused on cities.

Moghadam concurred that while few investors and operators use the term resilience, many have built capacity to contend with natural disasters when they strike. His own company saw 23 warehouses in the New York/New Jersey region affected by Hurricane Sandy. Yet because of contingency planning, the facilities were up and running again after 48 hours. Prologis, in fact, helped competitors in the area resume operations, he added.

“A very important aspect of resiliency is customer service and reputational risk,” Moghadam said. “If you can’t get to your tenants in a reasonable time and meet their needs, your reputation is trashed. People will remember how your organization reacted in a time of difficulty and whether you had the capability of getting your customers back on line.”

The panel warned against creating so-called departments of resiliency within companies. Such compartmentalization could lead to a silo mentality and a failure to integrate climate risk policies and practices throughout an organization.

“It’s going to be important for us to increase our focus on the subject matter and to keep it integrated into everything we do,” said Thurber. “It’s just part of everything we do to maximize value to our investors in the assets that we own and manage on their behalf.”

Yet, how resilience as a value-add that investors seek in their portfolios remains to be defined within the context of a fiduciary’s responsibility.

“Our objective is to preserve and enhance the value of our clients’ investment,” said Thurber. “We have to figure out how to connect that principle [of fiduciary responsibility] to the bigger picture of resilience at the community level, and how [resilience measures] can reduce costs or enhance the performance of our portfolio over time.”

Returning value to shareholders must be the ultimate aim of resilience initiatives, said Moghadam, likening this goal to Prologis’s commitment to sustainability.

“The reason we focus on it is very simple: it reduces operating expenses for our customers,” he said. “Lest you think we’re doing it for a public service reason, we’re not. It’s a very selfish, shareholder-oriented thing, and it happens to be good for the environment. But good alone is not sustainable in sustainability. It’s got to be economically sensible as well.”

At this time, conversations about resilience and climate risk within real estate investment circles may go no further than whether a particular property can get insurance or whether the insurance coverage is adequate, Thurber said. At LaSalle Investment Management, risk management reviews have typically focused on capital market risks—debt, interest rates, capital flows, and pressures. This past year, however, the North American team decided to examine risks posed by natural disasters; the Europe and Asia teams are now following suit, Thurber added.

Municipalities also have to step up to ensure that energy, infrastructure, and transportation networks are fortified during more frequent and severe weather events. Partnerships between the private and public sectors are key to ensuring that private and public assets are protected and made resilient, the panel said.

The risks posed by climate change are those that nobody along the real estate spectrum—from investors to developers to asset managers—can afford to ignore, said Rose. “The industry really should care because real estate is fixed, long-term assets and yet they sit in a volatile, changing world. As good asset managers, those of us who create more adaptability and resiliency in our buildings [will see] those buildings be more successful.”