Climate Risk
Paper Session
Sunday, Jan. 8, 2023 8:00 AM - 10:00 AM (CST)
- Chair: Nancy Wallace, University of California-Berkeley
Natural Disasters, Regional Economic Structure, and Commercial Real Estate
Abstract
The economic consequences of weather and climate disasters in the United State are of significant concern to institutional investors. In this paper we study commercial real estate market outcomes in response to natural disasters. In particular, we draw on recent research examining resilient regions and show how measures of resiliency may predict which markets and property types recover more quickly from natural disasters. We first investigate the price and cash flow impacts of a natural disaster to understand how market signals are responding to the occurrence of extreme climate events. Second, we consider how investors are responding to, and potentially mitigating, evolving climate risks by examining capital expenditure strategies in areas before and after extreme events occur. In each case we investigate these questions in the context of the economic resiliency of the region in which the property is located.Climate Risk and Commercial Mortgage Delinquency
Abstract
Natural disasters such as hurricanes, floods, heatwaves and wildfires are projected to become more prevalent in the foreseeable future. Climate risk is therefore increasingly recognized as an important factor by policy makers, the investment community, and financial markets. Due to the immobility of assets, the commercial real estate industry is especially vulnerable to climate risk, and there is an increasing interest to understand the impact of climate risk on the value of commercial real estate. For commercial real estate lenders, changes in collateral value are only of partial importance. The ability of borrowers to meet their payment obligations is equally, if not more important. By combining historic data on two major climate-related disasters – Hurricanes Harvey and Sandy – with longitudinal information on commercial mortgage performance, this paper identifies the impact of climate risks on mortgage delinquency rates for commercial real estate mortgages. The results show that both Harvey and Sandy led to elevated levels of commercial mortgage delinquency, with significant heterogeneity based on the extent of damage in the Census block group. Information provided through FEMA 100-year floodplain maps partially mitigates the effects, an indication that lenders incorporate flood risk information in the underwriting process.Firm Mobility and Hurricanes
Abstract
"We explore the effect of hurricanes on whether or not an establishment moves. Theanalysis is conducted using the National Establishment Time Series (NETS) data for
Florida, which is an extensive establishment-level panel database. We find that hurricanes
are associated with an increase in the likelihood an establishment moves, especially within
the state of Florida. We also find that capital intensive firms are more likely to move after
a hurricane and that moves are most likely to occur within a year of the hurricane. Our
findings are important because the out-migration of establishments following a hurricane
may have long-run economic impacts on the areas that experience these disasters. Local
leaders should consider disaster preparedness tactics carefully as it relates to possible loss
of businesses."
Discussant(s)
Ahyan Panjwani
,
Yale University
Parinitha Sastry
,
Massachusetts Institute of Technology
Philip Mulder
,
University of Pennsylvania
Benjamin Collier
,
Temple University
JEL Classifications
- R1 - General Regional Economics