An earlier version of this article incorrectly referred to potential damages in the billions. This article has been corrected.
According to a new DBRS Morningstar report, office buildings, shopping malls and condominiums in coastal US cities worth billions of dollars are on the path of severe flooding as sea levels rise.
The credit rating agency looked at a snapshot of some 47,000 buildings it monitors the commercial mortgage bond market of around $ 670 billion and found that nearly 5,000 were at risk of severe or extreme flooding given the dramatic pace of change. climates in recent decades.
All in all, it set a value of approximately $ 539 billion in mortgage bond transactions rated by the agency as having some exposure to severe or extreme flooding, leaving only a fraction of the market free from the threat.
“Investors and underwriters no longer have the luxury of simply checking if a property is outside FEMA’s 100-year flood zones and checking for evidence of flood insurance,” wrote Kevin Augustyn and his team. credit assessment team in a new report.
Instead, the team looked at the National Oceanic and Atmospheric Administration’s latest projections for sea level, which indicate a further increase along the U.S. coast by 10 to 12 inches by 2050, or how much the total increase measured over the past 100 years.
Flood hazards helped inform this map, which shows Miami at the top of the country with an estimated $ 1.1 billion in structural damage at risk from flooding of offices, shops and multi-family buildings as the level rises. of the sea, according to the report, which was based on data from Arup and the Prima Strada Foundation.
New York had an estimated $ 582 million in flood damage on the line of similar properties, followed by approximately $ 450 million in Pittsburgh, $ 330 million in Boston, and approximately $ 280 million each in Houston and San Francisco. The total value of the buildings at risk in these cities would be much higher.
“Although not all coastal, Pittsburgh is particularly susceptible to flooding because the city is located at the intersection of three rivers,” the report said.
Climate change is rapidly evolving, evidenced by the extraordinary increase in billion-dollar weather events and climate disasters since the 1980s, making historical data “less accurate,” according to the DBRS Morningstar team.
Additionally, commercial property owners can take advantage of the Federal Emergency Management Agency’s national flood insurance coverage of just $ 500,000 for a building and $ 500,000 for building contents, according to the report, although many key properties in large cities they were financed with hundreds of millions of dollars in mortgage debt. The report said additional coverage would need to be purchased in private insurance markets.
To help investors better control their potential exposure to sea level rise, the DBRS Morningstar team found 4,704 buildings at risk of extreme and severe flooding (see chart) in rated bond transactions. Below is a breakdown of the exposure by type of operation.
While the commercial mortgage bond market finances only a cross section of the nation’s buildings, the DBRS Morningstar report still provides a grim snapshot of the near-inevitable flood risks most investors face.
This is also not the only risk, particularly with the adoption of flexible working arrangements. Before the pandemic, lenders often offered investors “single-borrower” commercial mortgage bonds as a safe haven investment, in part because they often helped finance top homeowners looking to build, buy, or refinance New York’s most expensive office towers. City.
According to Kastle Systems’ latest 10-city weekly average, the pandemic has overturned that view, with office buildings still only 43% occupied more than two years after the COVID crisis began.
Against this backdrop, in cities like San Francisco, lenders and investors have become increasingly wary of office building financing.
See: As Twitter rethinks its San Francisco footprint, a bigger $ 9 billion demand looms over the city’s office market
Homeowners will also face significantly higher financial costs as their debts mature, with the 10-year Treasury benchmark rate TMUBMUSD10Y,
close to 3.4% on Tuesday, and with the Federal Reserve expected to pull the trigger on another hike in the jumbo rate next week in an effort to cool rampant inflation, while risking triggering a potential recession.
Laws: Any doubts the Fed will raise rates by 75 basis points next week vanished after US inflation data
US equities fainted on Tuesday after August inflation data turned warmer than expected, with the Dow Jones Industrial Index DJIA,
losing nearly 1,300 points, the S&P 500 SPX,
closing 4.3% and the Nasdaq Composite Index COMP,
5.2% fall. It was the worst daily decline for all three indices since June 11, 2020, according to Dow Jones Market Data.