Why the G20 failure on climate change is bad for CRE

Photo Credit: Presidencia de la República Mexicana

Over the weekend, President Trump met with the leaders of 19 other leading countries to discuss issues of global governance. On many of those issues, leaders were able to come to agreements that will help the world to better work together going forward. Climate change, a hot-button issue since President Trump announced his intention to pull out of the Paris Climate Accord, was not one of those issues.

Reaching unanimous decisions on key issues is a G20 tradition. On this issue, at least, the unanimity was broken 19 to 1 when the leaders of every G20 country but America issued pledges to implement the Paris deal. Deadlock on the issue reportedly held up the last days of the Hamburg talks, and in the end, a joint statement was released that said, “We take note of the decision of the United States of America to withdraw from the Paris Agreement.” The remaining 19 leaders agreed that they would follow the agreement without the help of the U.S. without renegotiating it, as the President has occasionally suggested.


What this means for Trump’s commercial real estate holdings

One of the most interesting ways to view the decision to pull out of the climate accord is to look at how it will affect Trump personally. There are advantages and disadvantages for the commercial real estate industry, but because of the class and types of holdings that the Trump brand pursues, experts think that the president’s portfolio may be especially impacted by climate change.

From Trump’s Miami beach apartment towers, to his Mar-a-Lago estate, to his Hawaii hotels, to his golf courses all over the world, much of the president’s real estate could end up underwater or vulnerable to more frequent flooding in the event of a sea level rise of more than the few feet that it is predicted this century. Apart from Florida, Trump has business interests in Hawaii, Vancouver, Panama City, Uruguay, and Mumbai that are on the ocean or close to sea level.

Properties that are next to the water are not the only ones vulnerable to climate change. Experts predict shifting weather patterns that will leave some areas with much less rain and some with more extreme storms. Areas that are inland but close to the water line could be at risk of flooding if the underlying geology allows water to percolate upward, as is the case facing Trump’s National Doral Miami golf course.


…And for the rest of us

The bottom line is that climate change will soon start having a profound effect on real estate markets even in the best case scenarios that only involve about two feet of sea level rise. In the direst scenarios, we see six feet of sea level rise. In Florida alone – one of the hardest-hit areas in the U.S. – Zillow estimates that 12.6 percent of buildings would be underwater by 2100 in that case. Palm Beach, home to Mar-a-Lago, would lose 51 percent of properties worth a combined $10.9 billion.

The degree to which climate change will affect the world, and by extension the CRE industry, depends heavily on our consumption of energy now. That realization, coupled with more economic concerns, is increasingly leading commercial real estate to invest in energy efficiency. Doug Lawrence, the co-managing principal of 5 Stone Green Capital, wrote for National Real Estate Investor that asset managers can see savings of 30 to 40 percent on energy and water bills by allocating an average of 2 percent of their development budgets to upfront green implementation. The resulting NOI increase can be as high as 8 percent from the same investment.

At the same time, voluntary investments of clean energy, even with decreased operating costs and increased property values as a carrot, aren’t enough to cut emissions sufficiently to avoid dramatic climate change. Buildings in the U.S. make up about 40 percent of the carbon emissions the country puts out, which themselves are significant compared to the rest of the world. Most experts think that the only option for effecting real change in an industry known for deep pockets and short arms is regulation. After all, the consequences of climate change are public and severe, but the cost of action is generally private. The carrot isn’t enough to push the CRE industry as a whole to adopt efficient practices – the government’s stick is also important.

This is why some experts are so disheartened by the Trump administration’s decision to pull out of the climate agreement.

“If the beaches are gone or the streets are flooded, it’s going to affect the value of [Trump’s] property,” Jim Cason, the Republican mayor of Coral Gables, Florida, told Fortune. “As a prudent businessman, he ought to conclude that the science is right and we need to prepare and plan.”

Cason’s city is just south of Miami and aggressively planning for sea-level rise. Even so, he thinks that the first big changes won’t come until the first bank denies a 30-year mortgage on a coastal property.