Raining data: An analytical, non-alarmist approach to the impact of extreme flooding events on real estate assets

Infrastructure assets such as toll roads or railways can span over large geographic areas and can be exposed fully or partially to climate hazards. Climate risks such as floods (SLR/coastal or riverine) can affect a portion of geographically ‘lengthy’ assets but significantly impact the availability and performance of the entire (or partial) asset.

This note is a second in the series on physical climate tail risks in global real estate markets, covering US CMBS and highlights main results. The universe analysed here is based on Non-Agency US CMBS (ERISA only) issued since 2017 with fixed-rate coupon and excludes single-borrower, single-asset bonds.

As sustainability targets, net-zero commitments and climate change risks move higher on the agenda of investors, companies and other stakeholders and reporting standards are being developed, more focus is being put to understand the potential impact of these transitions and hazards on asset pricing to avoid a significant risk of mispricing of investments and portfolios.

Tropical cyclones are one of the most destructive weather phenomena however their intensity decreases rapidly over land. For real assets such as real estate and most infrastructure assets it is important to measure physical risk frequency and severity over land area only.