Real Estate Pricing Could Mask Climate-Change Risk
Real estate investors are increasingly aware of the risks posed by climate change, but they may not realize just how much the potential risks vary, even for a relatively homogeneous group of assets.
To illustrate this, we have taken a sample of 221 U.S. properties from the MSCI Real Capital Analytics database and estimated their potential exposure to climate-change risk using the MSCI Climate Value-at-Risk Model. All the assets in our sample are of a similar property type (garden apartments) and all were refinanced or sold in the first half of 2022 at similar cap rates (4.8% to 5%). Despite the similarity of the assets in terms of property type and pricing, the results show that climate change remains a potentially unpriced risk, with a wide distribution of climate value-at-risk scores.
The author would like to thank Wyatt Avery and Haley Crimmins for their contributions to this piece.
Distribution of sample climate value-at-risk scores
Sample properties’ locations and climate value-at-risk scores
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