Beautiful Views, Major Risks:
Exploring the Coastal Development Equation
Waking up to an ocean view may sound like paradise, but in the face of climate change, this perk can come with serious consequences. From storm costs and safety risks to government responses and design strategies, HappyCo breaks down the coastal development equation.
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To public policy professor Tom Birkland, the toss-up between climate change risks and coastal development proposals has a simple solution. As Birkland told CNN, “the most effective way to mitigate hurricane damage in coastal properties would be to not build on coastal land.” Indeed, in the same piece, writer Eric Levinson shares this alarming statistic: “nine of the 10 costliest hurricanes to his the U.S. mainland since 1900 have come in the last two decades.”
Unfortunately, the numbers don’t get nicer from there. Levinson notes that hurricanes Harvey and Irma caused $125 million and $50 million in damage, respectively. Yet, he argues hurricanes are only going to grow costlier across the U.S., as “more and more people are choosing to live near the coast, and housing and building costs in those locations are more expensive than they used to be.” Citing the National Oceanic and Atmospheric Administration, Levinson reveals: “counties along the U.S. shoreline make up less than 10% of the total land area but account for 39% of the total population.”
In a separate CNN article, writer Jeff Goodell presents readers with a powerful case study of just how coastal development can become a “perpetual motion machine.” Referring to Florida’s hurricanes as “particularly damaging events,” Goodell breaks down the dangerous mix of factors at fault. He credits Florida’s significant housing growth to “affordable real estate, nice weather, proximity to water, low taxes (Florida has no state taxes),” and argues that “obvious risks” are swept aside because “real estate and tourism are the twin engines of South Florida’s economy.”
Goodell dives further into the fine print, stressing: “cities and counties [in Florida] are dependent on property taxes for a large part of their revenues,” which means the state has to “keep building and building” to keep its government funded. From there, Goodell asserts, “if a hurricane comes along and blows everything over every 30 years, the thinking goes, so what? The feds will help us out and we will rebuild Florida bigger and better than before.”
As Goodell’s article illustrates, there are a variety of reasons why coastal development is still on the rise — even in the face of climate change. With this in mind, HappyCo examines key angles of the coastal real estate equation, offering multifamily owners and operators an in-depth sense of storm costs, government responses, developer risks, and design approaches.
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In an April 2019 piece, CNBC covers the staggering impact of extreme storms on housing across the U.S. Referring to 2017 as a “record high” year, the author notes: “Natural disasters, including floods, mudslides and wildfires, cost more than $300 billion in damage, the bulk of it to residential and commercial real estate.”
A January 2019 Bisnow article evaluates storm aftermath on a much more micro-level, exploring how home values along the coast of New England have plummeted following significant flooding. Writer Cameron Sperance cites a report by First Street Foundation, an organization studying sea level rise, which shows: “New England home values have dropped more than $400M due to tidal flooding and rising sea levels.” The study covered 2.5 million properties spanning the Maine to Rhode Island costs and revealed Massachusetts faced the biggest financial hit of all, “with an estimated $273.4M in lost value.”
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Sperance provides some critical context, noting: “the report comes as Boston leaders wade through several storm resiliency studies to determine how to prevent $80B of vulnerable commercial real estate from getting damaged by regular flooding in the future.” Indeed, his finding represents a positive turn in the region’s coastal damage narrative — especially compared to the storm scenario Sperance covered exactly a year earlier for Bisnow.
In that January 2018 piece, Sperance described the way a “bomb cyclone” brought Boston “its worst flooding since the National Weather Service began keeping records in 1921.” Yet, at the time, Sperance observed: “water quickly rose in the wildly popular Seaport and East Boston neighborhoods, leading some to wonder why developers continue to jockey for space in the vulnerable neighborhoods.”
Thus, Sperance’s reporting suggests a record-shattering storm may indeed spur a fair dose of self-reflection among city governments — if not developers — when it comes to coastal projects. However, a thorough piece out of the Charleston Post and Courier suggests some of the consequences of major storms may be far more difficult to gauge.
At the start of her November 2018 Post and Courier piece on tidal flooding, writer Chloe Johnston makes clear: “local governments don’t tend to tally up the damage after a particularly high tide, colloquially called a king tide.” She argues it comes down to a simple cost-benefit analysis, as “there’s no possibility of the reimbursements from the federal government that would come with a named storm or federal disaster declaration.”
Complicating matters, Johnston notes the difficulty of quantifying tidal flooding damage. She paints the following picture: “while it might be easy to calculate the cost of a new roof after a hurricane, the subtle effect of saltwater intrusion into roads and public infrastructure is trickier to pin down.”
Aging infrastructure poses yet another curveball, according to a senior city official Johnston quotes as asking: “You’d have to make a lot of assumptions. this is an old city with a lot of really old infrastructure. What’s your baseline? Where do you start from?” Still, Johnston addresses a host of other economic concerns that make the cost puzzle even murkier, for example: “if flooding snarls the region’s roads during the week and leads to fewer working hours” or causes damage to “low-lying homes that were built before flood regulations or cars that pushed through the water.”
Needless to say, when multifamily developers consider launching a project along a certain coastal region, they would be wise to know how local and state governments have approached storm risks – and damage – in the past. To this end, HappyCo examines a range of government responses – from unfazed to urgent.
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North Carolina’s recent stance on the climate change vs. coastal development debate is intriguing on multiple fronts – not just because it earned a mention from Stephen Colbert. By way of background, CNN explains that “tourism and real estate interests along the [North Carolina] coasts hold considerable political power.” Against this backdrop, the CNN piece notes that “in 2010, a state commission report estimated that sea levels could rise by up to 39 inches by the year 2100.”
Rather than change course on coastal development after absorbing this information, state officials “passed a law in 2012 that banned state and local agencies from using sea-level estimates ‘that include scenarios of accelerated rates of sea-level rise.” Instead, the law dictated that predictions must stem from “historical trends.”
Needless to say, North Carolina’s act of defiance made headlines – even punchlines. Stephen Colbert joked: “if your science gives you a result that you don’t like, pass a law saying the result is illegal.”
Fortunately for residents and developers alike, a more politically-savvy approach is underway in a flood-prone area situated between the Missouri and Mississippi rivers. The Washington Post frames the stakes for St. Charles, MO, a city of 70,000 outside St. Louis that has “long grappled with flooding from the Missouri and Mississippi Rivers, as well as rising water from creeks and streams.” Indeed, the writers of a July 2019 article stress the price tag involved: “$18 million in flood insurance claims paid out since 1970” by FEMA.
Nevertheless, The Washington Post reports that this alarm bell isn’t deterring developers, as the information “hasn’t stopped the city from panning a $1.5 billion riverfront development along the Missouri’s banks, 120 acres of upscale shops, restaurants and apartments” largely in an area “that has been partly submerged this summer.”
Describing regulation of flood plain construction as a “state-by-state” patchwork, the authors note that: “environmentalists charge that jurisdictions hungry for tax revenue are continuing to plan risky projects without taking floods’ worsening intensity into account, heedless of the economic and human consequences.”
Fortunately, some lawmakers are seizing on precisely this dynamic to push back and reduce their local flooding risks. The Washington Post notes that “Missouri state Sen. Andrew Koenig, a Republican, introduced legislation this spring limiting local tax breaks for new developments in flood plains.” While his legislation failed to go through, Koenig intends to introduce it once more.
In Miami, city officials are proving they share Koenig’s preventative outlook on coastal development. As CNBC reports, “the city is investing $200 million into resilience, installing pump stations and upgrading its infrastructure,” with Miami Beach “on track to spend twice that, raising sidewalks and seawalls.” Importantly, the author stresses: “the money is coming from new bonds — voters raising their own property taxes to protect their property.”
Relatedly, Boston Mayor Martin Walsh has recently presented a strategy that confronts development concerns head-on. Following a winter storm wherein dumpsters were “floating down Fort Point streets,” city officials worked to “protect the city from its future environmental threats.” To that end, Resilient Boston Harbor is a citywide plan pushing for “a network of new parks and enhancements to existing ones to combat encroaching waters on the city’s 47 miles of coastline.”
Charleston, meanwhile, is also taking steps toward an ambitious plan to adapt as sea levels rise. The Post and Courier reports that “City Council recently gave final approval to another initiative, raising its Low Battery sea wall, a project that could cost between $50 million and $60 million.” The author suggests this effort couldn’t come at a better time, as “tidal flooding is expected to become an every-other-day occurrence by 2045.”
With government responses and cost categories in mind, multifamily audiences would benefit from gauging specific risks — and design strategies — in the realm of coastal development.
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An April 2019 CNBC article makes clear from the very beginning: “for any investor, measuring opportunity against risk is critical.” The author goes on to emphasize: ‘to that end, big real estate firms are pouring significant resources into calculating climate risk and its likely effect on property portfolios — everything from increasingly extreme weather to a rise in sea levels.”
Importantly, the piece covers a range of concerns investors and developers should be wary of beyond visible property damage. As writer Diana Olick notes, “these risks include not just the destruction from individual natural disasters but business disruptions for property tenants and higher operating and capital costs caused by increased wear and tear on properties from more extreme weather.”
Indeed, Olick quotes Edward Walter, CEO of ULI, on the gravity of climate change beyond just a per-property level: “risks such as sea level rise and heat stress will increasingly highlight the vulnerability not only of individual assets and locations, but of entire metropolitan areas.” Thus, Walter stressed to CNBC: “building for resilience, on a portfolio, property and citywide basis, is paramount to staying competitive. Factoring in climate risk is becoming the new normal for our industry.”
In sharing various strategies multifamily operators and developers can consider to protect their projects, Olick references a new report from the Urban Land Institute. Among the recommendations included in the analysis were: “mapping physical risk for current portfolios and potential acquisitions,” “incorporating climate risk into due diligence and other investment decision-making processes,” “portfolio diversification and investing directly in the mitigation measures for specific assets,” and “engaging with policymakers on local resilience strategies.”
With this big-picture lens in mind, it’s useful to understand how developers are changing course with design to further protect their residents and assets.
In this vein, Bisnow reports on Cottonwood Management’s distinctive climate change adaptation efforts in Boston. Author Cameron Sperance notes that Project Executive Becky Mattson is “adamant about taking resiliency into account in the design and construction of the project, from mechanical equipment on higher floors to building at higher grades on an already higher elevation in the Seaport.”
Still, there may be room for some standardization in Boston, as Bisnow notes: “the city requires developers to use a resiliency and preparedness checklist, but often relies on the developer to decide how far a property’s resiliency should go.” Indeed, Bisnow quotes CBT principal Phil Casey, who argues: “resiliency is very much a work in progress right now. The next phase is implementing at a broader level hopefully sooner rather than later.”
Without clear-cut regulations in a number of major cities, those considering coastal development would benefit from general design strategies spelled out by CNN in September 2018. They include: “roofs more strongly connected to the structure, sturdier stilts or stronger hurricane shutters.” Additionally, the CNN piece covers the consequences when there’s an abundance of pavement and a major storm hits. The author notes: “in Houston, for example, the flooding from Hurricane Harvey was so extensive partly because flood plains and water-absorbing land had largely been paved over.”
Roy Wright, CEO of the Insurance for Business & Home Safety explains the science at hand: “‘when the rain falls on a grassy field, it can absorb much of the water. When rain falls on concrete in a built environment, it just runs off. So any time you see increased development, you are increasing your flood risk.’” Thus, developers planning projects in vulnerable areas would be wise to show caution when it comes to concrete; by prioritizing green spaces, these investors mitigate risk for their assets and communities alike in the event of a major storm.
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All told, multifamily developers and operators debating a project or acquisition by the coast have much to consider in a climate change era. From direct property damage to profound operations setbacks, there are a variety of impacts to real estate after a major storm. Rather than skirt the issue and hope for the best, multifamily owners and operators should keep government regulations and design alternatives in mind when mulling over an expensive project or acquisition. By improving their due diligence process, multifamily executives can improve their odds of successfully building — or acquiring — along the coast.
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