The Business Case for Resiliency in CRE

By: Alec Burchett, BOMA Georgia

Resilience. Defined as the ability to recover back to a normal state of operation following an adverse event, resiliency is an essential consideration when it comes to commercial real estate. When constantly dealing with various properties, people, and natural events, things will occasionally go wrong. Following these unfortunate incidents, properties must snap back to an acceptable level of operation if they wish to continue to be successful.

John Scott with Colliers tells us that “resiliency is about creating plans that allows the normal routine to be able to accept shocks and stressors to its system.” When applied to commercial real estate, most will think of stressors and shocks as natural disasters that can raze a property. However, while this is true, there are many different aspects of resiliency a property can improve upon. Items such as financial resiliency, health and safety resiliency, and of course environmental resiliency are all items to be considered. These are all equally important, but here the focus will primarily be on the environmental aspects.

Building a Foundation

When thinking about how a property can be more environmentally or physically resilient, first consider what can cause this need. Natural disasters do not always give a heads up. Too much rain can lead to severe flooding, causing damage and stranding individuals. Years of erosion on a building’s foundation can all culminate at a single moment and cause a collapse. Tornadoes can form, touch down and leave a path of destruction, and then be gone in less than an hour. However, even with a heads up, these events can still cause massive amounts of damage. A couple design considerations can go a long way in helping a building bounce back from something like this. First, design, or retrofit, a property with the idea in mind that these events are out there and have the potential to happen to anyone. Next, be adaptive. If an event has happened in the past, use that knowledge to inform future choices and preparations. Figure out the weak points in your contingency plans and how they could be improved. For example, think about how if a building was flooded, and all of the electrical mains were ruined and had to be replaced because of the water damage. Moving forward, the building could move these electrical units up off of the ground level in order to prevent damage.

Benefits of Looking Ahead

If a building practices resiliency in these ways, it can see several significant benefits. First, the building or property will have an overall reduced risk level. These resilient upgrades to the building show that even in the face of a disaster, the building will persevere. For tenants, this will be hugely appreciated as they will be able to get back to work sooner and help get things returned to normal. Second, the building will experience reduced insurance rates.

With the reduced levels of risk, there is reduced need for an insurance company to charge higher amounts in order to cover potential damages. Finally, these improvements made to the building often end up paying for themselves within the first year of their installation. Buildings can save up to 90 percent on their insurance rates through these proactive upgrades according to Murray Greene. When saved, these new funds can be put toward these projects and prevent any additional out-of-pocket expense.

Coastal Considerations

While these upgrades to a building’s overall resiliency are good for all properties, they are especially important and necessary for some groups more than others. A perfect example is coastal properties. While anyone, anywhere, can experience a flood or some other related disaster, coastal properties experience these issues on a seasonal basis every year because of their climate. Coastal climates experience increased levels of rainfall, and sometimes a location being proximal to oceans where hurricanes form. This increased risk impacts these properties in many ways. John Scott explains how that last year, in the U.S. alone, there were over 20 billion dollars of losses due to climate and weather related disasters.

Putting the monetary implications aside, these coastal properties can also be impacted simply due to their location. The proximity of the saltwater can contaminate freshwater reservoirs and render them useless, while simultaneously eroding beaches and taking away potentially valuable land. For the properties that experience this, resiliency has to be thought of as more than just a preventative measure.

In addition to creating more resilient buildings, a great approach is to create a more resilient environment. Restoring natural barricades such as seagrass and sand dunes can help better prepare the entire community for these issues that they face. Improving man made options, such as extending a sea wall, can be helpful. All options that are available to these properties are viable and should be acted upon in order to be part of the solution.

A Strong Future

While coastal properties are one example of a group of properties that need to practice increased levels of resiliency, they are far from the only ones. Mountainous and northern areas experience increased levels of sub-zero temperatures and blizzards. The West is more frequently subjected to earthquakes causing damage because of proximity to fault lines. Properties in dry climates must deal with wildfires and the complete devastation that they can bring.

All properties are unique in what potential threats they have to face, and therefore must be resilient in their own ways. John recommends that properties be proactive in the resiliency process. A little bit of extra expense now is much more favorable than huge expenses, potentially faced without an income stream, later down the road.

About the Author

Alec Burchett is currently a senior at Auburn University planning to graduate in the Spring of 2022. This past Summer he served as BOMA Georgia’s Communications and Strategic Projects Intern.

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