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By Jack Maxwell
Nov 01, 2024
Cataloging the physical damage that results from extreme weather – flooded neighborhoods, incinerated utility infrastructure, homes damaged by high winds – is a relatively straightforward, albeit painful, process. And as difficult as it is to see once-thriving communities reduced to rubble, it’s even more heartbreaking to contemplate the lives that have been upended.
Unfortunately, we see these scenarios unfold on the evening news somewhat regularly. Powerful hurricanes, more violent and geographically dispersed tornadoes, and even simple rainstorms that dump astonishing amounts of water in short periods of time have become a fact of life in many parts of the United States and around the world.
The impact of these catastrophic events extends far beyond the particular localities where they occur, affecting the entire real estate ecosystem. Lenders must evaluate the risks of putting money into properties located in, and even in the vicinity of, vulnerable areas. Developers and their architects must design structures that can withstand elevated levels of stress. And insurance companies must be financially sound and sufficiently capitalized to meet their obligations when these disasters strike.
FOR YOU: 5 Standards That Support Resilience
The members of ASTM International’s are well aware of these issues. They have been working for years to develop tools to help commercial real estate stakeholders address them, including a guide for developing property resilience standards and a new property resilience assessment guide that was finalized in September.
Most people probably think of resilience in personal terms, as a valuable attribute of individuals facing adversity who find ways to get through it and keep moving forward. It may seem odd at first to apply the term to inanimate objects like buildings and bridges and power lines, but if your business is real estate, it makes perfect sense.
The United States Green Building Council (the organization that administers the LEED green building rating system) and its partners have defined resilience in the context of the built environment as “the ability to prepare and plan for, absorb, recover from, and more successfully adapt to adverse events.” USGBC breaks the term down into four components:
1. Design Planning: Proactive design planning and construction for potential impacts of reasonably expected natural disasters with minimal damage.
2. Healthy Site: Creation and execution of a site development plan that promotes healthy vegetation, soils, and aquatic ecosystems to provide ecosystem services such as flood control.
3. Maintaining Project Site: Design, building, and maintaining of the project site and adjacent landscapes to reduce the risk of wildfire.
4. Catastrophic Event: Support for community recovery during catastrophic events and extended bulk power grid outages by enabling islanding and power reliability to essential services.
JLL, a professional services and investment management company with a focus on commercial real estate, characterizes resilience as “an ecosystem’s ability to absorb shocks and disruptions, to cope with uncertain situations through rigorous preparedness, mitigation, and adaptation, and to recover from it to flourish.”
Committee chair Dan Lemieux provides a historical perspective. “Resilience is a concept – and now arguably an overly broad and too often overused one – that, by some estimates, first appeared in design and construction as far back as the 1970s,” he says. “However, whereas the term itself began largely as a means to measure and (ideally) predict the response of a building or structure to natural disaster, it has now been adopted more broadly to include a wide range of both natural and man-made impacts on our built environment, not the least of which is climate.”
One of the more dramatic consequences of natural disasters such as floods and wildfires is the skyrocketing cost of property insurance, especially in vulnerable areas that are more prone to these events. Even more problematic is the fact that some insurers are choosing not to write new homeowner or commercial policies in these areas.
In the U.S., California is one of the states most affected by this problem. According to The Washington Post, seven of the state’s top 12 insurance carriers have pulled back coverage for homeowners, blaming wildfires and the associated costs of reimbursing victims. Although state residents have historically paid less than other disaster-prone states, the recent approval of one major insurer’s request for an average rate increase of approximately 34 percent signals that much higher premiums are on the way for many.
Zooming out to the U.S. as a whole, the Insurance Information Institute cites a December 2023 study by the National Association of Insurance Commissioners that found that the average homeowners insurance premium rose by 7.6 percent in 2021 over the previous year (the latest data available).
These issues are not limited to the residential insurance market. The website Risk Strategies notes that getting commercial coverage in catastrophe, or CAT, zones – areas with a history of natural disasters – can be a challenge, stating that such policies will be more expensive and restrictive than in the past and that, “Rates are rising proportionally to the number of catastrophic events across the country, not just in coastal areas.”
“The increasing frequency and severity of extreme weather events has created a property-insurance pricing and availability crisis within commercial real estate,” says Holly Neber of AEI Consultants, who chairs the task group that developed the recently approved guide for property resilience assessment (PRA). “This insurance crisis affects property owners and investors. Increased premiums and deductibles raise insurance costs, impacting net operating income, tenant desirability – since operating expenses are often passed through – and business operations, and therefore property value and exit strategies. This in turn impacts the commercial real estate finance sector because lenders are realizing the significant climate risk exposure within their commercial real estate loan portfolios.”
Members of the task group are hopeful that the new PRA guide will be a powerful tool that will help users make informed decisions and, ideally, invest in resilience measures that will preserve property value and benefit stakeholders and communities.
Neber and task group co-chair Brett Farbstein (Cannon Design) recruited a large new cohort of team members when they joined in 2021. Among them were technical experts and industry leaders representing a wide variety of interests/broad range of stakeholders: engineering, architecture, and earth sciences; property insurance; climate science and climate risk modeling; law, finance, and financial risk management; construction and development; property ownership, investment, management, and consulting; and non-profit organizations focused on atmospheric research, climate risk and adaption, resilience, and sustainability.
Standards for resiience may help reduce insurance costs.
“We built on the excellent work that had been done to date by splitting into teams to write different sections of the guide, and then coming together to discuss it holistically,” Neber says. “We wanted to describe a generalized, systematic approach to property-level assessment to help inform site-specific decisions. We brought different insights to the question of how to perform these assessments, but the one common theme was that we needed to work together because the demand for answering these questions was growing, and we needed a common language and framework to do that work together.”
Many task group members work in commercial real estate and have relied on existing ASTM standards for years. Neber points out that the standard guide for property condition assessments: baseline property assessment process () and standard practice for environmental site assessments: phase I environmental site assessment process () are “indispensable tools to facilitate communication of critical information during high-stakes decisions and transactions.”
The recently approved PRA guide establishes a generalized, systematic approach to the assessment process. Stage 1 involves identifying natural hazards (flood, wildfire, wind, geologic phenomenon, water/drought, and extreme weather) likely to affect a property and reviewing state and local resilience maps and studies, as well as site-specific plans, to evaluate their potential exposure to natural hazards.
At Stage 2, site-specific risks posed by these hazards, as well as the capacity of the property to absorb and recover from them, are evaluated. Attributes examined at this stage include the nature of construction, type of occupancy, age of the building, existing resilience measures, and hazard preparedness. Stage 3 focuses on resilience measures that can be implemented to enhance property-level performance and recovery, such as flood-barrier installation and relocating critical equipment.
Many issues were considered and discussed during the development of the guide. Neber highlights the debate around the connections between community-level and property-level resilience. “The task group ultimately decided that although it is critical to recognize the interconnection with the broader community and infrastructure, stakeholders need something that informs property-level decisions about the considerations within their control,” she explains.
The new PRA standard guide should prove especially useful to the commercial real estate community, for whom property resilience assessments can take many forms. For example, some lenders use information compiled through PRAs to identify potential vulnerabilities and may require that some be addressed before a loan is approved. These assessments are also being used to document the process of risk mitigation for stakeholders such as investors in public companies. But until now there has not been a well-conceived, broadly accepted standard to refer to when designing a PRA, and transparency and consistency have been lacking.
“It’s also important to note that anyone with an address or geolocation can run a climate risk screening today using several free public or private commercial services,” Neber adds. “As access to property-level screening tools becomes more ubiquitous to decision-makers and the public, the new PRA guide offers a common language for stakeholders to use in communicating about hazards, building attributes, and existing resilience measures.”
READ MORE: What Is Resilience and Why Does It Matter?
Although the task group’s goal of developing a guide to PRAs has been achieved, the work is not over. Neber notes that once the guide is published, the group will continue gathering data on PRAs so that any issues uncovered can be addressed when it’s time to revise the standard. “Smaller teams from our task group will also begin working on practices to emerge from the guide,” she says. “ASTM is such a great forum for all these different perspectives to come together and find common ground.”
The subcommittee on building economics (E06.81) is also doing valuable work at the intersection of natural disasters, financial impacts, and resilience. Dave Butry of the National Institute of Standards and Technology (NIST), who chairs the subcommittee, describes one of its signature accomplishments.
“The standard guide for developing cost-effective resilience strategies () was developed to support community resilience planning efforts to evaluate the economic performance of investments into the built environment, specifically constructed facilities,” he says. “It provides a generalized economic approach to consider a broad set of resilience activities, as it’s hazard-agnostic and can accommodate several different scenarios.”
The guide builds on previous work done by E06.81, leveraging techniques laid out in the standard practice for measuring benefit-to-cost and savings-to-investment ratios for buildings and building systems (E964). “From a measurement standpoint, greater recognition of the consequences of natural hazards and extreme weather events provides for a better understanding and quantification of the potential impacts from investment decisions in community resilience, which can be used to evaluate the size and significance of the economic returns of these efforts,” Butry explains.
The work of E06 and its subcommittees is clearly advancing the cause of a more robust yet nuanced consideration of the relationship between resilience initiatives and the built environment they’re designed to protect. Other ASTM committees are also contributing to this effort.
For instance, the committee on homeland security applications (E54) recently released the standard guide for community resilience planning for buildings and infrastructure (). This document cites E3130 as a reference that can be used to evaluate the economics of community resilience alternatives, a good example of the beneficial symbiosis among various ASTM committees that approach common problems from different perspectives.
Additional examples of this cross-pollination can be found in work done by the and the . The former is responsible for the standard guide for climate resiliency and planning (), while the latter developed a standard guide for general principles of resilience ().
Looking ahead, Butry previews one area his subcommittee will be looking into: developing new methods and techniques to measure impacts from resilience-related activities that are difficult to quantify, as well as where monetization may be an inappropriate metric. “Often there are known impacts that do not have a market value,” he says. “Air and water quality are examples of ‘goods’ without a market value – they are not exchanged in the marketplace – that may be impacted by changes in resilience, while considerations related to cultural, social, or historical significance with a unique or irreplaceable nature may make monetary valuation extremely difficult, if at all possible.”
Striking an optimistic tone, Neber points out the benefits that the investment, finance, and insurance industries can realize as ways to share the costs and incentivize resilience continue to evolve. Examples include discounted loan rates or insurance costs for buildings where improvements have been made, and lending programs that require that climate risk and resilience issues be considered when new construction or substantial renovations are undertaken.
“We expect such requirements to become more common in the years ahead. These investments in turn will benefit the communities within which these buildings are located,” Neber says.
As to where ASTM fits into the picture, Lemieux concludes that the organization is right where it’s always been: “Serving the industry as thought-leaders responsible for developing standards that are imbued with the collective knowledge and expertise of our members and strengthened by a consensus process that is rooted in intellectually curious, healthy, and respectful debate. For stakeholders and investors in our built environment, nothing could be more important. ■
Jack Maxwell is a freelance writer based in Westmont, N.J.
November / December 2024
