COMMERCIAL REAL ESTATE
Preparing for the Surge: Rising Real Estate Values Meet Rising Seas
By Brian Bandell – Senior Reporter
June 3, 2022
Greenberg Traurig attorney Kerri L. Barsh had been warned not to drive from her downtown Miami office to her Miami Beach condo during King Tide surges that could add hours to her usual 20-minute commute.
So she once had to rely on a friend with a boat to sail her home – a mode of transportation some say could become more common in South Florida as sea level rise increasingly threatens homes and businesses.
“Until you are the one sitting at the office, worrying about how you are going to get home on a Friday night in the midst of intense flooding and King Tides, you don’t think about [sea level rise],” Barsh said. “It opened my eyes to the need for flexible and creative solutions to deal with climate change.”
For decades, environmentalists have warned that increased sea levels will erode homes and businesses in the region. But most municipalities in South Florida have yet to invest enough to stave off the impending threat, advocates say. So cities and private property owners need to elevate their games – along with their properties – to protect homes and keep local businesses accessible to workers and patrons.
“It’s like you are at a party and everyone is having a good time and someone has bad news, but nobody wants to hear it,” said Reinaldo Julio Borges, principal and CEO of Miami-based Borges & Associates and a member of Miami’s Climate Resilience Committee. “As an architect, I navigate a dangerous line by saying there are things we need to think about [now] with sea level rise and also doing a service to a developer who wants to do a project.”
Threats to real estate
South Florida is the most vulnerable place in the U.S. for potential damage to properties from rising seas, said Tom Larsen, a senior director at CoreLogic in Oakland, California.
The business intelligence firm, which works closely with insurance companies, projects that 100,000 South Florida homes are at risk from storm surge, with losses to insurance companies estimated at over $100 billion. The number of area homes in peril will more than double to 250,000 by 2050, Larsen said.
And, according to Swiss scientific journal Frontiers in Water, the Miami area alone has nearly 26,000 retail, multifamily and office buildings vulnerable to structural damage from flooding – the most in the nation.
“South Florida represents one of the largest concentrations of national catastrophe risk in the world,” Larsen said.
Higher values, greater risk
While environmentalists increasingly warn of the imminent perils linked to sea level rise, that hasn’t dampened buyers’ enthusiasm for South Florida real estate.
The surge in real estate values in coastal communities has been great for property investors. But the fact that homes are worth more also creates greater risks for insurance companies, which could cause insurers to flee the market or sharply raise rates.
Coastal properties aren’t the only ones impacted. Most of the region depends on canals to drain rainwater into the ocean. The South Florida Water Management District has warned that 18 of the 23 canals in South Florida wouldn’t operate well if sea levels rise at least 6 inches, and it’s working to build pumps to deal with the challenge.
Business owners and others with a long-term stake in the region have plenty of reasons for concern.
A report released in February by NASA and the National Oceanic and Atmospheric Administration contained greater certainty for what the Miami area can expect: sea level rise of about 13 inches by 2050. Not only would that worsen high tides, it would make rainwater difficult to drain from roads and parking structures, and increase the height of destructive storm surge during a hurricane.
Commercial property insurance rates are rising 15% to 25% in South Florida this year, and sea level rise could worsen the situation, said Alec Laethem, director of insurance services for Franklin Street in Plantation. Reinsurance companies, which financially back insurance carriers, are looking to limit their financial exposure in South Florida. That results in some insurance carriers pulling out of the region, which leads to less competition for customers and higher rates, Laethem said.
Climate changes spurring sea level rise also increase rainfall intensity, so there will be more extreme downfalls that make water challenging to drain, said Brian Soden, a professor of atmospheric sciences at the University of Miami’s Rosenstiel School of Marine and Atmospheric Science.
“South Florida is one of the most challenging places to adapt to future sea level rise,” Soden said. “It will also be one of the most expensive places to adapt.”
Attorney Wayne Pathman, founder and managing partner at Miami-based Pathman Schermer Tandy and a member of Miami’s Climate Resilience Committee, said the city is moving too slowly, considering the devastating impacts that could occur with rising seas.
“You can make money in good or bad stock markets, and even what is happening in Ukraine won’t happen forever, but rising sea levels are a constant,” he said. “If it happens, it would be very negative to real estate and insurance here.”