Flood-related losses will grow, but commercial real estate investor appetite remains strong in areas like Miami Beach, according to a CBRE report released Tuesday.
The report, titled “Rising Tides, Increasing Risk: How the Insurance Industry’s Response to Climate Change Could Impact Commercial Real Estate Investors,” found that current practices by insurers, lenders and property owners in the U.S. leave commercial real estate owners exposed to much of the risk of sea level rise.
Most lenders don’t require borrowers to buy flood insurance beyond the National Federal Insurance Program’s $500,000 coverage cap for commercial properties.
“As most commercial property owners have chosen not to purchase supplemental coverage, they are effectively choosing to insure themselves for damages in excess of that amount, exposing themselves to a risk that the insurance industry itself is backing away from,” CBRE Director of Research and Analysis Quinn Eddins said in a statement. “While current property owners appear willing to accept this risk, there may come a day in the future when potential buyers will not be willing to do the same.”
NFIP claims filed after hurricanes Katrina, Rita and Wilma in 2005, and Sandy in 2012, put the program $24 billion in debt to the U.S. Treasury as of December 2013, according to a news release.
Miami Beach, one of the most vulnerable areas in the country to sea level rise, also has the some of the most expensive real estate in South Florida. — Katherine Kallergis