Future-proofing commercial real estate properties may never be more important than now. The recent hurricanes Helene and Milton wreaked havoc on the Southeast especially West Central Florida.
From Hurricane Helene alone, Moody’s RMS Event Response expects private market insured losses to range between $8 billion and $14 billion. Jefferies equity analyst Yaron Kinar for Milton and other experts expect Milton to result in $175 billion in landful losses for Tampa, and $70 billion for the Fort Meyers region, according to a note posted by CNBC.
Florida is of course seen as a popular state to move to thanks to warmer temperatures and lower taxes. It’s also considered a business-friendly place to operate. But the recent events can’t be ignored and everybody must consider whether Florida is a viable place to live and operate. And it appears that’s already happening, as a Redfin report this month found that nearly a third of US residents between the ages of 18 and 34 said they are reconsidering where they want to move in the future after the recent hurricanes hit Florida and some Sunbelt areas.
“Two feet of water in your living room isn’t fun. Losing power isn’t fun,” Ari Rastegar, founder and CEO of Rastegar Property Company, which has invested in properties across 13 states, with a focus on Austin, Dallas, and Phoenix, told GlobeSt.
THE NEED FOR FUTURE-PROOFING
This is why developers may want to consider future-proofing projects, which are measures taken to prepare for potential catastrophic events. While it may add to the cost of the project, taking this precaution could reportedly lead to several benefits including cutting energy use, lower insurance premiums, and avoiding damage.
Some examples of future-proofing for include proper insulation, floating properties that can rise with sea levels, and building green-friendly communities.
Currently, Ari Rastegar said that his company is working on being more efficient with water, pointing to one of its condo conversion projects.
“The way that wastewater is utilized, it would produce more wastewater by changing the use from office into condo,” Ari Rastegar said.
“We’re using a wastewater purification system that’s used on islands historically. We’re just putting it in a more urban environment to make it more efficient.”
And for sites like Phoenix, where the climate is a little drier, Ari Rastegar said the firm is using more “robust HVAC” systems to “build higher resilience on the electrical grid.”
THE CAVEAT
However, there is one issue with some future-proofing projects that Ari Rastegar warned about – and that’s the potentially long wait.
The plans need to go “through a sludge of bureaucracy, a sludge of city council and state officials and maybe United States officiating,” he said.
With zoning and building even in development-friendly cities like Dallas, the process could take “years and years,” according to Ari Rastegar.
Ideally, legislation needs to pass to speed up the process for future-proofing, but he doesn’t view that as a realistic possibility.
“There’s nothing that I’m seeing right now that could pass at a state level, and forget about a national level,” Ari Rastegar said.
“Proofing concepts being adopted at a level that moves the needle – you’re not going to see it.”
However, projects like condos are a different story.
“We’re seeing all sorts of cool things happening in Miami, generators put into the buildings and all this stuff,” said Ari Rastegar.
But condos are just a small piece of the home sector and more work that impacts the working families and the regular American needs to be done.
POPULATION COULD GROW IN TEXAS
Because of the uncertainties in the Florida region during hurricane season, Ari Rastegar thinks Texas could stand to benefit from population growth.
“Look where Dallas, Austin, and San Antonio are,” he explained. ”They are dead in the middle of a state that is growing crazy.”
Recently, Austin topped Realtor.com’s ranking of the top 10 markets for renters, which is based on affordability, economic growth, and availability.
While heavier catastrophic storms are less likely, it’s important to note that Hurricane Harvey, which was a devastating category 4, hit the state in 2017. Also, Texas froze in 2021 after the grid failed.
UNCERTAINTIES FOR FLORIDA AHEAD
Ari Rastegar said future-proofing for The Sunshine State should be a priority going forward. While other southeast states like Georgia and the Carolinas are prone to hurricanes, it’s not on the same level as Florida.
Ari Rastegar will not consider any investments at least in the current landscape for Miami, in particular, even though he has looked at possible deals there in the past and has his largest office there.
“I’ve passed on every single [deal] because it’s out of my control with the long-term climate change that could possibly be there, and I don’t think the reward outweighs the risk,” he said.
According to the Florida Climate Center, the southeast coastline and the panhandle regions are the most vulnerable spots to hurricanes in the state.