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Climate Change: Why Top Investors Are Paying Attention (and You Should Too)

On The Market Podcast Presented by Fundrise
26 min read
Climate Change: Why Top Investors Are Paying Attention (and You Should Too)

Climate change and real estate. Most people would say that they’re related, but not in a substantial way. We all know that homes can flood, catch fire, or be blown away from a tornado, but how many real estate investors are looking at the climate risk data before making a real estate-related decision? Institutional investors have been using climate change data to make educated decisions for decades, so why aren’t we doing the same?

Cal Inman, lecturer at UC Berkeley and principal over at ClimateCheck, saw that real estate developers were regularly looking at climate data to make decisions. As a small landlord himself, he struggled to find this same type of data for his residential properties. As fire and flooding became more prevalent throughout the United States, Cal knew that this data was imperative for homeowners, not just large-scale investment firms.

Now, thanks to ClimateCheck, homeowners, buyers, and sellers can look at the climate change-related risk before they put any money into a property. Cal also shares why and where climate risk is rising, the safer parts of the US to invest in, and how different regions of the country are preparing for more elevated climate-caused catastrophes. If you’re investing on the coasts, in the plains, or anywhere in between, the data could completely change your investing strategy.

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Listen to the Podcast Here

Read the Transcript Here

Dave:
Hey, what’s going on, everyone? Welcome to On The Market. I am super excited that you are all joining me here today for my conversation with Cal Inman, who is the creator and principal of ClimateCheck. ClimateCheck is a website that provides really cool and pretty unique data about what risks exist based on your property for climate. So, whether that’s wildfires or floods or extreme winds or hurricane, basically, every property in the country has some level of risk from natural disaster or climate. And depending on where you live, it could be really different.
Obviously, I talk about this a little bit in the episode. In Colorado, we have a lot of risk of wildfire. I experience that directly with one of my properties, but if you live on the coast, maybe it’s hurricane or wind or flooding or something like that. This data that Cal and his team have created can be a really helpful asset to investors when they’re underwriting their deals. Whether you are predicting or trying to figure out where you want to invest next or if you’re looking at a particular property and want to understand the risk, that is really helpful when you’re trying to understand what you should be buying. That’s what we’re going to talk all about today, as well as some strategies that you can use to mitigate any of those risks.
So, with no further ado, let’s get into my conversation with Cal Inman, the creator and principal at ClimateCheck. Cal Inman, welcome to On The Market. Thank you so much for being here today.

Cal:
Hey, thanks for having me.

Dave:
I’ve previously looked into your background and you are a real estate developer, a real estate investor, a grad school lecturer at UC Berkeley, and the creator and principal at ClimateCheck. So, can you just tell us a little bit about your background briefly and how you got into all these things, being a real estate developer and ultimately the founder of ClimateCheck?

Cal:
Yeah, I guess it sounds like a lot when you put it like that. I have a short attention span, I think, is the executive summary. I grew up in the Bay Area. My father was a journalist and he covered real estate news. So, I got a deep dive into interviewing all these real estate developers and I was just totally intrigued by it, worked for a developer, cut my teeth, learned a lot about the process, went out on my own, started doing small single family, then rolled that into apartments, then did more commercial style buildings, small office, small retail, did that from 2009 to 2016 or so, then started lecturing at UC Berkeley Masters in Real Estate Development. That was cool and I still do that. It’s a great experience. The folks in there are just super excited to go build buildings, invest.
While I was there, I came across this climate data and we had rental properties. Yeah, super curious how they’re going to be affected by climate change. You read about climate change in the news. Iceberg’s melting. This is existential risk that’s going to affect everyone. How are my properties going to be affected? Are my properties in West Oakland along the San Francisco Bay going to flood with sea level rise? Is there going to be another fire in the Oakland Hills that I experienced when I was a kid? Are those rental properties at risk for burning? Tried to search for the information and it wasn’t really available.
And I’d primarily think about it when I was renewing insurance policies, but then I came across these climate risk data sets. And the next thing I found out was that a lot of big institutional developers and investors, big LPs were using this data to inform their real estate decisions, their due diligence, how they’re going to improve properties, what properties they’re going to dispose of, how they’re structuring their insurance policies. It felt like I deserved access to this information too. Smaller single family homeowners deserve access this information. That’s set me on a new trajectory toward climate data and building ClimateCheck.

Dave:
That’s a really interesting story. I do want to get all into to ClimateCheck, but now, I’m curious just about your own real estate investing first. Are you still developing properties and buying rental properties, and are you primarily still doing that in the Bay Area of California?

Cal:
Here in the Bay Area, yield on investments is tough. There’s too much capital in the market and I haven’t been able to really make deals pencil for the last four years. I was early to exit. I still invest in real estate. I still own property, but I’m not an active sponsor in ground up real estate development deals at all. I’m 120% into this data world. I still lecture at UC Berkeley. So, I still keep my foot in it. A lot of friends are still active and I invest in deals still. So, I’d say I’m still active, but I’m not out there boots on the ground, buying parcels, building buildings.

Dave:
Got it. All right. Well, let’s get into the data. Obviously, that is my area of interest and expertise. You said you were lecturing, you were curious. What was your first encounter with this information and what data is it? What are you actually physically looking at when you talk about climate-related data?

Cal:
Yeah, totally. It’s a really good question. So, when we talk about physical climate risk data, we’re looking at how natural hazards are going to increase or decrease in intensity moving into the future. And so, that we look at six hazards, wildfire, flood, which is more complex, we can come back to that, extreme heat, extreme precipitation, drought, and high winds. And so, we look at what’s the risk profile of each of these perils today and then what’s the risk profile in the future and how’s that changing.
So, when we look at something like flood, for instance, we measure what’s the probability it’s going to happen and then what’s the intensity of it. So, in the future, we have a 40% chance of a two-foot flood on your parcel at 123 Main Street. And so, we try to take these very complex concepts and make them easy to understand, because I think most people get basic percent chance of a flood happening that’s a foot deep. So, we give a 1 through 100 score of risk rating, 100 being the riskiest, 1 being the safest, and then we give these metrics alongside it.

Dave:
How do most real estate investors or homeowners for that matter, I assume, both groups use your tool? How do they use this data?

Cal:
Yeah. So, I’d say the primary group using this information are investors, the folks on the equity part of the capital stack, private equity, REITs, and they’re using it the same way they look at any risk data, due diligence of new assets when we buy a new industrial asset that’s across docking station or a multi-family property. Whatever you’re buying, we do a lot of due diligence. I mean, protecting our downside in real estate is 90% of the work and then creating the value is the last 10%. So, when we look at all these factors, are there underground storage tanks? What’s the market risk? What’s the risk of the tenants? What’s the risk of the municipality, climate risk?
The risk of these natural hazards increasing into the future fits nicely into that due diligence process. So, I’d say that’s the first way it’s used. Second way is just overall portfolio analytics. Let’s look at existing portfolios every year and let’s understand what the risk profile of it is. And the last way it’s used is to inform investment thesis. So, we have a portfolio of properties. We might have an outsized exposure to risk to a certain hazard, and we might want to diversify into other regions with different risks or less of that risk.

Dave:
Got it. That makes sense. So, it sounds like people when you’re buying a new asset are using this to understand their own risk. And then when you’re building a portfolio or perhaps even looking for insurance policies, this could be another time to start using this data. So, you mentioned that institutional investors were previously using this data. Have they always been looking at climate risk and now it’s becoming more important or is this a totally new data set to the real estate investing industry?

Cal:
Yeah, I mean, that’s a good question. I mean, it’s a relatively new data set. We’re bringing more and more data. I mean, even when you look at phase one environmental data, this is relatively new, the ’80s and the ’90s. And then by the late ’90s just became completely ubiquitous. Every commercial property we buy, we get a phase one report on. We’re seeing the same progression here for climate risk reports. It’s becoming best practices. I think you’ll find most REITs, big private equity shops are using this data when they’re buying new assets.
And as more and more folks use it, the rest of the investors want to also be looking at it, because possibly, when you’re buying a property that you want to sell in three to seven years, if the buyer of that property is looking at this data, you want to be aware of it before you purchase that property, because it’s going to affect your exit value and ultimately affect your IRR, which is what we’re looking at when we’re investors. What’s the return? That exit, that disposition value is probably the biggest chunk in your IRR calculation as an investor. So, I think to boil it down, I think that’s probably the most important reason and why most people are starting to ingest this data.

Dave:
That’s really interesting. I didn’t think about that, because obviously, as an investor, if you’re at risk for flood or wildfire, you want to know that during your hold period, but especially if you’re buying a multi-family or something that’s going to be purchased by an institutional buyer like a hedge fund or a private equity firm coming in there. If they’re, as you’re saying, looking at this, then you should be basing your valuations off the same thing that they’re going to be basing their valuations off. So, that’s super interesting. Are you creating this data? Do you have your own climate models or are you aggregating other data from sources?

Cal:
Yeah. Yeah. What are the inputs? So, I mean, our team is 100% product focused. So, it’s a team of data scientists, climatologists, and they’re a lot smarter than me. What they do is aggregate all the best climate data, downscaled climate data, academic data, government data, bring it all into one place, synthesize it in some ways. So, we can search it on a parcel level and then query it for the information that’s useful for you when you’re buying a new property. We do some in-house modeling where there’s gaps in that data. But I think if you think about it like a cake, all of the ingredients we get are academic and government sources.

Dave:
Okay. So, you’re taking all these third-party sources, and like you said, connecting them. So, that if I say I have 123 Main Street, you could have all this different data related to that property and as an investor or homeowner, you can get a good sense of what the risk is.

Cal:
Oh, yeah. I tend to oversimplify it. So, if you look at flooding for instance at your property at 123 Main Street, we use government elevation maps, which are topographic maps. We use government information and data around what soil type is at that property. And then we’ll use these projected climate models to understand the future rainfall volumes and then we’ll do a flood model of the entire United States. We’ll understand at your property at 123 Main Street, “Does water accumulate there and what’s the depth of it?” So, there’s a lot of synthesis in modeling into it, but again, all those fundamental building blocks are all government and academic data sources.

Dave:
Got it. I actually came across your company, because I about a year or so ago was investing or looking to invest in a multi-family syndication in Houston. And I talked to a friend who used to live in Houston and he was like, “Man, you got to make sure you’re not in a flood plane in Houston.” And I was like, “Oh, man, I’ve never even thought about something like that.” And so, I started Googling all this information and came across ClimateCheck, but all sorts of data sets that was complicated. It was hard to understand.
So, I definitely appreciate that you and your company are making it easier for people to simply understand what’s going on there. Now, of course, some climate risk has always existed, right? Floods have always existed. There have been wildfires. What does the data tell you about how the quantity and severity of climate risk is changing over time?

Cal:
Yeah. I mean, I think every hazard’s different, first of all, and every region’s different and even every neighborhood’s different. We have different exposure to risk. And I think that’s why it’s really important to understand the data on a granular local level, because the story’s different everywhere. But I’d say overarching themes, we’re seeing an increased frequency and severity of the fundamental pieces of climate change, which are precipitation and heat. We’re seeing more hot days and hotter days moving into the future and talking over a pretty big window of time, 10, 20, 30, 40 years.
We’re also seeing a higher frequency of heavy rainfall events and those two things feed into the rest of these hazards. So, we’re seeing an increased frequency of flooding and deeper floods, more inundation, and same with fire. Some regions are getting better and they’re all changing. That hazards that each community’s exposed to are different, but there is a higher frequency of these events.

Dave:
Have you seen yet that the availability of this data and the increased risk of climate hazards, has it yet impacted home buyer decisions?

Cal:
I think on the home buyer level, there’s a lot going into that transaction and a lot of it’s emotional, but I think it starts with where’s my job. Okay, I’m a remote worker. Where’s my family? What’s the school district? Probably the first question, what’s the price point? There’s all these factors that go in and same with the commercial real estate transaction. We’re looking a lot of things, yield, demographics.
So, this is one data point alongside all these other things that we think about in a transaction, whether you’re a home buyer or whether you’re an investor. But to answer your question, there aren’t strong signals right now impacting value and climate risk. That being said, as more and more people ingest it and particularly once lenders start ingesting the data, we see a world where that does start affecting values and something we need to think about.

Dave:
Interesting. The appraisal, for example, might be impacted on a lender or similar to how a lot of mortgage companies won’t lend on a property that’s not up to code or needs a ton of rehab work. If there is a property that has a significant amount of climate risk, it might be difficult to get a loan. I had not thought about that at all, but that’s a really interesting point. When I was thinking about this show, my immediate thought went to insurance, right? Because you already start to see that, that insurance in places where there’s risk of hurricane or flooding or wildfires or whatever, those have gone up a lot recently and are probably continuing to do so. Do insurance companies use this data currently, your data or any data like this when they’re evaluating properties?

Cal:
Yeah, we don’t license into the insurance industry, but they look at all sorts of data. I think fundamentally, they’re underwriting your policy with something called a catastrophic risk model, which looks at historical data. But if you think about what an insurer is giving you, they’re giving you a policy that covers you for one year into the future. And when we’re looking at these signals and climate risk, the profile of each of these hazards is changing slowly over time.
So, if they’re only going to ensure you for one year, that 10-, 20-year look isn’t so important for insurers and they can adjust their risk as insurer by changing the premium. Exactly what we’ve seen, right? We have a property here in Northern California and insurance has tripled in the last two years because of wildfire risk. So, I think the alignment of the insurer versus the owner and the lender, it’s different. And I think the owner and lender need to take a longer look.

Dave:
That’s interesting. So, the risk that you’re modeling out is over 10 or 20 years. And obviously, it seems like with all things climate, the change is modest on a year-to-year basis, but it’s the long term trend that is concerning. Because the insurer base gets to reset their own risk, they get to re underwrite it once a year. They’re not too concerned about it as long as the consumers are still willing to pay that increased premium.

Cal:
Yeah. Yeah, exactly. And I think in insurers care, I’m not writing them off, but I think it’s customers’ perception, customer education on their end and helping people understand why these premiums are increasing. But I think building it into their model and how they price the premium, I think it’s less important.

Dave:
So, I had this experience, I guess, it was in 2020. I have a short term rental in the Colorado Mountains. Similar to California, a lot of increase in wildfire activity. My sister was actually staying at the property for the first time ever and called me and had to evacuate because there is a wildfire in the area. Fortunately, didn’t lose the house, but it really got me very nervous and got me to beef up my insurance policy.
But for a while, I couldn’t even find an insurance policy that met my criteria. I wanted to make sure I had business interruption insurance. I wanted to make sure that the replacement value was keeping up with the cost of construction and all these things. And it made me worried that in the future, some of these properties that are either like mine in wildfire risk or coastal or in a flood plain, is there a risk in your opinion that they will be uninsurable at any point?

Cal:
Yeah. I mean, we’ve seen that happen in California here. Folks can’t find insurance and the state is having to step in and create policy to help people get insurance. So, yeah, there are these risks. I think ultimately, you can get insurance. What’s the premium you have to pay for that risk? How does that affect us as investors? I mean, insurance is a line item on our cost. It increases our OPEX. If that expands too much, alongside all the other factors, maintenance and repair, which is also affected by these hazards, ultimately affects our net operating income and the yield of these investments. So, I think it’s an important factor to look at.

Dave:
Yeah, that makes a lot of sense. And I guess for me, traditionally, having underwritten deals and analyzing deals, insurance is not something I normally think about that much, to be honest. It is what it is. You assign some standard inflation pegged increase in costs. Premiums go up 5%, 10%. But especially in these riskier areas, I understand that owning a property in the mountains in Colorado is risky and will become riskier over time. I should probably rethink how I’m modeling those premiums and make sure that the numbers still make sense on those kinds of deals.

Cal:
Yeah. And I think also, with the data, I mean for your property in Colorado, you can start understanding the risk, right? You’re aware of it. It’s a tangible risk. You’ve experienced it in evacuation. Next step is quantify the risk, put rails around, understand what the risk really is. Insurance is an impact and line item impact, but there’s CAPEX projects you can do on that property to reduce the risk. That’s really how folks use the data.
We give the risk data and then the next step is, “How do we protect ourselves?” You can clear brush around the building. You could put smaller vents over your roof fence, finer roof fence. So, embers don’t fly in. There’s very simple, inexpensive things you can do to that home, to that rental property to reduce your risk of loss, some type of insurable event happening to that specific property.

Dave:
That’s super interesting.

Cal:
Yeah. More than just quantifying how your insurance is going to increase over time, but what can we do to protect ourselves, protect our homes, protect our communities?

Dave:
Right, right. Yeah. This place in Colorado I have, there’s an HOA. It’s a small HOA, but the HOA basically exist for fire safety and they clear brush. They offer these wood chipping programs, where if you clear brush, they’ll come around and do wood chipping. They put in three cisterns and retention ponds in the community in case there is fire. So, I definitely resonate with what you’re saying. Somehow I get all of that for $20 a month. That’s all the HOA costs. I don’t really know how that happens, but it seems like a great service to me.
So, I’m lucky in that I have some of those resources, but in your effort and your company’s effort to bring this data and information to mom-and-pop investors and not just having these institutional investors use this, is there a place where our audience and listeners can go to learn some of those commonsense ways that they can mitigate risk and protect themselves against climate risks in their area?

Cal:
Yeah, totally. I mean, go to our website, pull a report on your property. We give a 35-page deep dive into climate risk. With each hazard that we cover, we give ways you can mitigate those risks, ways you can adapt your property to prevent damage. They’re pretty easy things. We list them from the least expensive to the most expensive. So, yeah, we want to be a resource for folks to protect their properties. The goal is not to scare you and get you to sell your property in Colorado, but more how can we help you and how can we help you reduce your risk?

Dave:
Got it. Yeah, that makes a lot of sense. Obviously, people are going to live in these places. It’s about adapting and making sure that just like with anything in your business, you understand risk and are taking the proper steps to mitigate it. I want to ask you, because you have experiences as a developer, do you see this increased climate risk and some of this data that’s coming out influencing developers? I guess specifically I’m curious the type of buildings that they’re creating, are they more climate resistance in some way? And the places where they’re building, are they building more in areas where there is less risk or is that something that is just maybe going to come in the future?

Cal:
It’s a really good question. It depends on the hazard and it depends on the developer and the type of development. The safest places in general that we see across the data and particularly for wildfire are urban environments, urban infill, right? We’ve built these natural protections. We have fire departments. We’ve got some space from the wildlife where the trees are, where the burns happen. We did a study with Redfin where a lot of new developments happen in the wildlife urban interface, right? Greenfield, suburban developments, alongside the edge of the forest where fires happen.
So, we are building the newer suburban areas into these higher risk locations for wildfire. So, those development patterns are a little concerning. I think it’s something that folks need to be aware of when they’re thinking about a location for development and what the investment thesis is around where to build.

Dave:
Yeah. That’s always been a question of mine, because you start to hear about honestly, a premium for some of these features. As a consumer, a lot of people want climate neutral or climate safe buildings. Like you said, do they have the vents? Do they have defensible space? I’m not super versed on what the other mitigation strategies are, but it seems like not only is there a societal benefit opportunity, but there is an economic opportunity for developers to be considering these things as they are building new properties.

Cal:
Yeah, completely. Understand the risks, address them, and I think that takes friction out of the transaction. Whether you’re renting the property or selling it to a homeowner or selling it to another investor, this information’s becoming more and more ubiquitous, right? So, the buyer knows, the renter knows about it, but say, “Hey, look, we understand these risks are here and we’ve done these three things to help mitigate the risks.” And then it helps you move on from that point.

Dave:
I’m not sure if you’ve had data about this, but I’ll put you on the spot. It makes me wonder if consumers will be asking for this in a rental situation too, right? I can imagine being a home buyer, it’s your first home. You’re in Colorado or California and you’ve experienced these things. You’re worried about wildfires or floods or whatever. I wonder if renters are going to start approaching their rental decisions with the same type of concerns and demands from their rental properties. Do you know anything about that at all?

Cal:
I mean, you could imagine, right? I mean, it depends on the market. If it’s supply constrained, you’re going to rent what you can get. And I think it’s the same thing from investment, right? Supply constrained, you’re going to chase yield and buy the property you can get. But I think there’s a world where everyone starts looking at this and want to understand it, because look, if there’s a flood event, a renter’s impacted, right? There’s loss to them. There’s displacement. We do find that people search for hazards that they are familiar with, right? You’ve had an experience with wildfire, folks in New Orleans, Houston. Hurricane areas have experiences with flood, whether it’s storm surge or surface flooding.
It’s been part of their life and something they think about. It’s an intuitive risk for them, for their location. So, we’ll see people searching risks that they understand, even if they’re moving to a new market. And so, really, what we’re trying to do is make everyone aware of all the risks, especially as we’re moving to different states, different cities. I think there’s a lot of good information in there that might not be as intuitive for people, but it’s intuitive for the people that live there and have experienced those risks.

Dave:
Yeah. That makes total sense. I mean, now, I’m always thinking about wildfires, because I have this hopefully one-off experience. I lived in Colorado for 10 years. I’m sure in California, you hear about it every summer. You go camping and you can have a fire or you can see the smoke. These experiences, they impact you for sure and they definitely make you think about how you can protect yourself. Do you have any data or high level stats about the general risk in the country? Are most homes at severe risk of some climate emergency or issue, or is this just limited to some of the cities that we’ve talked about so far?

Cal:
Yeah, I think everywhere is impacted. I mean the answer to that is there’s risk everywhere. What is the risk? We think about the Southwest and extreme heat risk, something we haven’t talked about today much, but this is a big risk. There’s going to be a huge increase in the number of extreme hot days. How does that affect you as a renter, as a homeowner, as an investor? There’s going to be increased utility costs for AC. There’s quality of life issues. We think about coastal cities and sea level rise. This is a big one.
Flooding is pretty consistent across the US. A lot of areas are exposed to different types of flooding. Drought in the West, we’re seeing a lot more drought. So, again, it’s really region specific, but everywhere carries some type of change in your exposure to these natural hazards. So, it’s not necessarily one thing everyone’s going to experience, but we all carry some risk to climate change.

Dave:
Yeah, absolutely. It seems like it’s like a Whack-A-Mole thing. You look for one area. It’s like, “I don’t want to be near a flood,” and it’s like, “Okay, you don’t need to be near flood, but you’re going to get some wildfire.” It’s like, “Well, I don’t want wildfire. Well, you’re going to get some extreme risk.” It just shows the breadth of the challenge and the situation we’re all going to be dealing with over the next couple of decades. Are there any areas in the US or even in the world that are more climate… I think the word’s resilient and I don’t mean in terms of infrastructure, how prepared people are. I mean, from a natural sense, are there certain areas that have relatively less climate risk?

Cal:
I think as you move north more, certain risks decrease, get away from the coasts. I think urban core’s probably the safest answer. And I think those community municipal adaptation strategies, building a sea wall, building a fire break around the city, those are really important.
How are we adapting as communities? Because these risks exist and it’s not like everyone’s going to leave the United States and go to Canada or something, but how are we dealing with it as a community? Are we putting bonds in place to create adaptation strategies, to keep the local communities safe? So, I think a lot of this is about just engagement discussion around the risks and figuring out, “What are strategies in individual property level and then what our strategy is as a neighborhood in a community?”

Dave:
Yeah, that makes sense. I don’t know if you know this, I live in the Netherlands, in Amsterdam. I think it’s about 26% of the Netherlands naturally is below sea level. They have reclaimed a lot of land. They pump out water and they dredge. They’ve been doing this for 800 years or something like that. They’re obviously all worried about sea level rise because we’re already below sea level here. And so, it’s interesting to see what mitigation strategies different communities are taking. They’re building huge sea walls and expanding dikes and all of these things.
And it is nice to see that there is some proactivity. It does sound like in the US, we’re starting to see some more proactivity about mitigation strategies, planning in worst case scenarios. Do you have any information that you can share with us about that? How are communities, municipality, states preparing for some of these climate change centric risks?

Cal:
Yeah, I think adaptation’s a big conversation and it’s complex and it is federal level. It is state level and I think we’re seeing most of the stuff happen on a local municipal level. We see it here with how in California where we have built in fire breaks, putting together Cal Fire, making sure it’s well funded to protect from wildfires, educating individual homeowners about what they can do. The same thing in Miami, right? We’re thinking about where you live, sea level rise, and what we’re going to do about that to protect the cities. So, I think it really all comes down to local solutions and so engagement with those politicians and all those stakeholders.

Dave:
Yeah. Well, that’s interesting. I think for our listeners here, if you’re buying properties, in addition to looking at some of the risk that Cal’s been talking about for your individual property, it would be helpful for you to also look at what your municipalities are doing and if they’re acknowledging any risks or how they’re preparing or resources that might be available to you to upgrade your property.
A lot of times municipalities offer tax breaks or incentives to do some of these mitigation strategies. So, that could be a really good option for people out there. When I was researching before this show, I read some article, I don’t even remember where it was from, that said that Duluth, Minnesota is the most climate resilient place. Do you think all of a sudden millions of Americans are going to converge onto Duluth, Minnesota and start moving there?

Cal:
Yeah. I mean, as a company, we try to stay away from the extreme fear and to help people sell your house now and move here, because I don’t think that’s necessarily a solution, but I will say there are a lot of smart people, folks in academia and investors that are looking at these ideas of climate migration, when these big events happen, where are folks going to move and what is safer, and exploring ideas of climate gentrification.
I do think there will be movement of people around when these impactful events happen. We’ve seen it in the past. Big floods, folks get displaced and they go to other communities. So, I think it is something to watch and think about and build into your investment thesis. By no means, are we trying to say, “Sell now. Don’t go to this area,” but I think it’s a factor to consider as you’re going out there.

Dave:
Yeah. Yeah, for sure. I thought it was funny just Duluth just seemed like such a random place with no offense to anyone from Duluth. Yeah, I was curious and actually written down a question for you. Do you think there will be climate migration? Because I read, I think both for Hurricane Katrina back in 2005 and then the Houston flood, I’m blanking on what year that really bad flood was, people got displaced, left, and never really went back. It did strike me that if there is increased risk of wildfire or flood in major metropolitan areas, I don’t know if it’s going to be like a wholesale large migration change, but could have at least some migration and population changes in the US because of some of these risks.

Cal:
Yeah, definitely. I mean, those two events are great examples of folks. Where did they move? They moved to similar cities that had similar job market, similar supply of housing, but it’s adjacent and close to family. So, I think there’s a lot of factors to consider beyond the risk of the event happening when you’re thinking about climate migration. It’s a complex thing to model out and so multifactorial, but it does happen as these events occur. Again, I think it’s an important data point to think about and look at as you’re investing or buying.

Dave:
Great. Well, thank you so much for this information. We do have to get out of here in just a minute, Cal, but is there anything else you think our audience should know about climate risk for real estate investors or anything else just about the data that you think is worth knowing?

Cal:
No. I think, use the information alongside all the other information you look at when you’re doing your due diligence. Information’s now available, accessible. All you have to do is go to our website and go to climatecheck.com. Search an address and try to understand your risk to climate change a little bit while you’re looking at all these other data points in your investments.

Dave:
Awesome. Well, thank you to Cal Inman, who is a real estate developer, investor, and the creator and principal at ClimateCheck. Thank you so much for joining us On The Market.

Cal:
Hey, thank you.

Dave:
Super interesting interview there with Cal Inman. I really enjoyed having the opportunity to talk with him. I personally learned a lot and hope that you all did too. This has been something that I’ve been thinking about. As I said during the interview, I’ve had some experiences recently where a property I had came close to burning down in a wildfire. I’ve invested in some cities that have experienced significant hurricanes, for example. I’ve just been curious to learn more as an investor, “What risks are out there due to climate change and some of the changes in insurance and lending that Cal was talking about?”
I thought Cal did a great job just presenting the data as it is and talking about how to appropriately use it. He’s not saying that you should be going out there and changing all of your plans or to be panicking. What he is saying is just to inform yourself about what risks exist and what you can do to mitigate those risks if there are significant ones that you’re worried about for your particular properties. This is just like when we talk about evaluating an individual market or individual deal, there are tons of data points that you have to think about and factor in and decide which markets are right for you to invest in, which deals are right for you to invest in.
And hopefully, from this episode, you can now add climate data and climate risk to your factors and your underwriting when you’re considering deals. Thank you all so much for listening. I hope you enjoyed this episode. As always, if you have feedback or thoughts on this episode, you can hit me up on Instagram, where I am @thedatadeli. And if not, we will see you on Monday for another episode of On The Market.
On The Market is created by me, Dave Meyer, and Kaylin Bennett, produced by Kaylin Bennett, editing by Joel Esparza and Onyx Media, copywriting by Nate Weintraub, and a very special thanks to the entire BiggerPockets Team. The content on the show On The Market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

 

 

Watch the Podcast Here

In This Episode We Cover

  • How real estate developers use climate data to make better investing decisions 
  • Whether or not climate risk is rising and in which markets is it impacting the most
  • Why coastal investors especially need to be specific about where they decide to buy
  • What small investors can do to mitigate the risk of losing their properties to climate emergencies
  • The impact climate change will have on US migration and renting/buying trends
  • And So Much More!

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.