Great Lakes city investing / play on global warming

17 Replies

Ok here's my theory and could use some advise from the locals.  I am looking to do some buy and hold real estate investing and want to make a "play on global warming"...my research shows that the southwest through California (where I live) will be dealing with increased drought conditions and other adverse affects from global warming out 15-20 years and beyond.  Conversely, areas like Buffalo, Cleveland, Detroit, Milwaukee, etc. might actually see benefits (relative to other parts of the country) as its weather warms a bit and fresh water sources in the US become more scarce.

So since I am going to be investing anyways (and already have 2 places in California), I'm thinking maybe to diversify, I could invest in a place that will cash flow now and that 20-30 years out may become far more attractive than it is now and a place that my wife and I and/or our kids can have paid for and ready if it becomes the new more attractive place to live down the road...

All that said, does this theory make sense, and more importantly, what city would you recommend as best to invest in (criteria being that its a decent or up and coming place to live in now but could become much more later). 

Ideally I'm looking for a place on/near the shore of one of the Great Lakes...I've seen some nice high-rise condo's in West Cleveland with views out to the lake that looks interesting. 

Worst case scenario that I have seen says a 4 degree celsius increase over the next 100 years.  That's about 7 degrees F, absolute worst case.  I don't think that is likely to turn Cleveland into a beach vacation spot.

Your welcome here, but be prepared to use that snow shovel for a while ;)

It's just October and we are already getting frost advisories and temps close to freezing at night.  

Now remember that "global warming" is about climate CHANGE not just WEATHER.  Climate change happens over a period of time.  Weather is what is happening right now.  People tend to get the two confused.

Dawn Anastasi, Core Properties, LLC | http://www.coreprop.biz | Podcast Guest on Show #29

Though I do believe us humans are having an adverse effect on the global climate I don't think it's going to cause a mass migration of people to move north anytime soon like 10 or 15 years, maybe 50 years down the road if some of those extreme climate model forecasts end up true and society sits and does nothing to improve the situation from now to then.  Fresh water by then might become more valuable than oil in this dystopia vision of the future.  

I do believe the Great Lakes ( the largest group of fresh water lakes in the world ) are one of the most under appreciated geological assets in North America. I think people will start to realize that and move into the "Rust Belt" cities that hug the lake due to a mixture of affordable housing, returning of jobs and proximity to the Great Lakes.  Maybe 20 years later people will stop using the moniker "Rust Belt" and start calling these cities the "Bronze Belt" cities.  You can find a list of major cities on the lakes at Wikipedia http://en.wikipedia.org/wiki/Great_Lakes.  

@Andrew M.  

Either way I like your train of thought.  Looking to the future is a great way to stay ahead of the game.

I have had a similar theory here on the east cost; ei will the Carolina's become the new Florida?  Eventually will Maine be a comfortable, desirable state?  It is loaded with undeveloped land and miles of coastline....

Average temp on the Maine coast in January - 31 degrees

Average temp in Miami in January - 76 degrees

ABSOLUTE WORST CASE WARMING PROJECTION - 7 degrees per 100 years.

Maine will be just like Florida in 650 years.

This kind of game is fun, but as a guide to real estate investment strategy it is just silly.

@Richard C.  thanks but I think you're being overly simplistic.  Your speaking of this like it behaves as a step progression...today's weather is what it is, and then 100 years later it gets hotter.  It will be a linear progression and as we're seeing the effects already (drought in CA/TX, outsized storms, snowpack reductions), it should continue to progress upon a continuum getting relatively worse in some areas and relatively better in others.  Thus it all becomes relative...the fact that the Great Lakes are already cheap factors in their relative  lack of attractiveness vs. a place like California which is expensive.  But as one gets worse (CA) and one gets better (Great Lakes) that gap will diminish.  So now the consensus thought is you make your return in CA off appreciation and you make your return in the Great Lakes off cash flow.  So if I buy now in CA and prospects are that appreciation will diminish relative to current expectations based on yet unforeseen factors (global warming effects) than on a relative basis would I be better off investing in the Great Lakes and get the cash flow now and into the future and in the future a yet unforeseen rise in appreciation which investors are not currently factoring in.  This assumes I buy an investment unit now and hold for 30 years to my retirement.

By your logic, the answer to my question is "no" because you feel that since Cleveland will not be a beach spot there will be no relative improvement.  I feel the move will be a linear progression with small, incremental improvement in the Great Lakes relative to its US alternatives and that will, all else held constant, cause value creation that is not yet being factored in. 

Seems that you're thinking "until I see it, I shouldn't factor it in".  Tell that to those who bought real estate in San Jose or Palo Alto (Silicon Valley) 30 years ago.  I used to go there as a child and there was nothing there, now its some of the most expensive real estate in the country.  People who bought there with foresight 30 years ago pass wealth on to their children, people who wait until they see the Google headquarters to buy there pass debt onto their children.

Again, worst case scenario is 7 degrees F over 100 years.  Best case and most likely cases are significantly less.  Over 30 years, there is going to be no measurable difference.

Originally posted by @Richard C. :

Again, worst case scenario is 7 degrees F over 100 years.  Best case and most likely cases are significantly less.  Over 30 years, there is going to be no measurable difference.

 7 degrees F temp. over 100 years is kind of a big deal when it comes to climate.  Significant increase in hurricanes, coastal floods, droughts, and extreme heat alert days.  The northern states will see more rain than snow and cold season storms. Source: US EPA Overall I don't think this future will look good for anyone. Hopefully we won't ever get to that point.  I'm pretty optimistic we will find some sort of solution and if we don't we will learn to adapt to the conditions (at least our grand children will).  By the way that worst case scenario of 7 degrees is from the IPCC which is in dispute with other climate models that peg it at 9.4 degrees F by 2100. Source: Scientific America

And there are still other models that place it at near zero by 2100.

Of course 7 degrees F is a relatively big deal, and will have an impact.  But the idea that it will turn current cold places warm, reliably enough that we should allow it to guide our investment strategies, is the purest of speculation.  The Midwest could as easily become COLDER, with more extreme winter weather.

Its not about turning cold to warm, its relative.  See Lawrence C. Smiths' The World in 2050...speaking of northward migration...that's 35 years from now, not 100.

@Richard C.  Below, from Mark Lynas' book 6-degrees...so I don't think its "silly" to be trying to contemplate/prepare for these factors, especially if you're doing buy and hold investing that you will be "cashing out" at retirement in 30-50 years from now.

In 2001, the Intergovernmental Panel on Climate Change (IPCC) released a landmark report projecting average global surface temperatures to rise between 1.4 degrees and 5.8 degrees Celsius (roughly 2 to 10 degrees Fahrenheit) by the end of this century. Based on this forecast, author Mark Lynas outlines what to expect from a warming world, degree by degree. At 1 degree Celsius, most coral reefs and many mountain glaciers will be lost. A 3-degree rise would spell the collapse of the Amazon rainforest, disappearance of Greenland's ice sheet, and the creation of deserts across the Midwestern United States and southern Africa. A 6-degree increase would eliminate most life on Earth, including much of humanity.

Many of the late '90s/early 00's projections have already failed to pan out.

Look, if you wanted to argue that climate change would exacerbate drought conditions in CA, to the point that Southern CA would be a declining market in 30 years, I think maybe you could make that point.

But to argue that the Midwest will somehow become milder is simply not supportable.  It may, it may not.  Recent weather patterns suggest that warmer seas, for example, result in more extreme winter weather in much the US Midwest, not less extreme.

I suspect the biggest potential threat of climate change will be that someplace like CO will turn off the spigot for SoCal.  Should have happened already.  No one who calls themselves an environmentalist should be part of building anything at all in SoCal; it is by definition not sustainable.

Originally posted by @Mark Del Grosso :

Your welcome here, but be prepared to use that snow shovel for a while ;)

 That's REALLY Funny Mark

I've got a future beachfront property in North Indiana.  I'm sure when global warming hits it will be worth 7 million so I'll sell it to you for 1 million.  In the interim, I'll commit that 1 million to research to discover if there is a source of water for California on the left side of the state.  It's a win/win for everyone.

Heavy rainfall events in Northern Ohio are up 37% over 50 years. This is much of the reason why Lake Erie sees bigger and bigger algae blooms every year (due in part to farm runoff from NW Ohio and overflow of the environmental disaster that is the Detroit sewer system). This is more part and parcel to the effects of "climate change" than simple changes in average temperature during a given year.

Those who know me well know I have a bone to pick with cities built in deserts (read: the southwest). Heavy water use there results in higher evaporation of fresh water and runoff to streams and rivers, which eventually ends up in the ocean. At some point the future, desalination might become a very cheap option, but not quite yet--as of now it's being supported by (Midwestern) federal tax dollars going to public works, which make the place livable.

@Andrew M.  

There are states I'll invest in and states where I won't. Global warming isn't anywhere near the top of the list of reasons why I will or won't, not for single family or multifamily housing anyway, but if you're looking at buying large tracts of land or commercial land (i.e. NNN leases), then yeah, GW might be a 20-50yr concern.

But the most important point you brought up is water availability via climate change. Areas where water is abundant versus where there near annual shortages are a major concern. Areas like Las Vegas and SoCal are strictly off limits for me b/c all it takes is several years of drought and bottom falls out. Of course, this is a very long tail event where probability is very low, but if you're into long term risk management, water availability is a big concern. 

Add weather related events and lower elevation areas (Gulf Coast states) where frequent flooding is an issue, and there is simply no way I'd ever invest in areas like Florida or New Orleans. Even the Dept of Defense has predicted Naval Bases along East Coast (i.e. Norfolk) will be affected by climate change, so if the military is budgeting in future costs, it's probably worth factoring in to your cost benefit analyses as well.