On March 21, 2022, the US Securities and Exchange Commission (SEC) proposed a rule to enhance and standardize climate-related disclosure for investors.
“SEC proposes rules to enhance and standardize climate-related disclosures for investors,” US Securities and Exchange Commission,
March 21, 2022.
If carried through as written, the rule would require public issuers to disclose material climate risks, greenhouse-gas (GHG) emissions, and, as applicable, emissions reduction targets and transition plans.
The proposed SEC rule would affect the real-estate world in two key ways. First, it would apply directly to publicly traded real-estate companies and real-estate investment trusts that are registered with the SEC.
Patrick J. Kiger, “What SEC’s proposed climate disclosure rule could mean for real estate companies,” Urban Land, April 15, 2022.
Second, it would indirectly apply to the vast majority of large real-estate owners. A significant number of corporate tenants, real-estate lenders, and real-estate investors are public entities that would be covered by the SEC rule, and therefore would have to make disclosures about their real-estate holdings. Given that real estate accounts for a significant component of scopes 1 and 2 GHG emissions
2019 Global status report for buildings and construction: Towards a zero-emissions, efficient and resilient buildings and construction sector, Global Alliance for Buildings and Construction, 2019.
for players in most industries, meeting the SEC’s reporting requirements is impossible without understanding the emissions that come from real-estate footprints. If enacted, the SEC’s rule would mean both public and private real-estate companies must provide this insight to their tenants, investors, lenders, and other stakeholders.
While the rule may be challenged, the proposal is likely to have a significant impact on the real-estate industry. Over the past several years, some real-estate players have developed a growing awareness of the need to incorporate both climate-related risks and emissions into their valuation, decision making, operations, reporting, and pricing.
Jameelah D. Robinson, “Real estate investors want to know what cities are doing about climate risks,” Bloomberg, November 3, 2020.
Others have moved more slowly. The proposed rule introduces the idea that climate disclosures are fundamental to running any real-estate business.
Real-estate firms will likely soon be receiving calls from their tenants and investors looking for emissions figures, risk disclosures, and emission-reductions plans. Tenants and investors may be concerned with meeting the requirements of the proposed SEC rule or doing the same for other regulations that could emerge. They will likely want to work with companies that can provide reporting of current emissions and risks, ongoing assessments as the climate changes, and options for reducing emissions.
For publicly held tenants and investors, the requirement to disclose real estate climate risks and emissions provides another reason to reduce emissions and help their stakeholders and customers do so. A benefit may be that those who do it well and early have a competitive edge.
For the real-estate industry, the lingering question around climate change has always been, what will be the catalyst for decisive, collective action? The SEC’s proposed rule provides an answer: the time to act is now.
Real-estate companies have an opportunity to respond to the SEC’s proposal preemptively
Publicly traded companies in all sectors are preparing for the potential implications of the SEC’s proposed disclosure rule (exhibit). Real-estate companies would be wise to prepare for the climate-risk questions tenants, investors, lenders, and other stakeholders will have. They can use these insights to revalue and reassess their real-estate portfolios, and ultimately differentiate themselves in the marketplace by offering the most comprehensive and effective emissions reduction solutions.
Tenants will soon be calling
Tenants that lease commercial real estate for business unrelated to real estate may be contemplating for the first time that the physical spaces they occupy contribute to emissions and expose them to climate risks. They will need answers from their real-estate partners.
The most straightforward questions will involve emissions, including the following:
- What are my emissions today?
- How can I reduce those emissions? Can I do so in my current buildings?
- What will these reductions cost? What value could they create?
- As the climate or regulation changes, or as operations change, will our real-estate partner be able to provide updated emissions readings?
More complex questions will emerge from disclosure requirements regarding materiality impacts and specific risks to organizations’ physical footprints, including the following:
- Which offices are at risk and to what extent?
- Which manufacturing facilities, distribution centers, data centers, or hospitals will be affected by climate risks?
- How will the above risks affect operational continuity?
- How probable are these impacts, and how severe?
Answering these questions requires understanding the details of the physical hazards in a specific location and the extent to which these hazards could affect the operation of a building (such as if a flood could disable the building’s mechanical systems or whether those systems are located on the roof).
Investors will have a new set of needs as the ‘Great Repricing’ accelerates
Real-estate investors may be familiar with green building concepts but should get used to the idea that their entire portfolios will likely need to be reexamined through a climate lens.
We have argued in prior work on climate risk and the opportunity for real estate that emissions and climate impacts will soon be significant drivers of the value and performance of real-estate assets. These impacts can manifest in both positive and negative ways for the value of a given real-estate asset.
On the positive side, real estate can help companies meet their emissions reduction targets and tenants will likely make greater investment in climate-ready real-estate assets because of the long-term savings that stem from mitigating climate and regulatory risk. Insurance costs, utility costs, and other costs (such as for repairs and maintenance) could decrease in such buildings due to better physical resilience. In turn, the value of these assets could be higher because of more attractive income and operating-cost profiles. As a corollary to these direct impacts on property net operating income (NOI), as investors look to decarbonize and reduce the climate risks in their portfolios, the attractiveness of assets will vary based on their emissions and risks, and capitalization rates will reflect this.
Conversely, buildings at risk from growing physical hazards or with higher emissions profiles will decrease in value over time, as industry players comprehend, account for, and report on climate-related risks. Insurance costs, utility costs, and other operating costs may be higher in these properties.
Until now, the impact of climate on the performance and valuation of real-estate assets has been felt primarily by select pockets of the most obviously exposed real-estate. However, as thousands of companies begin to comprehend the emissions and risks that emanate from their real-estate choices, this information will become clearer and more widely distributed.
It is easy to imagine this awareness creating tenant demand for lower-emissions building performance from their landlords and for lower-risk locations or buildings. As tenants migrate, it follows that lenders and investors would do the same. The result is a phenomenon we call the “Great Repricing,” a re-sorting of value in which some assets would be devalued, some would be stranded, and some would become more attractive. Still others could be significantly refurbished and repositioned in light of these changes.
We believe growing climate awareness that ultimately results in the Great Repricing will happen whether the SEC’s proposed rule becomes reality sooner, later, or not at all. However, by focusing the attention of all public companies on the climate risks and emissions profiles in their real-estate footprints, we think that the proposal will accelerate the process.
Real-estate players with climate intelligence and capabilities will stand out
As the Great Repricing unfolds, opportunities will arise for real-estate players that understand how climate factors affect their portfolios and asset values and can respond in ways valued by tenants, lenders, and investors.
Climate responsiveness will become a new basis for differentiation across the value chain. Companies that create reporting systems to support tenants, lenders, and investors in meeting their disclosure requirements will be more attractive as partners and landlords. Landlords that help occupiers lower emissions through refurbishment, lower-carbon building systems, and ancillary ways such as solar-energy generation or electric-vehicle charging may gain a competitive edge by offering these value-add services. Individual buildings that are lower carbon and lower risk will be highly differentiated, as will be markets that pose lower risks.
Real-estate players that build climate intelligence and capabilities can separate themselves from the pack. While the race had already begun for some, the SEC has now fired the starting gun for the whole industry.
What can real-estate companies do today?
There are multiple reasons the real-estate industry must make changes to combat climate change and prepare for its effects. First, real-estate assets are vulnerable to long-term climate risk that can be very expensive. Second, real-estate companies have their own commitments to reduce emissions—in some cases in response to demand from investors—and comply with existing regulations. The SEC’s proposal can be viewed as a third reason and an accelerant to the above imperatives.
Given the shifts on the real-estate horizon, real estate players should consider several actions:
Create an emissions reduction and reporting engine
Real-estate companies can effectively understand their baseline emissions, find ways to cost-effectively reduce those emissions, and report on those reductions. This is a good time to take stock of organizational capacity, expertise, and data needs around emissions.
Companies should determine what people, capabilities, tools, and processes they need to understand each property’s emissions. They should determine which insights are required to find the most cost-effective ways to reduce emissions, and what execution capability is required to deliver reductions.
Set up an organization and operating model to address emissions
It will be important to set up a coordinated governance structure across property operations, asset management, risk, finance, and other functions to ensure this engine is effective.
Reducing emissions and addressing material impacts will likely require different forms of engagement with a broader set of stakeholders than many real-estate firms are used to. It may also be important to have a single leader responsible for pulling together these threads throughout the business. This leader can develop coalitions that push to reduce emissions in areas not in the landlord’s direct control. Partnering with utilities can help in electrification and efficiency efforts; working with banks can unlock lower-cost financing for energy-efficiency retrofits; and working with local municipalities could create development allowances that enable a lower-emissions building or improve the availability of public transport.
Build a solid view of material climate impacts
Now is the time to develop a clear understanding of the impact of climate on the performance and value of assets. It is important to forecast the impact of changing physical risks such as fires, floods, storms, and heat on the fundamental economics of assets. Equally crucial is an understanding of what a decarbonizing economy means for a company’s markets, tenants, asset NOI, and capitalization rates. To make the most of insights into material impacts, knowledge must not remain isolated within the risk function but rather become a capability that cuts across the organization.
Translate capabilities into value
Turning climate-impact insights and emissions reduction into value requires active engagement by real-estate players. For example, if a real-estate company makes changes to a building that lowers energy use—thereby lowering associated emissions—it should also develop a novel leasing structure that acknowledges the building’s lower utility costs and “green premium” (the benefit the tenant will derive from occupying such a building). Other innovative approaches could also be pursued, such as financially partnering with tenants, lenders, or equipment providers to conduct retrofits. Changes to assets that create climate resilience can result in an edge not just with tenants but also in capital allocation, investment decisions, and asset management. Many larger players should consider developing an advanced analytics capability to ensure that climate insights effectively inform decisions across the business.
Now is the time to develop a clear understanding of the impacts of climate on the performance and value of assets.
Real estate plays a critical role in ensuring the decarbonization and resilience of our economies and communities. While many of the shifts described in this article are already under way, the SEC announcement will likely accelerate them and create both urgency and opportunity for leading real-estate players to respond.
The Questionnaire: These real estate bigwigs have thoughts about the market – Toronto Life
President, Right at Home Realty
Dream job as a kid: “An adventurer, like Indiana Jones.”
First thing you do in the morning: “Walk my dogs, Bella and Sophie.”
Secret to success: “Perseverance. In real estate, you get told ‘no’ nine times before you hear ‘yes.’ ”
Celebrity doppelgänger: “Michael J. Fox.”
Toronto neighbourhood with the most untapped potential: “Bloor West Village. A lot of renewal can happen there.”
How you would improve the Toronto real estate market: “More transparency in the bidding process. Buyers are mostly unaware of how it works.”
Describe the current state of the GTA market: “We’ve seen a drop in activity directly related to an increase in mortgage rates.”
How long until it corrects? “If we’re fortunate and inflation comes under control, we might see a bit of a rebound in the fall 2023 market.”
Describe your dream home: “A small house overlooking the ocean, in an undeveloped area in Mexico.”
Is it a good time to buy a house? “If you plan to stay in the house for at least 10 years, it’s never a bad time.”
Is the Toronto market crash-proof? “Toronto is the financial centre of the Canadian market, so it’s pretty close.”
President and CEO, Royal LePage
Dream job as a kid: “A photographer for National Geographic.”
First thing you do in the morning: “Make a cup of coffee.”
Secret to success: “Imagination. I always need to have a half-dozen ideas in the hopper, otherwise I’m not happy.”
Celebrity doppelgänger: “Tom Hanks. We look similar and we’re both affable.”
Toronto neighbourhood with the most untapped potential: “The Port Lands. It has so much natural beauty.”
How you would improve the Toronto real estate market: “Densification. We need more two-, three- and four-storey residential buildings.”
Describe the current state of the GTA market: “It’s recovering from the irrational exuberance of the pandemic era.”
How long until it corrects? “It’s correcting now. Prices will continue to flatten until the end of the year.”
Describe your dream home: “Modern, with lots of windows and environmentally friendly features.”
Is it a good time to buy a house? “The right time to buy a home is when you have the means and you or your family need it.”
Is the Toronto market crash-proof? “Toronto is the biggest city in one of the best countries in the world. If there is any place a real estate investment is secure, it’s here.”
President and broker of record, HomeLife Landmark Realty
Dream job as a kid: “Doctor. I wanted to cure cancer.”
First thing you do in the morning: “Go for a walk and plan my day.”
Secret to success: “Treating people sincerely.”
Celebrity doppelgänger: “Jack Ma, co-founder of Alibaba, the e-commerce site. We have the same last name.”
Toronto neighbourhood with the most untapped potential: “Don Mills and Lawrence. When they finish the LRT line, the community will grow and property values will go up.
How you would improve the Toronto real estate market: “Reduce taxes for developers, which will increase housing supply and improve affordability.”
Describe the current state of the GTA market: “It’s more balanced—there aren’t as many crazy bidding wars.”
How long until it corrects? “By September, when the market stabilizes and buyer confidence increases.”
Describe your dream home: “A quiet, mid-sized home, backing onto a ravine or forest.”
Is it a good time to buy a house? “Yes, especially if you have a family. The time you spend with them in the home is invaluable.”
Is the Toronto market crash-proof? “It’s a city with a rich history and a big population, so yes.”
President and CEO, Chestnut Park Real Estate
Dream job as a kid: “A right winger for the Detroit Red Wings. My hero was Gordie Howe.”
First thing you do in the morning: “Take a shower.”
Secret to your success: “My parents, Alice and Danny. They taught me hard work and commitment.”
Celebrity doppelgänger: “Dustin Hoffman.”
Advice for your 18-year-old self: “Travel more. Go live in Paris.”
Toronto neighbourhood with the most untapped potential: “Victoria Park.”
How you would improve Toronto real estate: “More houses, fewer condos. The city has become endless corridors of glass and steel.”
Describe the state of the current market: “Prices have plateaued.”
How long until it corrects: “The market will never correct. There will always be a strong demand because of immigration.”
Describe your dream home: “A Frank Lloyd Wright–style home—one level, very flat, lots of windows, situated in a forest-like setting, with lots of open space and contemporary art, maybe in Prince Edward County.”
Is it a good time to buy a house? “If you’re buying for long-term use, any time is a good time to buy, considering the consistent upward trajectory of the market since the ’90s.”
Is the Toronto market crash-proof? “Yes, because of high levels of immigration driving demand.”
Real estate in Canada: Vancouver's Shaughnessy neighbourhood | CTV News – CTV News Vancouver
A recent browse of real estate listings in Vancouver showed that several mansions in one particular area of the city are for sale.
“Multi-award winning, opulent Shaughnessy home,” one listing reads, asking nearly $20 million for the seven-bedroom estate.
“Rare availability in Prestigious First Shaughnessy,” reads another listing, this time looking for $28.8 million.
“A rare opportunity to acquire one of Vancouver’s most iconic estates,” advertises an agent selling a $25-million home built in 1927.
A home for sale for $24.8 million is described as “situated on a prized .53 acre view property and located in the confines of Vancouver’s ultra- exclusive and most prestigious First Shaughnessy enclave.”
The homes are of various conditions and ages, but many are in Shaughnessy, and all will be multimillion-dollar sales.
It’s not a cheap place to live. Most homes are single-detached and owned, not rented.
Most residents are white, according to data from the city. Most are married and have a post-secondary education, and the neighbourhood a median household income nearly double that of the city’s average. .
So why are so many houses for sale in Shaughnessy right now? There are a few reasons, a local Realtor with luxury listings in the area told CTV News.
“Markets go through cycles,” said Faith Wilson, president and CEO of faithwilson | Christie’s International Real Estate.
“With the balancing of the market, we may have more ‘days on the market,’ but that is generally something we see across all segment types and ranges of price points.”
She said a key is pricing “appropriately.” Those properties get interest, get viewings and get sold.
“World events, interest rate and inflation are some of the factors that affect real estate markets, and with that said, properties continue to sell.”
As for why so many homes appear to be for sale in that neighbourhood lately, there doesn’t seem to be one major theme.
She said some sales could be due to the age of some of the properties – owners not wanting to take on major renovations – or that owners are seeing neighbouring homes selling for much more than they initially paid for theirs.
But usually, she said, it comes down to a lifestyle change: “whether sellers are simply downsizing or moving to the next chapter of their lives.”
Wilson said this is much more likely to be a motivating factor when it comes to selling than liquidating an asset over fear of a changing market, or being inspired by neighbours cashing in.
For those considering a change due to increased interest rates and real estate forecasts, Wilson recommends being careful and finding good advice before making any decisions.
“I don’t see any reckless sales, and most sellers have holding power to ride out a market correction,” she said.
“The market has performed very well in the last two years, and yes, some may be liquidating to look for other opportunities. For other sellers, if they cannot get what they are looking for, they will simply hold or rent out until the market rebounds.”
Victoria real estate sales drop as prices continue to climb – CHEK News
While fewer homes are selling in B.C.’s capital, prices continue on an upward trend.
In June, 612 properties sold in and around Greater Victoria — 19.6 per cent less than May and a 35 per cent drop year over year, according to the Victoria Real Estate Board (VREB).
Meanwhile, sales of condominiums were down 40.2 per cent from June 2021 with 202 units sold, as sales of single-family homes decreased 31.4 per cent over the same period with 302 sold.
Pointing to the latest data, VREB President Karen Dinnie-Smyth describes the market as “a bit more normal right now” and says inventory is inching closer to pre-pandemic levels.
“This is good news,” said Dinnie-Smyth.
The 2,059 active listings for sale on the Multiple Listing Service (MLS) at the end of last month represented a 15.9 per cent increase compared to May and nearly double the 1,375 active listings at the end of June 2021.
“It may seem counterintuitive to continue to talk about the need for supply at a time when inventory is rising,” said Dinnie-Smyth.
“We must keep the conversation alive, and we urge all levels of government to continue to aggressively address the housing supply situation. We need more supply of all types of housing.”
In the Victoria Core, the Multiple Listing Service Home Price Index (MLS HPI) benchmark value for a single-family home hit $1,464,400 in June, the VREB says.
That’s a 23.6 per cent jump year over year, when the benchmark value was $1,184,700.
The MLS HPI benchmark value for a condominium in the same area climbed 29.7 per cent to $643,100 last month, up from May’s value of $633,800 and 29.7 per cent higher than June 2021.
In March, the B.C. government said people buying homes in the province’s hot real estate market could soon be protected by a “cooling-off period” that gives them time to back out of an agreement.
According to Finance Minister Selina Robinson, the Property Law Amendment Act introduced in the legislature will help build the framework for a protection period for homebuyers to properly assess, finance and inspect the home they want to buy.
Still, some real estate experts voiced concerns, including University of B.C. Prof. Tsur Somerville, who said the legislation may allow purchasers to make offers without consequences, putting the seller at a disadvantage.
Looking ahead, Dinnie-Smyth points to “future challenges,” including changing interest rates. She also says supply chain and labour constraints will also hamper the ability to create new homes at a pace to meet future growth.
“New supply will be the key to future housing attainability in our community,” added Dinnie-Smyth.
-With files from The Canadian Press
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