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Natural disasters and severe weather are increasingly destructive —and expensive. According to Gallagher Re’s Natural Catastrophe and Climate Report: 2024, disasters and weather cost the global economy $417 billion, $154 billion of which were insurance costs.

“Whether you own or operate an apartment complex, mixed-use development or retail property, you’re likely to see higher costs, not only for insurance, but also repairs and operations,” said Matt Felsot, Central Region Sales Manager, Commercial Term Lending at Chase.

       

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To reduce costs and prepare for the future, property owners should invest in climate-resiliency efforts now. Felsot detailed three ways to prepare for a warmer climate.

1. Enhance building resilience and efficiency

“There are several measures that can be taken to protect properties—especially older ones—from the impacts of a warmer climate,” Felsot said. “That starts by increasing resiliency and efficiency.”

Upgrade infrastructure

Owners and operators should examine a property’s physical qualities and surroundings, then retrofit the building to withstand extreme weather events. For example, if a property is in a flood-prone area, elevating the building or installing flood barriers can help prevent water damage. Other retrofits include installing double- or triple-glazed windows to minimize heat loss and gain. 

Invest in proptech

Proptech plays a crucial role in adapting buildings to a warmer climate by providing innovative solutions that enhance resilience, efficiency and sustainability,” Felsot said. For example:

  • Smart building systems use sensors and automation to optimize energy use and improve operational efficiency. For example, operators can install smart thermostats and lighting controls to adjust settings based on occupancy and time of day.
  • Predictive maintenance tools may use AI and machine learning to predict equipment failures and proactively schedule maintenance. Predictive maintenance can not only minimize downtime, but also extend the lifespan of building systems, critical when weather extremes increasingly stress infrastructure.

“These upgrades not only improve resilience but also align with potential future energy-efficiency regulations, such as net-zero building mandates, which require new buildings to produce as much energy as they consume,” Felsot said.  For instance, Washington state’s Clean Buildings Performance Standard mandates that large buildings meet specific energy performance targets, contributing to emissions reductions. 

“Energy efficiency and smart thermostats also play a role during heatwaves when energy demand historically spikes, to manage building energy demand and help ensure grid resilience,” said Dr. Sarah Kapnick, Global Head of Climate Advisory, J.P. Morgan. “They were mandated during previous California and Pacific Northwest heatwaves to avoid blackouts.”

2. Integrate renewable energy and resilient water practices

“Installing renewable energy systems can not only mitigate climate impact but also provide a hedge against rising energy costs,” Felsot said. Property managers can: 

  • Install renewable energy systems, such as solar panels and wind turbines, to reduce reliance on fossil fuels and lower carbon emissions. When coupled with backup storage, this can reduce overall energy price volatility and create a microgrid to maintain power during severe weather. 
  • Make landscaping more sustainable by using native and drought-resistant plants.
  • Add water-saving fixtures and systems, such as low-flow faucets, showerheads and toilets to minimize water consumption. 
  • Implement water-saving technologies and practices, such as smart irrigation, rainwater harvesting and greywater recycling systems.

These efforts may also qualify multifamily properties for Fannie Mae or Freddie Mac green financing incentives. For example, borrowers may receive better pricing and higher proceeds from the government-sponsored entities reducing the entire property’s annual energy and water consumption by 30% or more.

3. Assess and maintain efforts for ongoing success

Preparation and monitoring are critical to improving a property’s climate resiliency. That’s why owners and operators should regularly:

  • Assess climate risks: Conducting comprehensive extreme weather and climate risk assessments can help identify vulnerabilities and prioritize areas for improvement. This includes evaluating risks related to flooding, heatwaves and other extreme weather and climate-related events unique to the property’s location, such as droughts, tornadoes, hail or wildfires.
  • Implement adaptation strategies: Create and execute a climate adaptation plan that outlines specific actions to enhance resilience, such as emergency preparedness plans and ongoing maintenance and monitoring.
  • Conduct regular energy audits: As the climate and resiliency solutions evolve, identify areas of improvement. For example, energy benchmarking programs can be used to compare performance with similar properties and identify best practices.
  • Engage with renters: Digital platforms may be used to educate renters about energy-saving practices and encourage participation in sustainability initiatives.
  • Comply with emerging regulations: Staying up to date on local, state and federal regulations related to energy efficiency and climate change can offer a head start on implementing necessary changes. For example, other states may follow New York’s lead and require electricity for heating, hot water and appliances at residential properties.

“Building resilience isn’t just for eco-conscious individuals. “These efforts can lower operating costs through reduced insurance rates, water bills, repairs and energy use,” Kapnick said. 

“By taking these steps, investors can not only prepare for future climate change and energy-efficiency requirements, but also enhance their properties’ value ,” Felsot said.

Natural disasters’ damages may be unprecedented, but there are still ways commercial real estate owners and investors can reduce insurance costs.

JPMorgan Chase Bank, N.A. Member FDIC. Visit jpmorgan.com/commercial-banking/legal-disclaimer for disclosures and disclaimers related to this content.

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