Capital Alert

Weighing the Rising Toll of Climate Change

September 18, 2020

Capital Alert


September 18, 2020

As haze from catastrophic wildfires on the U.S. west coast reached northern Europe this week, our attention has been drawn away from the coronavirus pandemic to the toll of global climate change. This is the worst fire season in California’s history in terms of breadth and acreage burned. Dozens of lives have been lost. Oregon recorded the world’s worst air quality this week, threatening to exacerbate the COVID-19 health crisis. Meanwhile, hurricanes rage in the Gulf of Mexico. In Colorado, a record heatwave turned into a record snowfall within 48 hours. 

The devastation is no surprise to anyone paying attention to science. Back in 2018, a major report issued by 13 federal agencies predicted that greenhouse gas emissions from burning fossil fuels could triple the frequency of intense fires across the West. For those who think the impact of climate change is about melting icebergs, consider that direct damage from the Western fires is estimated at $20 billion, and another $120 billion worth of commercial property debt is threatened, according to BofA Global Research study

Lower interest rates are making commercial real estate more attractive on a risk-adjusted basis, driving investors into acquisition mode.

The largest, most influential U.S. companies are uniting to fight climate change. On Wednesday, the Business Roundtable announced its support for a carbon tax or emissions-permit trading system to cut U.S. greenhouse gas emissions by at least 80 percent by 2050, from 2005 levels. The trade association has more than 200 members spanning the finance, technology, health care, manufacturing and energy industries. The group’s goal aligns with the international Paris climate accord signed in 2016.

The announcement follows a blunt report published last week by a sub-committee of the U.S. Commodity Futures Trading Commission (CFTC), warning of the financial risks of climate change. “Climate change poses a major risk to the stability of the U.S. financial system and to its ability to sustain the American economy,” the report said. The “complex risks for the U.S. financial system” include “disorderly price adjustments in various asset classes, with possible spillovers into different parts of the financial system, as well as potential disruption of the proper functioning of financial markets,” the report said. The report recommends establishing a price on carbon, among other measures. The industry has been making strides on sustainability, including the Green Lending Initiative from Fannie Mae and Freddie Mac, which offers reduced rates to borrowers who enhance their multifamily properties with water- and energy-saving features.

Separately, we are continuing to see diverse impacts of the COVID-19 pandemic, with tech firms driving the commercial real estate market. Amazon said it is planning to hire more than 100,000 workers in the U.S. and Canada, in both warehouse and corporate positions. Near Seattle, Facebook acquired the new headquarters built -- but never occupied -- by REI, the outdoor clothing and gear retailer.

President Trump called for a new stimulus relief bill on Wednesday, while in the House of Representatives, a 50-member group of Democrats and Republicans outlined a $1.5 trillion plan including more direct payments to Americans and funding for state and local governments. After its meeting this week, the Federal Reserve expects to keep its benchmark interest rate close to zero until 2023, and push inflation above 2 percent annually. 

Lower interest rates are making commercial real estate more attractive on a risk-adjusted basis, driving investors into acquisition mode, according to a new survey from Marcus and Millichap. Roughly a third of respondents, who had been on the sidelines prior to the pandemic, indicated that historically low rates are motivating them to seek investments. MMCC continues to partner with clients in offering the best options for their commercial real estate needs, closing 140 loans with 87 lenders in August. Please reach out to an MMCC Capital Advisor for custom guidance, access to an unparalleled network of lenders, and the broadest range of capital solutions.

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