NEW YORK (Reuters) – The number of properties in the United States at risk of flooding this year is 70% higher than estimates from government data, according to research published Monday, with critical points at risk in Houston, New York, Los Angeles and Chicago
FILE PHOTO: A New York police officer stands on the flooded West Side Highway and talks to a man whose car was flooded after heavy rains in the Manhattan district of New York, USA, May 5, 2017. REUTERS / Carlo Allegri
The increased risk identified could have implications for property values, as well as insurance rates, municipal bonds and mortgage-backed securities, according to investors and researchers at the First Street Foundation, which published the data.
“This could change the calculation of whether a given property is resalable or at what price it sells it,” said Tom Graff, head of fixed income at Brown Advisory.
The data, which covers the contiguous United States, found that about 14.6 million properties, or 10.3%, are at substantial risk of flooding this year compared to the 8.7 million assigned by the Federal Agency for the Emergency Management (FEMA).
FEMA maps are currently used to determine government flood insurance rates and to support risk assessments conducted by mortgage lenders, investors, and home buyers. However, the maps only take into account coastal flooding, not rain or rivers, and do not incorporate the ways in which climate change has worsened storms.
A FEMA spokesman said the First Street maps are based on those created by the agency and that the two are not incompatible.
Los Angeles, Chicago, Houston, New York and Cape Coral, Florida top the list of First Street cities with the most properties at risk. Statewide, Florida, Texas, California, New York, and Pennsylvania have more to lose. Florida and Texas also top FEMA’s list, but it is estimated that there are far fewer properties at risk.
Washington, DC, has the largest deviation from FEMA numbers, 438.4% more properties at risk, because First Street explains the potential flooding of the Potomac and Anacostia rivers and a drainage basin below the city. Utah, Wyoming, Montana, and Idaho have the following highest deviations, all three to four times greater than FEMA estimates.
Commercial Mortgage-Backed Securities (CMBS), investments that bundle loans for office buildings, hotels, shopping malls, and more, are among the securities most exposed to flood risk due to the concentration of cities on the coasts of the States United.
“There is a moral risk within the investment community of not pricing at the risk of something like this happening,” said Scott Burg, chief investment officer of the Deer Park Road hedge fund.
Nearly 20% of all commercial property value in the US is located in Houston, Miami, and New York, according to CoStar data, each of which has been hit by hurricanes in the past decade.
Hurricane Harvey, which hit Houston in 2017 and caused $ 131 billion in damage, affected more than 1,300 CMBS loans, 3% of the CMBS market in 2017, according to BlackRock research. Hurricane Irma in 2017 affected 2%.
The BlackRock report concluded that 80% of the commercial property damaged by those two storms was outside of FEMA’s flood zones, indicating that many of the affected buildings may not have been adequately insured.
Any flood this year could exacerbate the effects of the coronavirus pandemic, which has sent more than $ 32 billion in business loans to special services, default relief negotiations, according to Moody’s.
“For homeowners, it’s like amputating his arm and then cutting off his head,” said Jacob Hagi, a professor of finance at the University of North Carolina and a research associate at First Street.
Report by Kate Duguid; editing by Megan Davies and Steve Orlofsky
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