Ahead of the storm
Presently, nothing is more prevalent in our daily lives than COVID-19. Governments have closed non-essential businesses causing economic hardship and hitting the real estate sector by missed rental payments and increased vacancy. In some cases, developments are postponed, and investors and prospective tenants are backing out of agreements. However, some companies are turning adversity into opportunity: businesses have transformed office staff into distributed digital workforces; Toronto farmers’ markets are now a virtual marketplace; and in Germany, a baker turns his shop into a drive-through. Businesses with agility and foresight are prospering.
Although experts have been warning of pandemic threats, a study found that two-thirds of UK organizations surveyed had no pandemic plan in place before COVID-191. The pandemic has underscored the need to be prepared and to analyze and redesign value chains for improved resilience before disaster strikes.
Triovest Realty Advisors (Triovest) is such an example. The Canadian commercial real estate company has a novel property resilience assessment toolkit to enhance preparedness and improve resilience. This toolkit and the advance preparations supported the rapid development of property-specific pandemic protocols and tenant reintegration plans. It assigned responsibilities and actions based on public health authority alerts and feedback from tenant representatives.
Prepare for everything
Disruptive events like the COVID-19 pandemic will happen again. Businesses can identify and plan for them in advance. Besides pandemics, other factors like climate-change events, community stressors, cybersecurity, and infrastructure failure can also interrupt business and call for approaches that improve resilience. The Rockefeller Foundation defines resilience as the capacity to survive, adapt and grow, no matter what kinds of chronic stresses and acute shocks are being experienced2. There is a critical need for tools that assess resilience at a property level and consider diverse risk factors that impact a building’s resilience.
Challenges are opportunities
The Task Force on Climate-related Financial Disclosures asks companies to list risks as well as opportunities associated with climate change. They include improving efficiency, innovation in products and services, entering new markets and developing adaptive capacity to respond to climate change. A study by the U.S. National Institute of Building Sciences estimates that every $1 spent on common retrofits for private-sector buildings saves $43. Being better prepared is an opportunity to achieve a relative competitive advantage.
Documenting is not enough
There is little evidence that property owners and managers systematically and continually identify, assess, prioritize and address resilience stressors to improve responses in times of disruption. At the property level, management teams rarely view business emergency preparedness and continuity planning as more than a documentation exercise. Moreover, few central operations teams have systems in place to track property resilience across the portfolio to support and drive continuous improvement. Many management teams lack records of past events or institutional knowledge to foresee what can happen again. Organizations need a comprehensive and systematic approach to anticipate disruptive events and thoroughly think through possible outcomes and the response.
Identify – assess – mitigate… & enhance
Triovest has instituted resilience planning as a business process through early adoption of policies and best practices. In 2019, Triovest partnered with management consultants and ESG advisors Quinn & Partners to develop a novel property-resilience management toolkit to augment its existing Resilience Policy and related approaches. The new tool and business process evaluate climate risks and other critical environmental, social and operational risks facing real estate assets. Evaluated topics include flood events, extreme temperatures, severe storm events, earthquakes, community shocks and stressors, cybersecurity threats, loss of power and telecommunication, and domestic water release.
The process follows a typical risk management framework:
At each property, teams first identify applicable short and long-term risks and stressors. In step two, they assess exposure and sensitivity of each identified threat to determine vulnerability (see below) and then identify current measures in place that improve resilience. Last, they identify and prioritize actions to reduce the residual risk to a level that is acceptable to the property.
As an example, one property identified loss of connectivity as a high-probability shock due to more power outages because of increasing temperatures and storm severity, and failing infrastructure. Existing measures like emergency power systems reduced the vulnerability from “high” to “moderate”. Hence, the team identified adding more services to the emergency generator as a strategy to further reduce risk.
We believe this project is the first of its kind in Canada. The development of the toolkit and risk management framework involved an innovative application of standard methods for risk assessment (ISO 31000), climate model data and current research and practice in resilience.
The result is a stepwise management tool that is intuitive and easy for property teams to use and accounts for an extensive variety of environmental, community and operational shocks and stressors. Importantly, it incorporates property knowledge, past events and forecasted models to improve the relevance of risk evaluations. The toolkit is designed for the property teams that are ultimately responsible for implementing improvements and best know the unique characteristics of the property and its location.
Triovest also found that small changes could be made to existing processes – for example requesting additional measures be evaluated during property condition assessments – to support consistency and scalability across a large portfolio.
Act early – benefit later
The current pandemic reinforces the importance of planning and preparing for events before they occur. Preparations and earlier measures for shopping malls could have included the setup of central e-commerce websites and organizing curb-side pick-up or drive-throughs.
But considering risks ahead of a crisis does more than just prepare for disasters. It improves strategic thinking, opens minds to business opportunities and supports smart business planning. Applied resilience throughout the real estate value chain, including development, acquisition and operations, is an ongoing activity. Being persistent can lead to minimizing the disturbance of occupants, reducing insurance costs, and attracting investors, discerning customers and premium rent-paying tenants thanks to improved business continuity. Astute companies see resilience as a business-improvement opportunity.
Quinn & Partners supports global, leading institutional investors, real estate and infrastructure companies with ESG strategy, integration and reporting services. In 2020, the team is supporting assets valued at more than USD 250 billion with the GRESB Real Estate and Infrastructure Assessments, equivalent to circa 10% of all North American responses. Many Quinn & Partners clients have been receiving awards and recognition for their leadership approaches. Please reach out to Francisca Quinn, President, at +1 416 300 8068 for more information. www.quinnandpartners.com
Triovest is a fully integrated commercial real estate advisory, development and capital firm with over $11 billion in assets under management and $2 billion in development. They provide strategic investment and property management services for income properties on behalf of institutional and private investors. Please reach out to Philippe Bernier, Vice President, Innovation & Sustainability, at +1 416 941 1202 for more information. www.triovest.com