For years, natural hazard risk sat on the edges of commercial real estate decision-making. More likely a topic for the sustainability team to handle, or something addressed during insurance renewals after a damaging storm forced the issue. That’s no longer the case. During a late September LightBox webinar, “Natural Hazard Risk Assessments: Real World Perspectives and Solutions,” two of the industry’s leading voices on the topic made clear that physical risk has moved firmly into the financial conversation. The discussion points to real-world evidence that the shift is already reshaping underwriting, lending, and investment decisions across commercial real estate, and that environmental consultants are taking notice.
Moderated by LightBox’s Alan Agadoni, the panel featured Kevin Scroggin, Director of Risk Management at LaSalle Investment Management, and Dr. Spenser Robinson, Director of Real Estate at Central Michigan University and editor of the Journal of Sustainable Real Estate. Both have spent years helping the industry understand how climate and weather-related risk intersects with real estate value, and both agreed on one central point: This is no longer a sidebar conversation.
Are EPs Screening for Natural Hazard Risk?
Based on feedback from members of the LightBox Market Advisory Council, a dozen leading environmental consultants from across the US, the answer is increasingly yes, but adoption varies widely by firm, client type, and project.
Some environmental professionals are offering natural hazard screening when clients specifically request it, often in response to insurance concerns. Others have incorporated it more proactively into their service offerings, sometimes as part of an enhanced Property Condition Assessment, where the identified hazards and resilience of the asset can be evaluated together. Firms working heavily with HUD or other regulated programs may already be considering natural hazards routinely as part of compliance and risk review. Larger firms, meanwhile, are more likely to have dedicated climate risk and resilience capabilities in place. Just as notable is what is driving the demand. In many cases, it is not yet coming from lenders who remain interested but mostly from the sidelines. Requests are more often originating with investors, owners, insurers, or clients trying to understand potential exposure before it affects coverage, pricing, or asset strategy.
That helps explain why the market still looks uneven. Some firms are seeing enough activity to justify expanding into standalone screening and deeper resilience services, while others remain in a wait-and-see mode. But the direction of the trajectory is coming into focus as more owners and investors connect hazard screening and mitigation with insurance outcomes, capital planning, and avoided losses.
The Numbers Make the Case
Based on the perspectives shared at the September webinar, the incentive to make natural hazard risk screening a more routine part of due diligence will only expand. Whatever one’s views on climate change broadly, the panel was emphatic that the financial impact of extreme weather on the built environment is not up for debate. As Scroggin put it, pointing to recent Aon data on catastrophe losses:
“It doesn’t matter where you are on the climate risk debate. You cannot refute the impact, the dollar impact, in terms of what’s happening in the built environment.”
That impact shows up in the data. Scroggin cited global economic losses from catastrophic events trending toward $400 billion annually, with billion-dollar loss events becoming more frequent over time. Robinson added that both peer-reviewed research and institutional practice now confirm the pattern is being priced into transactions, particularly in public REIT markets and institutional portfolios, where he’s seen reversion-value discounts of up to half a point tied directly to physical risk exposure.
The framing both panelists returned to repeatedly: physical hazard risk isn’t a new or separate category requiring special treatment. It’s simply joining the existing bundle of risks (i.e., financial, locational, tenant, etc.) that real estate professionals already evaluate as a matter of course.
Institutional Capital Is Ahead of the Curve
One of the clearest themes to emerge was the uneven pace of adoption across different parts of the CRE ecosystem. Institutional investors, Robinson explained, are furthest along: “We’re seeing institutional investment really start to price this from CapX to reversion value cap rate discounts.”
Middle-market CRE, by contrast, is only beginning to engage, often focused more narrowly on meeting code requirements than on deeper risk evaluation. And lending, both panelists agreed, lags furthest behind. Robinson didn’t mince words on this point:
“Honestly, I think lending is a bit behind on really properly addressing this risk. Lenders have their interest rate return, and then downside. So how does this risk affect their portfolio? Something lenders should probably pay more attention to.”
The reasoning is straightforward: unlike equity investors, lenders don’t share in the upside of a property’s performance, only the downside risk if something goes wrong. That makes physical hazard exposure a pure liability concern for lenders in a way it isn’t for owners, yet lending practices haven’t fully caught up to that reality.
Time Horizon Doesn’t Eliminate Risk; It Just Changes the Math
A particularly useful thread in the conversation addressed how holding period should affect the way different stakeholders think about the same hazard exposure. Scroggin offered a caution that applies as much to short-term lenders as to value-add investors:
“Even though you might be on the short end of that timeline, the modeling tells us that you may be looking at the one-in-250-year event, the one-in-500-year event. What we do not know from these models is if you are in year one or you are in year 489.”
In other words, a shorter hold period reduces exposure to risk, but it doesn’t eliminate it. Robinson reinforced this with an important reframing of how probability works in practice: a “one-in-100-year” flood designation doesn’t mean an event happens once every hundred years. It means there’s roughly a 1% chance of it happening in any given year, and that percentage can shift upward as conditions change. For construction and bridge lenders, in particular, that has real teeth: if a project is damaged and the borrower walks away, the lender can end up as the unintended long-term owner of a distressed asset.
Screening First, Deep Dive Second
When it comes to assessing hazard risk, both panelists pointed to a tiered, triage-style approach, anchored by the relatively new ASTM E3429 Property Resilience Assessment (PRA) standard. A Stage 1 PRA, an initial, relatively inexpensive geographic risk screen, is, in Robinson’s view, close to becoming table stakes:
“Stage one to me is almost becoming mandatory on any real investment. I want to understand the risk. And if I evaluate that, which is fairly inexpensive, and I start seeing risks, well, now I can move to other stages and deeper investigation.”
Critically, the panel was candid about the limits of these tools. Models are useful directional guides, not crystal balls. Scroggin described LaSalle’s own practice of triangulating results across multiple risk models rather than trusting a single point estimate, specifically because relying on one model “almost communicates that the model has some certainty and accuracy that’s really not there.” Both panelists also pushed back firmly against “black box” models that can’t explain their own methodology, a stance that led LaSalle to disqualify at least one vendor outright when the company’s only response to tough questions was, in Scroggin’s words, “trust us.”
Following the Same Path as Environmental Due Diligence
Perhaps the most compelling part of the discussion was Robinson’s side-by-side comparison of how physical climate risk is evolving relative to the now-familiar path of environmental contamination risk. Pre-1980, environmental risk was largely unpriced and unregulated. The Love Canal crisis pushed it into public consciousness, CERCLA followed, and by the early 2000s, the Phase I Environmental Site Assessment had become standard practice for virtually every commercial loan in the country.
Robinson argues physical hazard risk is tracing an almost identical arc, just compressed into a shorter and more recent timeline: largely unpriced before 2015, the emergence of dedicated risk analytics firms from 2015-2020, a wave of insurance repricing and market withdrawal in the early 2020s, and now, with ASTM’s 2024 adoption of the Property Resilience Assessment (PRA – E3429) standard and the Royal Institution of Chartered Surveyors (or RICS) requiring physical risk consideration in international valuations, the beginnings of formal standardization. His prediction: “At some point, this will become standard practice.”
What the Shift Toward Natural Hazard Screening Means for Environmental Professionals
For environmental due diligence professionals and risk managers watching from the sidelines, the panel’s advice was simple and consistent: start now, start small, and start the conversation.
Robinson echoed the same sentiment, framing the opportunity as one built on dialogue rather than definitive answers: “No one’s solved this yet,” he acknowledged, but that uncertainty is precisely why professionals who raise their hand and start asking the right questions of clients, of borrowers, of their own portfolios are positioned to add real value in a market still working out its own best practices.
The Bottom Line
The consensus from this panel was unambiguous: natural hazard risk is no longer a theoretical or peripheral concern in commercial real estate. It’s showing up in cap rates, insurance costs, lending terms, and disposition strategy today — and the data, the standards, and the institutional practice are all moving in the same direction. As Scroggin put it, summing up where the industry is headed: “All management is risk management.” Five years from now, both panelists agreed that physical climate risk won’t be treated as a specialized concern requiring unique expertise. It will simply be one more risk in the bundle every CRE professional already manages as a matter of course, and the firms and professionals who build that fluency now will be the ones best positioned when it does.
