Disaster Preparation, Response, and Recovery

4Q22 Commercial Real Estate Insights Report 

Communities across North America are impacted annually by a broad range of disasters that displace millions of people, disrupt economies, and disturb real estate conditions — totaling $2.275 trillion in recovery costs since 1980. These catastrophic events span hurricanes along the Gulf and Atlantic coasts, wildfires in drought-stricken Western states, and storms through Tornado Alley extending from Texas through South Dakota. They also include flooding in the upper Midwest down through the South, ice storms, utility infrastructure outages such as the February 2021 storm that knocked out electric service in Texas for more than a week,¹ and terrorism, such as the shutdown of the Colonial Pipeline from a ransomware attack in May 2021.² These events supercharge supply chain disruptions of centers of manufacturing and industry from Texas to Illinois and Arizona to Ohio.³ Earthquakes, while less frequent, pose a risk for not just California, but also the New Madrid Seismic Zone running through the Central U.S. and into vital economic centers of the South, including Memphis, Tenn., where FedEx headquarters are located. Volcanic eruptions are another infrequent disaster consideration that present risks extending far beyond their immediate geography — recall the 1980 eruption of Mount St. Helens⁴ in Washington as well as the existence of the Yellowstone National Park super volcano. 

While it is impossible to know when or how disaster may strike, initiatives can be implemented to mitigate risks prior to a catastrophic event and to effectively respond following one. Commercial real estate professionals are in a unique position to prepare for such events, by preparing emergency response plans for assets and planning for the inevitable. North Americans are experiencing unprecedented fires, floods, tornadoes, ice storms, and hurricanes. While some of these are truly nature-induced disasters, others represent the product of human behavior — actions that at a minimum have compounded the challenges that result from, or follow, natural disasters. Think about America's levee systems that have been inadequately engineered or maintained, even though they have been documented as problems for decades in the quadrennial American Society of Civil Engineers' Infrastructure Report (ASCE-IRC).⁵ The most recent report from March 2021 gave America's levee system a “D” grade.

No matter the type or nature of a disaster, they all require unique responses. This realization is the critical first step of disaster planning to ensure risks are being anticipated and addressed. Each community across the U.S. and North America as a whole, needs to assess overall disaster risks, including those that have the greatest potential to impact the community and specific geography, and others such as an upstream levee break or a supply chain disruption that can cripple a key industry or economic lifeline. Risk evaluation in all sectors of commercial real estate is also necessary to see how such disasters could impact assets. 

Disasters Caused by Nature

Hurricanes, drought, ice storms, floods, tornadoes, wildfires, earthquakes, and pandemics are all examples of adverse nature-induced events and disaster risks and, as a result, are difficult to predict. But that does not mean communities should not prepare for them with risk assessments. While there is some predictive science around these events, like tornadoes and hurricanes, it is far from foolproof. There is further opportunity in communities in Florida, Georgia, South Carolina, Alabama, Mississippi, Louisiana, and Texas to prepare for their occurrences in the same way as those states in Tornado Alley utilize tornadic activity warning systems, evacuation shelters, and construction design to mitigate loss.

The map above shows all the billion-dollar weather and climate disasters that took place in 2021. The types and geographic occurrence of these disasters reveal patterns that communities need to understand and anticipate. And it's crucial to connect the dots to understand that a disaster in one state or region can have implications beyond the location of the occurrence. For example, flooding in the upper Midwest can impact vital transportation and logistics infrastructure within Southern states, which disrupts supply chains within ports. The six U.S. Class 1 railroads are another prime example. In looking at Exhibit 1, consider how BNSF Railway from California to Memphis, Tenn., is open to multiple natural disaster risks that could cripple the supply chain to half the U.S. population and impact economic activity in multiple states. Connecting natural disaster risks — not just those in the immediate community but outside the community or state — is essential to understanding the domino effect from a natural disaster. All states and metropolitan statistical areas need to better prepare for the disaster outside their community that can cripple economic activity, manufacturing, and the supply chain in their community. The Colonial Gas Pipeline running from Texas to Pennsylvania is a prime example of this domino effect. What happens along any segment of that pipeline impacts millions of households and businesses throughout the Southeast and along the East Coast. The disruption caused by the hack was not just contained to oil and gas industries, as its downstream impact reached all CRE markets.

According to NOAA, “The aggregate cost of the various 2021 natural disaster events totaled $152.6 billion (as of June 2022) and was the third most costly year for disasters on record, behind 2017 and 2005. The total costs for the last five complete calendar years ($788.4 billion) are more than one-third of the disaster cost total of the last 43 years (1980-2022), which exceeds $2.275 trillion (inflation adjusted to 2022 dollars).”⁶

The chart below illustrates the historical trends of billion-dollar disaster events that have impacted the U.S. since 1980. Disasters have significantly increased in both frequency and cost, especially over the last 15 years. There is an urgency for disaster planning, as the risks and frequency of occurrences are rising at a rate not seen in our lifetimes.

Disasters Caused by Human Actions

Disasters caused by human actions may be the result of oversight, poor planning, or neglect as pointed out in the quadrennial ASCE-IRC. These disasters range from wildfires — either intentionally set or resulting from the failure to maintain forests and purge fuel from diseased, dead, or fallen timber — to terrorism. The question here is less, “Was a disaster human induced?” and more, “What are the human-induced disaster risks to plan for?” How, for example, is vital infrastructure (such as levees and power lines) maintained and protected both within a community and outside of it to understand the interconnectivity of human-induced disaster risk? MSAs or states may have to depend on a nearby state for fuel, electricity, transportation, and supply chain. It is critical to know and understand how a community's supply chain connects by interstate highways, railways, and ports. 

For instance:

• What is Atlanta without the Georgia Ports Authority and Class 1 railroads?
• What is the U.S. supply chain without the ports of Los Angeles and Long Beach?

Without an across-the-board disaster response plan, local community leaders operate at a disadvantage by not acknowledging their key vulnerabilities, and not establishing effective sequencing of response and recovery actions following a disaster event:

• Who will manage the inflows of relief supplies? Where will displaced residents be housed?
• What facilities and buildings can be pre-identified to stage makeshift hospitals and schools?
• If residents cannot be cared for and are forced to relocate away from the community, what happens to the local economy?

Ask Mayfield, Ky., residents. They experienced a devastating tornado in December 2021 that impacted everything — including the town's water tower, electric grid, and main economic generator (a candle factory). Do not wait to discover what the community did not know or had yet to plan.

What Can Communities Do? How Can CRE Professionals Help?

The National Academy of Sciences identified five action areas for disasters, that occur at different stages. The first three occur prior to a disaster — hazard vulnerability, hazard mitigation, and disaster preparedness. These three pre-disaster action areas are where commercial real estate professionals can most effectively lead. By providing various assessments, CRE practitioners positively impact the processes and procedures that will be needed after the event. The fourth area, emergency response, occurs during the disaster event. The fifth area, disaster recovery, relates to the period of physical and economic rebuilding following a disaster. Each action area is crucial for society to be prepared and respond effectively to unexpected adverse events.

Hazard Vulnerability
This is the first step to successfully prepare for events that could significantly disrupt the functioning of a society. Community leaders need to assess their most common vulnerabilities and evaluate the characteristics of each disaster type that poses a threat. For example, hurricanes pose a much greater risk to populations in Florida than they do in Colorado. Risks may impact physical structures as well as economic systems, so plans need to consider both.

Preparation before a natural disaster strikes is vital, and CRE professionals are positioned to advise community leaders on internal and external risks to the local economy. By performing economic impact analyses to assess critical business functions related to the largest employer or industry supporting the community, plans can be put in place to lessen critical risks.     

Hazard Mitigation
This category relates to actions taken prior to a crisis that may reduce its destructive impact. These steps may relate to physical structures or be more abstract in nature. Physical mitigation may include steps to reinforce coastlines or bury electrical lines that would lessen the effects of a disaster if not prevent it entirely. The nonphysical actions include land-use legislation that addresses high-hazard areas (such as coastlines), regulating development to incorporate sustainable characteristics, and reevaluating policies such as water rights.

The California wildfires are one example of disasters that may not have been as destructive had physical mitigation efforts been taken. Pacific Gas and Electric Company's aging power lines and deferred maintenance sparked the 2018 Camp Fire that destroyed large areas of Paradise, Calif. While dry conditions certainly contributed to the flammability, an electrical spark ignited the blaze. The company is also liable for the Kincade, Zogg, and Dixie fires in California. PG&E is now facing roughly $25 billion in settlements⁷ for something that could have been avoided with proactive measures. Recent efforts⁸ to harden the U.S. electrical grid include:

1. PG&E is expanding weather forecasting stations for wind, temperature, and humidity. The information is streamed in real time and accessible to emergency officials and the public.
2. Commonwealth Edison in Illinois has been replacing old electrical lines with more insulated lines, as well as deploying drones to monitor conditions.
3. San Diego Gas & Electric installed remote-controlled cameras that can be shared with firefighters.
4. San Diego has also buried 60 percent of its power lines to eliminate the risk of sparks. However, this can be expensive, costing approximately $6 million to $8 million per mile.⁹

The unfolding water scarcity in the Western U.S. is yet another instance of a crisis that may be mitigated with timely actions. The Colorado River's reservoirs, including Lake Powell and Lake Mead, have fallen to 28 percent capacity and continue to decline by the day. This river basin is in the 23rd year of its worst drought in at least the past 1,200 years, according to Axios.¹⁰ To exacerbate matters further, the Glen Canyon Dam can only produce hydropower electricity if Lake Powell stays higher than 3,490 feet above sea level. As of Aug. 14, it was 3,533.93 feet above sea level and down 17.47 feet from a year ago.¹¹ Lake Powell is 43.93 feet away from the minimum required to generate electricity. The Colorado River supports seven states, 40 million people, $1.4 trillion in economic activity, and the irrigation of approximately 90 percent of the winter vegetable crops in the U.S.¹² It is crucial that steps are immediately taken to reduce water consumption and establish innovative water solutions.

Over the last 20 years, Phoenix has been able to reduce its per capita water use by 30 percent while simultaneously increasing the population by 400,000. According to the 2021 City of Phoenix Water Resource Plan, “the combination of a robust portfolio and a culture of conservation means Phoenix uses approximately two-thirds of the volume of water available to it annually, leaving a buffer for growth and expected shortage adaption.”¹³ One technique has been to implement green infrastructure, such as new developments incorporating parking surface areas with underground reservoirs for capturing stormwater. During development and renovation, CRE projects need to consider available resources and planned consumption.

Atlanta is facing a different water crisis as its emergency water reserve will only last three days in the event of a disruption in the Chattahoochee River water supply. The city's solution was to adaptively reuse a former quarry and transform it into a 2.4-billion-gallon reservoir at a cost of approximately $321 million. This action increased the city's emergency water reserve from three to 90 days and provides a supply of clean drinking water that will last for the next 100 years.¹⁴ The reservoir is a beautiful amenity within Atlanta's new (and now largest) city park, Westside Park at Bellwood Quarry. The land was previously neglected, but it now serves as a water-scarcity solution, a 280-acre community green space, and a catalyst for surrounding development such as Microsoft's 90-acre campus nearby.

CRE professionals should coordinate among municipality leaders — both elected and volunteer — to identify and develop alternate real estate locations for critical business and service functions. Additionally, determining ideal sites for the coordination of recovery supplies, communication, and deployment of materials and people is good planning.

Disaster Preparedness

This is the critical action area that takes place prior to an event, whereby plans are formulated to enable the smooth transition of emergency response and disaster recovery. This is also the step where communities should uncover any impediments to recovery, like the Jones Act was to Puerto Rico after Hurricane Maria. Once disaster plans are enacted, communities will need to focus on more than just training first responders — they also need to accumulate and maintain resources (i.e., financial, medical, basic needs, etc.), educate the public on the programs in place, and evaluate hazard insurance policies. Effective planning will help reduce instances of response and recovery missteps. An example of this can be seen in some of the judgment lapses during Hurricane Katrina, a disaster that ranks as the most expensive weather and climate disaster in the U.S. to date, at $186.3 billion and 1,833 fatalities.¹⁵ Katrina was a missed opportunity to utilize the resources aboard the USS Bataan, including the ship's medical personnel, operating rooms, 600 hospital beds, and capacity to generate 10,000 gallons of water per day.¹⁶

CRE professionals, through their transactional experiences, are uniquely positioned to educate community leaders on local, regional, and statewide ordinances and laws that may negatively impact a quick and efficient recovery from a natural disaster. Examples include zoning, alternatives related to supply chain, and plans for alternate locations for both industry and services. 

Emergency Response
Emergency response takes place as the disaster is unfolding and includes emergency responders and volunteers aiding in rescues, care of survivors, disbursement of resources, assessment of damage, and restoration of public services and functions. The key aspect of this action area is ensuring effective communication and coordination among all parties, especially during evacuations. The plans, training, and preparation coordinated during disaster preparedness should help this stage run smoothly, but improvisation will always be required.

Disaster Recovery
Once the immediate emergency has abated, efforts transition toward disaster recovery aimed at bringing the community back to pre-disaster conditions. Actions may include financial assistance for victims, rebuilding damaged commercial and residential buildings (which would be especially costly during the worst inflation the U.S. has seen in 40 years), and an analysis of disaster causes and what could have been done more effectively. The effects of any disaster may be direct, secondary, or indirect, so municipalities need to assess the broad scope of any catastrophe. Once stability is regained, care should be given to many forms of analyses in determining which measures were most effective, including both planned and improvised recovery efforts. This critical analysis allows for better preparedness for future disasters. And do not let risk plans stagnate as that could lead to many tragic “would've, could've, should've” moments.

Rebuilding following a natural disaster requires collaboration and communication between all levels of community, including businesses, residents, religious organizations, nonprofit entities, state and local government, and the federal government. Community leaders are laser focused with the initial response in the first hours and days following an event. The first 30 days require constant reassessment of immediate needs to restore order, along with key partner teambuilding to move forward quickly and with purpose. Moving into the 90-day period requires a thorough understanding of the economic impact to the community. Housing needs to be safe and available as businesses reopen and begin reestablishing availability of their products and services. This goal revolves around logistics and supply chain, along with a complete economic impact analysis.

Some communities bounce back immediately, while others lose population, economic security, and income through tax revenue. The key to recovery is an executable plan for the long-term partners to physically and economically rebuild, including accountability for everyone involved. Commercial real estate professionals can best prepare their assets, themselves, and their community by planning ahead for what could happen, as we know that it's only a matter of time before the next event occurs.

Editor's note: Additional content provided by Beverly Keith, CCIM, CRE, CRX, and Caylinn Peterson, CCIM.

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Endnotes:

1. Texas.gov: Economic Impact of Winter Storm Uri (Feb. 2021)
2. Department of Energy: Colonial Pipeline Ransomware Hack in May 2021
3. IndustrySelect: Top 10 U.S. Manufacturing Cities
4. U.S. Geological Survey: Mount Saint Helens May 1980 Volcano Eruption
5. ASCE 2021 Infrastructure Report
6. NOAA: U.S. Billion-Dollar Disasters (1980-2022)
7. CalMatter: What If California Takes Over PG&E?
8. CalMatter: Power Companies Must Do More to Fireproof Equipment
9. San Diego Union-Tribune: San Diego To Speed Up Utility Undergrounding
10. Axios: Colorado River at Drought Tipping Point
11. Lake Powell Water Database
12. American Rivers: America's Most Endangered Rivers
13. City of Phoenix: Water Resource Plan (2012 Update)
14. Site Selection Magazine: Atlanta's Mother of All Water Projects
15. NOAA: U.S. Billion-Dollar Disaster Events (Summaries, Report Links, and Statistics)
16. ResearchGate: 12 Failures of the Hurricane Katrina Response

Author Bio and Acknowledgements

K.C. CONWAY, CCIM, MAI, CRE

CCIM Institute Chief Economist Kiernan “K.C.” Conway, CCIM, CRE, MAI, is the mind trust behind Red Shoe Economics, an independent economic forecasting and consulting firm. As The Red Shoe Economist, he provides organic research initiatives, reporting, and insights on the impact of economics within the commercial real estate industry. A proud graduate of Emory University with more than 30 years of experience as a lender, credit officer, appraiser, instructor, and economist, Conway is recognized for accurately forecasting real estate trends and the ever-changing influences on markets all across the United States. With credentials from CCIM Institute, Counselors of Real Estate, and the Appraisal Institute, he also currently serves as an independent director for UMH Properties REIT. A gifted and prolific speaker, Conway has made more than 850 presentations to industry, regulatory, and academic organizations in the last decade, and has been published in many national and regional newspapers and journals, with frequent contributions to radio and television programming.

CCIM Institute Executive Leadership

President Leslie G. Callahan III, CCIM

President-Elect David Schnitzer, CCIM

First Vice President D'Etta Casto-DeLeon, CCIM

Treasurer Charlie Mack, CCIM

Red Shoe Economics

Beverly Keith, CCIM, CRX, Principal and Business Strategist

Caylinn Peterson, CCIM, Project Research Strategist 

CCIM Institute Editorial Team

Larry Guthrie, CCIM Institute 

Nicholas Leider, CCIM Institute