Investment Approaches in Volatile Markets

This is one of the most interesting stats for multifamily in 2025: 1) Earlier this year, AvalonBay acquired 8 apartment properties across suburban Dallas and suburban Austin at a cap rate in the "high 4s," according to their press release. 2) This month, AvalonBay announced plans to sell 4 apartment properties in urban Washington, D.C. (inside the District) at a cap rate the buyer said was 5.94%. These are newer-vintage, Class A deals in both cases. So that's a cap rate premium of 100 bps to be in suburban Texas over the urban core of the nation's capital. It's worth noting these deals are not directly comparable for a variety of reasons, but even still, I can't imagine such a spread any time in history prior to COVID. It'd more typically have been reversed. Sales data shows the cities that were once the nation's most liquid -- D.C., Los Angeles, New York -- are less liquid today, and liquidity (investor appetite for a market) impacts pricing. The reason for the shift is not primarily demand side (solid fundamentals in most cases), but policy driven. There is a risk premium to invest where you are viewed as "the bad guys" and local policies reflect that antagonistic approach... (which of course inevitably backfires on renters via reduced supply and higher rents). A few thoughts (and feel free to add others): 1) Is a 100 bps discount for coastal urban the new normal? I don't think so. Cycles happen. When the discount to take on risk expands, opportunistic buyers step in. But that's now an opportunistic bet instead of a core one. Any buyer is banking on these cities adopting some level of regulatory reform or at least a more predictable playing field, and/or just drawn by a very attractive basis well below replacement cost. So don't get me wrong: These cities aren't falling off the map for investors. BUT there is undoubtedly smaller pool of investors today willing to invest in those spots. So those cities are gonna settle into a new normal somewhere between the pre-COVID cap rate premium and this deal's 100 bps discount. 2) Prime suburbs of major markets with lower regulatory risk are now arguably the most liquid in the country. There's a price premium that comes with that (particularly in NIMBY-shaped suburbs where it is super tough to build), and that makes it tougher today for sub-institutional, opportunistic buyers to be buyers in places like Texas -- or even coastal suburbs like Northern Virginia and east side of Seattle etc. Smaller investors previously active in those submarkets will have a tougher time to compete going forward -- and that's already true today. Where does that push those buyers in the next cycle? Lower-tier suburbs? Nearby tertiary markets? Other thoughts?

Business Climate Resilience 🌎 Climate-related disruptions are increasing in frequency and severity, creating material risks for business operations, supply chains, and local communities. Addressing these challenges requires a structured and forward-looking approach to climate resilience. The World Economic Forum presents a framework that outlines ten key actions across three pillars: enhancing resilience, capitalizing on opportunities, and shaping collaborative outcomes. These actions are designed to help organizations avoid economic loss, drive sustainability-linked value, and strengthen systemic responses. Enhancing resilience involves asset-level climate hazard mapping, crisis response planning, and contingency strategies for workforce productivity during extreme weather. Addressing single points of failure and diversifying service delivery and supply chain models is essential to minimize operational disruption. Capturing new opportunities requires understanding long-term consumption shifts, adapting local business models, and directing R&D toward sustainable materials, circular models, and resilient infrastructure. Climate-smart portfolio strategies can position climate adaptation as a source of competitive advantage. Systemic resilience depends on coordinated action across the value chain. Collaboration with public, private, and grassroots stakeholders can unlock shared value frameworks, support regenerative practices, and enable the deployment of early warning systems and nature-based financial mechanisms. To operationalize these priorities, businesses are encouraged to activate key enablers within 24 months. These include integrating climate risk into enterprise risk management, conducting detailed audits of capabilities, and aligning capital investment decisions with resilience objectives. Data intelligence, scientific partnerships, and responsible use of technology—particularly AI—will be critical to improve foresight, enable adaptive planning, and enhance the quality of strategic decision-making in the context of escalating climate volatility. #sustainability #sustainable #business #esg

𝗪𝗵𝗮𝘁 𝗶𝗳 𝘄𝗲 𝗰𝗿𝗼𝘀𝘀 𝟮°𝗖 𝗯𝘆 𝟮𝟬𝟯𝟳 𝗮𝗻𝗱 𝟮.𝟱°𝗖 𝗯𝘆 𝟮𝟬𝟰𝟴? That’s not worst-case modelling. That’s the average projection across 𝘕𝘈𝘚𝘈, 𝘕𝘖𝘈𝘈, 𝘌𝘙𝘈5 and other leading datasets (𝘍𝘰𝘴𝘵𝘦𝘳 & 𝘙𝘢𝘩𝘮𝘴𝘵𝘰𝘳𝘧, 2025). This changes the game for long-term investors. 𝗧𝗵𝗲 Financial Conduct Authority’𝘀 𝗔𝗕𝗖 𝗖𝗹𝗶𝗺𝗮𝘁𝗲 𝗔𝗱𝗮𝗽𝘁𝗮𝘁𝗶𝗼𝗻 𝗙𝗿𝗮𝗺𝗲𝘄𝗼𝗿𝗸 𝗼𝗳𝗳𝗲𝗿𝘀 𝗮 𝘀𝘁𝗿𝗮𝗶𝗴𝗵𝘁𝗳𝗼𝗿𝘄𝗮𝗿𝗱 𝗮𝗽𝗽𝗿𝗼𝗮𝗰𝗵: 𝗔 – 𝗔𝗶𝗺 𝗳𝗼𝗿 𝟭.𝟱°𝗖 But let’s be honest, 1.5°C may be breached by 2026. So, while ambition matters, we must plan for where we’re heading, not just where we hope to stay. 𝗕 – 𝗕𝘂𝗶𝗹𝗱 𝗳𝗼𝗿 𝟮.𝟬°𝗖 Use 2.0°C as your strategic baseline. Design resilience into your Strategic Asset Allocation (SAA), risk models, and mandates across tangible assets, infrastructure, property, fixed income and equity portfolios. 𝗖 – 𝗖𝗼𝗻𝘁𝗶𝗻𝗴𝗲𝗻𝗰𝘆 𝗳𝗼𝗿 𝟮.𝟱°𝗖 Stress test for systemic shocks. Ask: how would our portfolio perform under cascading physical risks, e.g. floods, fires, crop failure, migration, and water stress? And who in our ecosystem is modelling this seriously? 𝗧𝗵𝗿𝗲𝗲 𝗤𝘂𝗲𝘀𝘁𝗶𝗼𝗻𝘀 𝘁𝗼 𝗱𝗶𝘀𝗰𝘂𝘀𝘀 𝗮𝘁 𝘆𝗼𝘂𝗿 𝗻𝗲𝘅𝘁 𝗾𝘂𝗮𝗿𝘁𝗲𝗿𝗹𝘆 𝗯𝗼𝗮𝗿𝗱  1. Are our portfolios priced for physical climate risk, not just transition risk?  2. How are our managers building climate resilience into strategies and valuations?  3. What does a 2.5°C contingency plan look like for our fund? 𝗔𝗰𝘁𝗶𝗼𝗻: Add the FCA’s ABC framework to your next Board or Investment Committee agenda. Use it to test your governance, your SAA and your managers. This is no longer about TCFD reporting. It’s about risk, portfolio resilience, and future-proofing outcomes for your members. 𝗥𝗲𝗮𝗱 𝘁𝗵𝗲 𝗳𝘂𝗹𝗹 𝗙𝗖𝗔 𝗖𝗙𝗥𝗙 𝗿𝗲𝗽𝗼𝗿𝘁: 𝗠𝗢𝗕𝗜𝗟𝗜𝗦𝗜𝗡𝗚 𝗔𝗗𝗔𝗣𝗧𝗔𝗧𝗜𝗢𝗡 𝗙𝗜𝗡𝗔𝗡𝗖𝗘 𝗧𝗢 𝗕𝗨𝗜𝗟𝗗 𝗥𝗘𝗦𝗜𝗟𝗜𝗘𝗡𝗖𝗘 https://lnkd.in/eYcysQnx #AdaptationFinance #BoardAgenda #ClimateAdaptation #ClimateRisk #CFRF #FCA #ABC #FiduciaryDuty #StrategicAssetAllocation 

For risk managers: How to integrate adaptation into your planning: 5 important considerations. As climate disasters mount and consensus on adaptation needs builds, I’m frequently asked by risk managers, how do we think about both physical and transition risks together? I try to guide them to an effective framework for translating both types of risks into financial impacts as a starting point. However, we need to go farther than that and actively consider how future strategies are influenced by the need for adaptation. In a recent workshop for risk managers, I took the new report from the NGFS about integrating adaptation into transition plans and showed how the 5 pillar framework of the ISSB and TPT can be leveraged to ensure adaptation is well considered. Here’s what that looks like for each pillar: 1. Governance- Existing governance mechanisms used for climate mitigation should also oversee adaptation objectives and monitor progress against adaptation targets once they are set. 2. Foundations- Institutions should set clear adaptation objectives focused on managing exposure to physical climate risks and, where appropriate, identifying business opportunities that enhance resilience. 3. Implementation Strategy- Based on physical risk and opportunity assessments, institutions should determine their risk and investment appetite and embed responses (e.g. avoid, accept, reduce, transfer, or invest) into business strategy and operations. 4. Engagement Strategy- Build on existing mitigation-related engagement to support a cohesive approach while fostering an internal and external environment conducive to increased climate resilience. 5. Metrics and Targets- Develop metrics starting with data stocktakes and baseline measures, then advancing to output-based metrics that assess the effectiveness of adaptation in managing physical risk. Drop me a message or comment to learn how we are helping risk managers tackle both adaptation and transition challenges! #climaterisk #adaptation #transitionplans #climateregulation #risk

Multifamily may look resilient – but don’t mistake momentum for immunity. As I continue to interview some of the most authoritative voices in the real estate industry to unwrap what, exactly, is going on in the industry, my latest podcast/YouTube show discussion with Paul Fiorilla, Director of U.S. Research at Yardi Matrix, covered a lot of ground from regional rent bifurcations to supply pipelines, policy risk, and the maturity wall facing many multifamily owners. But if you strip it all down, the quiet through-line of my conversation with Paul was this: -> Short-term optimism is not the same as long-term strength. Indeed, many investors are acting on lagging data and recency bias, not on what’s coming next. Here are a few key points from our conversation that you should be watching closely: -> Short-Term Confidence, Long-Term Asset Class Multifamily is illiquid and cyclical. The market may feel buoyant now, but pricing is still divorced from fundamentals in many places and rising rates are already testing assumptions baked into 2021–22 vintages. -> Supply Imbalances Are Local While national deliveries may taper, cities like Austin, Nashville, and Salt Lake could see 12–15% added inventory through 2027. Demand alone won’t clear that. -> Tailwinds Are Fading Immigration, job growth, and pandemic-era trends fueled recent absorption. Each is now softening. The real risk isn’t a crash – it’s that too many are still betting on yesterday’s growth trends for their underwriting. -> Policy Risk Is Real Affordable and subsidized housing may soon lose the predictability federal backing provides. State-level variability could trigger payment disruptions that current underwriting does not account for. -> Interest Rate Volatility Hurts More Than High Rates It’s not the level of rates, it’s how fast they moved. The jump from 3% to 6% is what’s crippling refinances, not some historic deviation. -> Quiet Distress Is Still Distress Lenders are working behind the scenes to avoid fire sales. That doesn’t mean the pressure isn’t building. It just means it hasn’t hit headlines – yet. Here are some signals to watch for that might indicate a shift in fortunes for multifamily: * Stabilized occupancy dipping below 94%. * Flat or negative absorption. * Deal flow seizing up. Those are the early tremors worth tracking. Bottom line: If you're underwriting today based on yesterday’s growth and tomorrow’s cap rate recovery, you may be closer to the edge than you think. *** Want to hear more unvarnished insights like this? Subscribe to my newsletter with the link at the top of my profile here: Adam Gower Ph.D. I cover the CRE signals others overlook – and how to make better real estate investment decisions in a turbulent market.

The World Bank: Success Stories and Strategies for Achieving Climate Adaptation and Resilience | Nov 2024 Some Key Insights: A. Whole-of-Society Approach to Adaptation:    Recommendation: Implement cross-sector, inclusive strategies to integrate resilience into economic and development policies. This approach necessitates aligning policies across various departments and sectors to achieve cohesive implementation.  Risk: Fragmented methodologies elevate vulnerabilities, particularly in critical sectors -- energy, infrastructure, and public health.  .. B. Resilient Infrastructure Investment: Recommendation: Prioritize investments in resilient infrastructure, such as Nature-based solutions, specifically within the domains of transportation, water management, and energy, to mitigate potential climate disruptions. Opportunity: Establishing climate-resilient infrastructure can stimulate economic growth by minimizing disaster-related financial losses and enhancing investor confidence.  Case Study: Brazil's Water Cisterns program exemplifies the socioeconomic advantages of resilient infrastructure investments by reducing health risks while enhancing water accessibility.  .. C. Financial Preparedness and Disaster Risk Financing (DRFI): Recommendation: Formulate a comprehensive financial strategy that incorporates insurance frameworks and fiscal resilience, exemplified by Colombia’s climate risk stress testing within its financial sector.  Risk: In the absence of effective financial planning, the costs associated with climate-related events may impose significant strains on public budgets, thereby impeding sustainable development efforts.  Opportunity: Increasing insurance uptake and enhancing financial preparedness can stabilize businesses and mitigate losses stemming from extreme events.  Case Study: The Philippines' DRFI strategy has facilitated improved fiscal health and disaster resilience, characterized by a notable increase in insurance participation among vulnerable populations.  .. D. Leveraging Private Sector Investment: Recommendation: Promote private sector investment in adaptation initiatives by addressing barriers, including knowledge deficits, unclear metrics, and restrictive financing mechanisms.  Opportunity: Public-private partnerships and robust regulatory frameworks dedicated to climate-resilient investments can provide novel revenue streams and confer competitive edges. Case Study: Albania’s solar energy project illustrates how private investments in renewable energy can bolster national resilience, generate employment opportunities, and support climate goals. .. E. Scaling Up Early Warning Systems: Recommendation: Enhance early warning and anticipatory systems for climate-related events, particularly protecting vulnerable populations.  Case Study: India’s Ahmedabad Heat Action Plan has saved thousands of lives by implementing proactive measures in response to extreme heat events. .. More 👇

In apartment investing, navigating governmental programs and regulations is not just an option—it's a necessity. The government's objective is to incentivize specific behaviors or activities, which can often align with an investor's business goals. When I first ventured into multifamily real estate over a decade ago, many of these tools weren’t part of our approach. Fast forward to today, and it's not uncommon for us to leverage four of these programs in a single project. Among the various mechanisms we routinely consider are: ▪ Opportunity Zone tax benefits ▪ Cost Segregation & Bonus Depreciation ▪ Historic Tax Credits ▪ 45L Credits ▪ 1031 Exchanges ▪ Fannie Mae Sponsor-Initiated Affordability ▪ Public Facilities Corporation (PFC) Take, for example, implementing a water conservation program in Class B/C properties. The ROI on such an investment is already attractive. In some jurisdictions, rebates for water-efficient toilets can further augment these returns. The takeaway here is clear: If you're involved in multifamily investing—whether as an investor or a syndicator—your strategic toolkit should include a deep understanding of these governmental programs. Knowing when and how to apply each can significantly enhance your returns. Ignorance isn't just bliss—it's money left on the table.

Long-term investing and long-term physical climate risk share more than just time horizons—they require the same discipline: recognizing compounding exposure BEFORE it becomes existential. Lately, I’ve been reflecting on the parallels between long-term investing and long-term climate resilience. As a product leader working at the frontier of climate and financial risk, I found the 2025 Berkshire Hathaway Annual Meeting particularly relevant. Warren Buffett and Ajit Jain didn’t just mention climate; they emphasized how risks like wildfires and hurricanes are now central to underwriting, infrastructure strategy, and ultimately, investment returns. Here are a few takeaways that align with what I see daily at the intersection of climate, finance, and analytics: 🔁 Long-term investing & long-term physical climate risk: Some shared principles - Whether compounding capital or physical climate exposure, surprises are costly—often exponentially so. - Physical climate risk mispricing, like market mispricing, demands quantitative skill to detect and decisive action to rectify. - Resilience is the TRUE long-run multiplier. This could take the form of diversification across portfolios and mitigation across hazard. - Greg Abel emphasized that “every investment must be fully understood and evaluated with a long-term mindset”. A similar mindset helps quantify materiality from physical risk. 🌍 Where climate hazards meet investment risk - As Buffett noted: “Wildfires are massive, growing, and increasingly unpredictable.” - Ajit Jain confirmed that extreme weather is reshaping underwriting models, with Berkshire among the few firms willing and able to carry that risk. - Hurricanes are now repricing entire insurance portfolios; one active season can stall billions in energy infrastructure. - Volatility reshapes utility sector yield profiles, liability exposure, and insurance strategies. If you’re in investing across real estate, insurance and infrastructure, it’s time to reframe physical climate risk as a core financial question. This isn’t just an academic discussion, it’s foundational to modern capital allocation. You can find the full BRK AGM recording: https://lnkd.in/gRYD-SKQ If you’re thinking about risk repricing in decades, not quarters, I’d love to connect. #ClimateRisk #LongTermInvesting #BerkshireAGM #Utilities #WildfireRisk #Insurance #GeospatialAI #Resilience #CapitalMarkets #Finance