WEBVTT 00:00:00.000 --> 00:00:01.972 align:middle line:90% [SQUEAKING] 00:00:01.972 --> 00:00:03.944 align:middle line:90% [RUSTLING] 00:00:03.944 --> 00:00:06.409 align:middle line:90% [CLICKING] 00:00:06.409 --> 00:00:08.923 align:middle line:90% 00:00:08.923 --> 00:00:10.840 align:middle line:84% JUAN PALACIOS: I hope that without the coffee, 00:00:10.840 --> 00:00:13.820 align:middle line:84% you can still stay awake for the next 90 minutes. 00:00:13.820 --> 00:00:15.730 align:middle line:84% Especially the first 45 is going to be mine, 00:00:15.730 --> 00:00:18.230 align:middle line:84% and I'm going to take it very personally if you fall asleep. 00:00:18.230 --> 00:00:19.750 align:middle line:90% So please don't do it. 00:00:19.750 --> 00:00:21.550 align:middle line:84% So in the first part of the course, 00:00:21.550 --> 00:00:23.480 align:middle line:84% we've been talking a lot about mitigation. 00:00:23.480 --> 00:00:25.900 align:middle line:84% Basically, how do we make investments in the built 00:00:25.900 --> 00:00:28.210 align:middle line:84% environment, and how do we understand the business case 00:00:28.210 --> 00:00:33.010 align:middle line:84% of reducing emissions to reduce the chances of suffering, 00:00:33.010 --> 00:00:35.080 align:middle line:84% climate change, climate disasters, and so forth? 00:00:35.080 --> 00:00:38.630 align:middle line:84% That's been the whole first part of the block, 00:00:38.630 --> 00:00:41.090 align:middle line:84% brainwashing you into, emissions are bad. 00:00:41.090 --> 00:00:42.260 align:middle line:90% Don't do it. 00:00:42.260 --> 00:00:44.930 align:middle line:84% It's actually profitable if you do it in a proper way. 00:00:44.930 --> 00:00:47.240 align:middle line:90% So please take action. 00:00:47.240 --> 00:00:48.380 align:middle line:90% That's the first part. 00:00:48.380 --> 00:00:52.390 align:middle line:84% Now we're going to have three sessions into the consequences 00:00:52.390 --> 00:00:53.480 align:middle line:90% of climate change. 00:00:53.480 --> 00:00:57.550 align:middle line:84% So once we put a lot of these emissions in the atmosphere, 00:00:57.550 --> 00:01:00.975 align:middle line:84% we increase the likelihood of a lot of bad stuff to happen. 00:01:00.975 --> 00:01:03.100 align:middle line:84% And we are going to learn what are the consequences 00:01:03.100 --> 00:01:04.550 align:middle line:90% for real estate markets. 00:01:04.550 --> 00:01:06.910 align:middle line:84% We are going to do this in terms of, what 00:01:06.910 --> 00:01:08.930 align:middle line:84% are the consequences for real estate value, 00:01:08.930 --> 00:01:09.840 align:middle line:90% real estate prices. 00:01:09.840 --> 00:01:12.500 align:middle line:84% We are going to talk about the basics of climate science. 00:01:12.500 --> 00:01:16.070 align:middle line:84% And we're going to start thinking about how to adapt 00:01:16.070 --> 00:01:19.550 align:middle line:84% and how to make resiliency investments into the built 00:01:19.550 --> 00:01:20.310 align:middle line:90% environment. 00:01:20.310 --> 00:01:23.330 align:middle line:84% So three sessions-- today, Thursday, and Tuesday-- 00:01:23.330 --> 00:01:28.310 align:middle line:84% we are going to be very deep into that topic onto how real 00:01:28.310 --> 00:01:30.020 align:middle line:84% estate assets, how real estate markets, 00:01:30.020 --> 00:01:33.830 align:middle line:84% how real estate investors are impacted by climate risk 00:01:33.830 --> 00:01:35.910 align:middle line:90% and climate disasters. 00:01:35.910 --> 00:01:38.480 align:middle line:84% We are going to do it with the usual suspects. 00:01:38.480 --> 00:01:41.240 align:middle line:84% Siqi and me are going to be here in front of you. 00:01:41.240 --> 00:01:45.170 align:middle line:84% But we are also going to have industry leaders that 00:01:45.170 --> 00:01:48.740 align:middle line:84% are willing to come here to see how, actually, the action is 00:01:48.740 --> 00:01:51.470 align:middle line:84% being taken on the ground in the sector. 00:01:51.470 --> 00:01:54.320 align:middle line:84% Today, I'm going to talk for the first half. 00:01:54.320 --> 00:01:56.840 align:middle line:84% But the second half is going to be by Kevin Fagan, 00:01:56.840 --> 00:02:01.000 align:middle line:84% who was sitting here 12 years ago, 13 years ago, 00:02:01.000 --> 00:02:05.870 align:middle line:84% an MSRED alum, that went one day to New York, he was telling me, 00:02:05.870 --> 00:02:09.350 align:middle line:84% and got an offer after one hour-and-a-half interview 00:02:09.350 --> 00:02:12.120 align:middle line:84% and was good enough to keep him for 12 years. 00:02:12.120 --> 00:02:14.990 align:middle line:84% He's at Moody's, the head of the CRE unit 00:02:14.990 --> 00:02:17.600 align:middle line:84% there after being for many years in the climate-- 00:02:17.600 --> 00:02:21.050 align:middle line:84% in the credit risk department, one 00:02:21.050 --> 00:02:23.210 align:middle line:84% of the people that I encountered that 00:02:23.210 --> 00:02:26.450 align:middle line:84% knows the most about climate change, climate risks, 00:02:26.450 --> 00:02:30.570 align:middle line:84% also transition risk, and real estate. 00:02:30.570 --> 00:02:33.530 align:middle line:84% So if you want to learn about that, 00:02:33.530 --> 00:02:36.050 align:middle line:84% he's one of the best people in the world to do it. 00:02:36.050 --> 00:02:40.130 align:middle line:84% And he's going to be with us the whole day, with you 00:02:40.130 --> 00:02:43.470 align:middle line:84% this lecture, and also a reception afterwards. 00:02:43.470 --> 00:02:44.495 align:middle line:90% So please come. 00:02:44.495 --> 00:02:46.370 align:middle line:84% Enjoy the coffee, but also make sure that you 00:02:46.370 --> 00:02:48.110 align:middle line:84% talk to Kevin because he's one of the people 00:02:48.110 --> 00:02:49.370 align:middle line:90% that you can learn the most-- 00:02:49.370 --> 00:02:52.710 align:middle line:84% much more than with me, but you guys are trapped with me. 00:02:52.710 --> 00:02:54.110 align:middle line:90% What can you say? 00:02:54.110 --> 00:02:57.560 align:middle line:84% So let me give you a little bit-- you see bad and good. 00:02:57.560 --> 00:03:00.170 align:middle line:84% Bad-- brown buildings, polluted, bad. 00:03:00.170 --> 00:03:03.050 align:middle line:84% So let me give you a little bit of an outline 00:03:03.050 --> 00:03:05.390 align:middle line:84% for today's lecture, or at least for my part. 00:03:05.390 --> 00:03:08.580 align:middle line:84% We are going to talk about the basics of climate change. 00:03:08.580 --> 00:03:12.230 align:middle line:84% And the idea is to give you the logic of what it is 00:03:12.230 --> 00:03:14.990 align:middle line:84% and how that it's actually going to be here to stay 00:03:14.990 --> 00:03:17.420 align:middle line:84% and how, actually, climate scientists are talking about it 00:03:17.420 --> 00:03:20.240 align:middle line:84% and discussing about climate change and the changing 00:03:20.240 --> 00:03:22.400 align:middle line:84% climate in a way that is useful to understand 00:03:22.400 --> 00:03:26.120 align:middle line:84% how that will impact the built environment and real estate 00:03:26.120 --> 00:03:26.790 align:middle line:90% markets. 00:03:26.790 --> 00:03:32.120 align:middle line:84% So I'm not going to give you a very thorough discussion 00:03:32.120 --> 00:03:34.410 align:middle line:84% around deep science, but just enough 00:03:34.410 --> 00:03:36.410 align:middle line:84% for you to understand what you are talking about 00:03:36.410 --> 00:03:39.590 align:middle line:84% and for you to understand that when the United Nations comes 00:03:39.590 --> 00:03:43.400 align:middle line:84% out and puts out the next report, how that affects 00:03:43.400 --> 00:03:46.280 align:middle line:84% your investment, your holdings, or your decisions 00:03:46.280 --> 00:03:47.420 align:middle line:90% in the real estate market. 00:03:47.420 --> 00:03:52.228 align:middle line:84% Then we are going to get into the nuts and bolts of this 00:03:52.228 --> 00:03:54.770 align:middle line:84% in the real estate markets using the four-quadrant model I've 00:03:54.770 --> 00:03:56.480 align:middle line:84% been casting a little bit around. 00:03:56.480 --> 00:03:58.640 align:middle line:84% And there are some people that are more nervous 00:03:58.640 --> 00:04:00.848 align:middle line:84% and other people are less nervous about four-quadrant 00:04:00.848 --> 00:04:02.090 align:middle line:90% models and so forth. 00:04:02.090 --> 00:04:05.570 align:middle line:84% So we are going to add that toolbox to understand actually 00:04:05.570 --> 00:04:08.840 align:middle line:84% how, when one side of the market is impacted, 00:04:08.840 --> 00:04:12.230 align:middle line:84% how it's going to be impacting the whole market as a whole, 00:04:12.230 --> 00:04:14.270 align:middle line:90% all the stakeholders. 00:04:14.270 --> 00:04:17.660 align:middle line:84% And then we are going to talk about more empirical assessments 00:04:17.660 --> 00:04:18.930 align:middle line:90% of climate risk and so forth. 00:04:18.930 --> 00:04:21.055 align:middle line:84% So we are going to connect it to a lot of the tools 00:04:21.055 --> 00:04:23.160 align:middle line:90% that we cover in these settings. 00:04:23.160 --> 00:04:25.460 align:middle line:84% And a big part of this is going to be 00:04:25.460 --> 00:04:27.320 align:middle line:84% when we are thinking about DCS or we 00:04:27.320 --> 00:04:29.090 align:middle line:84% are thinking about assessing climate, 00:04:29.090 --> 00:04:31.490 align:middle line:84% it's going to be about the discount rate 00:04:31.490 --> 00:04:33.890 align:middle line:84% that we are going to assess to that, the cap rate, 00:04:33.890 --> 00:04:36.800 align:middle line:84% how a lot of the risk measures that are impacted 00:04:36.800 --> 00:04:39.410 align:middle line:84% are introduced into these valuations that are going 00:04:39.410 --> 00:04:41.565 align:middle line:90% to be affected by climate risk. 00:04:41.565 --> 00:04:43.190 align:middle line:84% So this is going to be a big discussion 00:04:43.190 --> 00:04:46.618 align:middle line:84% into what is appropriate to discount climate risk 00:04:46.618 --> 00:04:47.160 align:middle line:90% and so forth. 00:04:47.160 --> 00:04:48.440 align:middle line:84% It's going to be today and Thursday we 00:04:48.440 --> 00:04:49.815 align:middle line:84% are going to cover a lot of this. 00:04:49.815 --> 00:04:52.277 align:middle line:84% And we are going to cover also the role of beliefs 00:04:52.277 --> 00:04:54.110 align:middle line:84% in all of this, the role of climate beliefs, 00:04:54.110 --> 00:04:57.050 align:middle line:84% and also the role of the differences 00:04:57.050 --> 00:04:59.060 align:middle line:84% between commercial and residential real estate 00:04:59.060 --> 00:05:01.220 align:middle line:90% markets for everyone to see. 00:05:01.220 --> 00:05:04.580 align:middle line:84% So some basics-- basically, this is what 00:05:04.580 --> 00:05:05.820 align:middle line:90% happens with climate change. 00:05:05.820 --> 00:05:07.862 align:middle line:84% We are emitting a lot of CO2, all of those things 00:05:07.862 --> 00:05:10.010 align:middle line:84% that we are saying that you shouldn't do 00:05:10.010 --> 00:05:12.080 align:middle line:84% and we should reduce in the built environment. 00:05:12.080 --> 00:05:18.110 align:middle line:84% Once we put a unit of CO2 out there by burning fuel, 00:05:18.110 --> 00:05:20.660 align:middle line:84% that sticks into the atmosphere, and it 00:05:20.660 --> 00:05:23.055 align:middle line:90% prevents the radiancy of-- 00:05:23.055 --> 00:05:27.110 align:middle line:84% the radiant power of sun to go back into the universe 00:05:27.110 --> 00:05:30.770 align:middle line:84% and basically gets trapped, warming the planet 00:05:30.770 --> 00:05:31.970 align:middle line:90% and warming the atmosphere. 00:05:31.970 --> 00:05:33.090 align:middle line:90% That's a very basic thing. 00:05:33.090 --> 00:05:37.940 align:middle line:84% Every time that we put an extra unit of CO2 in the atmosphere, 00:05:37.940 --> 00:05:40.400 align:middle line:84% we create an extra layer out there 00:05:40.400 --> 00:05:44.390 align:middle line:84% that prevents the sun to come out into the universe 00:05:44.390 --> 00:05:46.640 align:middle line:90% and keeps warming up the planet. 00:05:46.640 --> 00:05:50.630 align:middle line:84% And what happens with climate change and the whole discussion 00:05:50.630 --> 00:05:52.917 align:middle line:90% is that CO2 is nothing new. 00:05:52.917 --> 00:05:54.500 align:middle line:84% It's nothing that we create as humans. 00:05:54.500 --> 00:05:55.853 align:middle line:90% It's there in the atmosphere. 00:05:55.853 --> 00:05:57.770 align:middle line:84% The plants, the animals, a lot of these things 00:05:57.770 --> 00:06:00.420 align:middle line:84% are creating fluctuations into CO2. 00:06:00.420 --> 00:06:03.620 align:middle line:84% If you see, even over 1 million years ago, 00:06:03.620 --> 00:06:05.870 align:middle line:84% there's still a fluctuation and going up and down 00:06:05.870 --> 00:06:08.070 align:middle line:84% of the levels of CO2 in the atmosphere. 00:06:08.070 --> 00:06:10.260 align:middle line:84% And you can actually do that in a very clever way 00:06:10.260 --> 00:06:14.910 align:middle line:84% with taking even layers of old ice in the North Pole 00:06:14.910 --> 00:06:15.490 align:middle line:90% and so forth. 00:06:15.490 --> 00:06:18.570 align:middle line:84% You can actually see how the level of CO2 00:06:18.570 --> 00:06:20.560 align:middle line:84% was back even 1 million years ago. 00:06:20.560 --> 00:06:23.370 align:middle line:84% So you can actually-- based on some clever physics models, 00:06:23.370 --> 00:06:26.170 align:middle line:84% you can actually see how the level of CO2 was fluctuating. 00:06:26.170 --> 00:06:29.400 align:middle line:84% But after the first Industrial Revolution, 00:06:29.400 --> 00:06:31.000 align:middle line:84% this is what is starting to happen. 00:06:31.000 --> 00:06:33.270 align:middle line:84% So this is what we are now, and that 00:06:33.270 --> 00:06:37.320 align:middle line:84% is around double the amount of CO2 in the atmosphere 00:06:37.320 --> 00:06:39.460 align:middle line:84% that it's been for the last 1 million years. 00:06:39.460 --> 00:06:42.010 align:middle line:84% So this is what we are thinking about. 00:06:42.010 --> 00:06:43.320 align:middle line:90% This might be a problem. 00:06:43.320 --> 00:06:47.280 align:middle line:84% And the problem ends up being related 00:06:47.280 --> 00:06:50.610 align:middle line:84% to the amount of the temperature levels into-- 00:06:50.610 --> 00:06:51.490 align:middle line:90% in the planet. 00:06:51.490 --> 00:06:53.010 align:middle line:90% So this is what-- 00:06:53.010 --> 00:06:57.720 align:middle line:84% again, relative to 1980, this is how for the last decades 00:06:57.720 --> 00:06:59.940 align:middle line:84% and centuries, it's been like, the temperature 00:06:59.940 --> 00:07:02.130 align:middle line:90% in the atmosphere. 00:07:02.130 --> 00:07:04.650 align:middle line:84% And this is how it changed over the last years 00:07:04.650 --> 00:07:08.760 align:middle line:84% since we started burning fossil fuels to produce goods 00:07:08.760 --> 00:07:11.240 align:middle line:84% to move and to heat our buildings 00:07:11.240 --> 00:07:12.490 align:middle line:90% and to do all sorts of things. 00:07:12.490 --> 00:07:16.170 align:middle line:84% So you see how the levels used to be something like here, 00:07:16.170 --> 00:07:17.640 align:middle line:90% fluctuating around 0. 00:07:17.640 --> 00:07:20.910 align:middle line:84% And around the mid-last century, this 00:07:20.910 --> 00:07:26.700 align:middle line:84% starts to go all the way up to 1 degree higher, abnormally 00:07:26.700 --> 00:07:29.220 align:middle line:90% higher, than that it used to be. 00:07:29.220 --> 00:07:31.620 align:middle line:90% These are the blue line. 00:07:31.620 --> 00:07:36.660 align:middle line:84% And how do we know or how do we think about the role of humans 00:07:36.660 --> 00:07:41.220 align:middle line:84% in all of this is that if you model with some clever physics 00:07:41.220 --> 00:07:46.410 align:middle line:84% models where the temperatures will be using only physical 00:07:46.410 --> 00:07:52.590 align:middle line:84% parameters-- so different things of development of the-- 00:07:52.590 --> 00:07:56.550 align:middle line:84% forestry, development of animals, and so forth, 00:07:56.550 --> 00:08:00.150 align:middle line:84% using the blue modeling and using 1,000 or 1 million 00:08:00.150 --> 00:08:01.840 align:middle line:84% or multiple millions of simulations, 00:08:01.840 --> 00:08:06.150 align:middle line:84% this is all where it should be without the influence 00:08:06.150 --> 00:08:06.880 align:middle line:90% of humankind. 00:08:06.880 --> 00:08:09.210 align:middle line:84% So you can actually predict and forecast 00:08:09.210 --> 00:08:10.830 align:middle line:84% how the evolution of temperature will 00:08:10.830 --> 00:08:14.040 align:middle line:84% be under any potential scenario that you can actually 00:08:14.040 --> 00:08:16.270 align:middle line:90% think of without human gain. 00:08:16.270 --> 00:08:19.938 align:middle line:84% And you see that that is way off of what the black line that 00:08:19.938 --> 00:08:20.980 align:middle line:90% is what we are observing. 00:08:20.980 --> 00:08:23.790 align:middle line:84% The only way that you can really fit in that black line 00:08:23.790 --> 00:08:27.480 align:middle line:84% into simulations is if you introduce the idea 00:08:27.480 --> 00:08:29.850 align:middle line:84% that there are abnormally high levels of CO2 00:08:29.850 --> 00:08:32.980 align:middle line:90% produced by humankind. 00:08:32.980 --> 00:08:36.330 align:middle line:84% So that's really how the climate scientists 00:08:36.330 --> 00:08:38.610 align:middle line:84% and how all of the policymakers are thinking 00:08:38.610 --> 00:08:40.980 align:middle line:84% about the role of humans in all of this, 00:08:40.980 --> 00:08:45.570 align:middle line:84% is that if you use any clever physics models here to predict 00:08:45.570 --> 00:08:47.100 align:middle line:84% the evolution of temperatures, you 00:08:47.100 --> 00:08:48.990 align:middle line:84% can never fit what we are observing now 00:08:48.990 --> 00:08:51.570 align:middle line:84% in the atmosphere in terms of temperature. 00:08:51.570 --> 00:08:54.330 align:middle line:84% The only way that you can fit this line if is you actually 00:08:54.330 --> 00:08:57.180 align:middle line:84% incorporate the man-made production 00:08:57.180 --> 00:08:59.200 align:middle line:84% of CO2 emissions in the atmosphere. 00:08:59.200 --> 00:09:01.260 align:middle line:84% And that's why the scientists are 00:09:01.260 --> 00:09:04.260 align:middle line:84% saying that climate is changing, and it's changing 00:09:04.260 --> 00:09:07.920 align:middle line:90% because of man-made emissions. 00:09:07.920 --> 00:09:13.980 align:middle line:84% And the forecasting is not really helpful for us, 00:09:13.980 --> 00:09:16.320 align:middle line:84% because if we keep producing CO2 in the amounts 00:09:16.320 --> 00:09:18.750 align:middle line:84% that we are producing, no matter what 00:09:18.750 --> 00:09:21.537 align:middle line:84% the scenario-- every line here is an a scenario. 00:09:21.537 --> 00:09:22.870 align:middle line:90% You have millions of lines here. 00:09:22.870 --> 00:09:25.200 align:middle line:84% No matter what the scenario you pick, 00:09:25.200 --> 00:09:27.332 align:middle line:84% the temperatures are going to keep going up, 00:09:27.332 --> 00:09:29.040 align:middle line:84% and it's going to have a lot of bad stuff 00:09:29.040 --> 00:09:33.110 align:middle line:90% that we will see now in a bit. 00:09:33.110 --> 00:09:35.780 align:middle line:84% This is one of the things that happens is not only 00:09:35.780 --> 00:09:40.042 align:middle line:84% that temperature is 1 degree here or 2 degrees, 00:09:40.042 --> 00:09:42.500 align:middle line:84% it's going to be just kind of like the average day is going 00:09:42.500 --> 00:09:46.880 align:middle line:84% to be 1 or 2 degrees hotter, but it's also that the number-- 00:09:46.880 --> 00:09:49.700 align:middle line:84% especially here, the number of days that are extremely hot 00:09:49.700 --> 00:09:51.480 align:middle line:90% are going to increase by a lot. 00:09:51.480 --> 00:09:54.710 align:middle line:84% So this is not a pleasant increase in the temperature, 00:09:54.710 --> 00:09:56.580 align:middle line:84% especially in a place like Boston. 00:09:56.580 --> 00:10:00.050 align:middle line:84% We can always appreciate this 1 or 2 degrees 00:10:00.050 --> 00:10:01.652 align:middle line:90% extra in the winter. 00:10:01.652 --> 00:10:03.110 align:middle line:84% The number of heatwaves, the number 00:10:03.110 --> 00:10:06.260 align:middle line:84% of days that are extremely hot is going to increase by a lot. 00:10:06.260 --> 00:10:08.302 align:middle line:84% And that is going to generate all of the problems 00:10:08.302 --> 00:10:10.218 align:middle line:84% that we also discussed in the healthy building 00:10:10.218 --> 00:10:12.470 align:middle line:84% lecture in terms of health and cardiovascular problems 00:10:12.470 --> 00:10:13.140 align:middle line:90% and so forth. 00:10:13.140 --> 00:10:15.830 align:middle line:84% So this is the issue in terms of temperatures, 00:10:15.830 --> 00:10:19.035 align:middle line:84% that the amount of days that are unbearably warm 00:10:19.035 --> 00:10:20.660 align:middle line:84% is going to increase disproportionately 00:10:20.660 --> 00:10:24.290 align:middle line:90% compared to the past decades. 00:10:24.290 --> 00:10:26.927 align:middle line:84% And now, beyond all of that, we are 00:10:26.927 --> 00:10:28.760 align:middle line:84% going to cover now all of the disasters that 00:10:28.760 --> 00:10:29.802 align:middle line:90% are associated with that. 00:10:29.802 --> 00:10:32.470 align:middle line:84% But I want to make a distinction here 00:10:32.470 --> 00:10:34.620 align:middle line:84% when we are thinking about weather 00:10:34.620 --> 00:10:38.640 align:middle line:84% and when we are going to think about climate, too. 00:10:38.640 --> 00:10:44.140 align:middle line:84% Each of these lines here, ultimately, color is one day. 00:10:44.140 --> 00:10:48.373 align:middle line:84% So one day here will be like this amount of-- this 00:10:48.373 --> 00:10:50.540 align:middle line:84% temperature, like 30 degrees or whatever it would be 00:10:50.540 --> 00:10:51.870 align:middle line:90% in the [? arc ?] [? exit. ?] 00:10:51.870 --> 00:10:54.070 align:middle line:84% The distribution here will tell you the climate. 00:10:54.070 --> 00:10:57.160 align:middle line:84% So climate describes long-term patterns of weather. 00:10:57.160 --> 00:10:59.312 align:middle line:84% So every day, you have a certain weather-- 00:10:59.312 --> 00:11:01.020 align:middle line:84% the weather is cold, the weather is warm. 00:11:01.020 --> 00:11:03.873 align:middle line:84% Climate is this long-term distribution of weather. 00:11:03.873 --> 00:11:05.040 align:middle line:90% And that's what is changing. 00:11:05.040 --> 00:11:06.960 align:middle line:84% And that's what people are responding 00:11:06.960 --> 00:11:10.860 align:middle line:84% to because it is stupid to believe that people will make 00:11:10.860 --> 00:11:14.310 align:middle line:84% an investment in a building that they're planning to hold for 20, 00:11:14.310 --> 00:11:16.780 align:middle line:84% 30, 40 years based on today's weather. 00:11:16.780 --> 00:11:18.540 align:middle line:84% They are going to be thinking about it 00:11:18.540 --> 00:11:20.820 align:middle line:84% in terms of what they expect the weather-- 00:11:20.820 --> 00:11:22.860 align:middle line:84% all the weather, the daily weather-- 00:11:22.860 --> 00:11:26.850 align:middle line:84% to be over the period of 30, 40, 50 years that this asset is 00:11:26.850 --> 00:11:28.390 align:middle line:90% going to be in our hands. 00:11:28.390 --> 00:11:31.680 align:middle line:84% So what we are interested here is about this long-term 00:11:31.680 --> 00:11:33.450 align:middle line:84% distribution, this long-term climate, 00:11:33.450 --> 00:11:36.180 align:middle line:84% these 30-year averages of temperature, 00:11:36.180 --> 00:11:41.430 align:middle line:84% 30-year averages of rainfall, 30-year averages of cyclones, 00:11:41.430 --> 00:11:42.730 align:middle line:90% hurricanes, and so forth. 00:11:42.730 --> 00:11:45.255 align:middle line:84% This is what we are going to discuss here today. 00:11:45.255 --> 00:11:47.130 align:middle line:84% And this is what we are going to discuss here 00:11:47.130 --> 00:11:48.890 align:middle line:90% over the next two, three weeks. 00:11:48.890 --> 00:11:51.960 align:middle line:84% We are not going to discuss how people are impacted 00:11:51.960 --> 00:11:55.200 align:middle line:84% or the decisions of people are impacted by these one day 00:11:55.200 --> 00:11:58.990 align:middle line:84% cold day, one day that is warm, one day that is rainy. 00:11:58.990 --> 00:12:02.850 align:middle line:84% No, we are thinking about over the last 10 decades, 00:12:02.850 --> 00:12:07.380 align:middle line:84% the average temperature has been 20 degrees Celsius, 00:12:07.380 --> 00:12:08.560 align:middle line:90% 80 degrees Fahrenheit. 00:12:08.560 --> 00:12:10.590 align:middle line:84% And now, actually, our average temperature 00:12:10.590 --> 00:12:13.590 align:middle line:84% goes to 90 degrees Fahrenheit, and our average temperature 00:12:13.590 --> 00:12:15.193 align:middle line:90% goes to 30 degrees Celsius. 00:12:15.193 --> 00:12:16.360 align:middle line:90% That's what we are thinking. 00:12:16.360 --> 00:12:18.930 align:middle line:84% We are thinking about we are here in terms of temperatures 00:12:18.930 --> 00:12:21.100 align:middle line:84% and we go here in terms of temperatures. 00:12:21.100 --> 00:12:22.270 align:middle line:90% And this is here to stay. 00:12:22.270 --> 00:12:23.645 align:middle line:84% And this is nothing that is going 00:12:23.645 --> 00:12:25.650 align:middle line:84% to be a fluctuation from one day to the other, 00:12:25.650 --> 00:12:29.130 align:middle line:84% because these long-term trends is going to change, 00:12:29.130 --> 00:12:32.970 align:middle line:84% and it's going to shape the expectations or the forecasts 00:12:32.970 --> 00:12:35.280 align:middle line:84% of a lot of our analysts that are going 00:12:35.280 --> 00:12:39.120 align:middle line:84% to consider what to make in terms of building an asset, 00:12:39.120 --> 00:12:40.753 align:middle line:84% transforming an asset, and so forth. 00:12:40.753 --> 00:12:42.420 align:middle line:84% This is what really matters because this 00:12:42.420 --> 00:12:47.130 align:middle line:84% is going to shape all of our evaluations 00:12:47.130 --> 00:12:50.970 align:middle line:84% in terms of considering what to do with an asset, what 00:12:50.970 --> 00:12:52.110 align:middle line:90% to do with a portfolio. 00:12:52.110 --> 00:12:55.860 align:middle line:84% What matters for us is always the long-term expectations, 00:12:55.860 --> 00:12:58.890 align:middle line:84% the long-term beliefs that we have there. 00:12:58.890 --> 00:13:00.660 align:middle line:84% And this is what climate change is about, 00:13:00.660 --> 00:13:03.250 align:middle line:84% is those expectations in terms of how 00:13:03.250 --> 00:13:07.290 align:middle line:84% the amenities of a place, how the cost of assets 00:13:07.290 --> 00:13:08.940 align:middle line:84% are going to be-- are going to change 00:13:08.940 --> 00:13:11.700 align:middle line:84% just because the climate that this asset is exposed to 00:13:11.700 --> 00:13:13.200 align:middle line:90% is changing. 00:13:13.200 --> 00:13:13.900 align:middle line:90% All right? 00:13:13.900 --> 00:13:18.400 align:middle line:84% They are not going to be shaped by what happens today in Boston. 00:13:18.400 --> 00:13:21.510 align:middle line:84% It's going to be shaped by what we think that in the next 10, 00:13:21.510 --> 00:13:25.380 align:middle line:84% 15, 20 years is happening in Boston or in New York 00:13:25.380 --> 00:13:27.120 align:middle line:84% or whatever we are considering that. 00:13:27.120 --> 00:13:29.590 align:middle line:90% Carlos? 00:13:29.590 --> 00:13:30.950 align:middle line:90% Good. 00:13:30.950 --> 00:13:33.170 align:middle line:90% I saw you a bit confused. 00:13:33.170 --> 00:13:36.060 align:middle line:84% And this is what is changing, and this is what you see. 00:13:36.060 --> 00:13:40.160 align:middle line:84% If you see the UN IPCC reports, they 00:13:40.160 --> 00:13:42.620 align:middle line:84% are the ones that are actually investigating 00:13:42.620 --> 00:13:44.720 align:middle line:84% how the climate is changing and the attribution 00:13:44.720 --> 00:13:47.660 align:middle line:90% of that change to humankind. 00:13:47.660 --> 00:13:50.720 align:middle line:84% This is what you see, that there is 00:13:50.720 --> 00:13:53.655 align:middle line:84% a change in beliefs and change in expectations of how 00:13:53.655 --> 00:13:54.780 align:middle line:90% the climate is going to be. 00:13:54.780 --> 00:13:57.950 align:middle line:84% So you see that they started with saying 00:13:57.950 --> 00:14:02.270 align:middle line:84% that there is a relationship between greenhouse emissions 00:14:02.270 --> 00:14:03.020 align:middle line:90% and-- 00:14:03.020 --> 00:14:06.050 align:middle line:90% there is a change-- 00:14:06.050 --> 00:14:08.960 align:middle line:84% abnormal levels of greenhouse emissions. 00:14:08.960 --> 00:14:12.060 align:middle line:84% And then they started to connect it to climate. 00:14:12.060 --> 00:14:15.800 align:middle line:84% They started to use words that are stronger and stronger 00:14:15.800 --> 00:14:18.960 align:middle line:84% in terms of the probability of a climate change to be occurring. 00:14:18.960 --> 00:14:23.430 align:middle line:84% So you see from 1995, they go from "suggests" to 2001, 00:14:23.430 --> 00:14:26.240 align:middle line:84% they go to "likely," "very likely," "extremely likely," 00:14:26.240 --> 00:14:29.570 align:middle line:84% all the way down to "is already impacting us." 00:14:29.570 --> 00:14:33.260 align:middle line:84% So this is something that when you are making decisions, 00:14:33.260 --> 00:14:38.180 align:middle line:84% you see how the approach and the belief is changing over time, 00:14:38.180 --> 00:14:42.680 align:middle line:84% and therefore, that should have consequences into the decisions 00:14:42.680 --> 00:14:45.980 align:middle line:84% that people are making in terms of long-term allocations 00:14:45.980 --> 00:14:48.680 align:middle line:84% of capital, long-term investment decisions. 00:14:48.680 --> 00:14:51.470 align:middle line:84% And especially when it comes to 50 years, when 00:14:51.470 --> 00:14:53.880 align:middle line:84% it comes to things that are kind of two, 00:14:53.880 --> 00:14:56.180 align:middle line:84% three decades ahead, this is something 00:14:56.180 --> 00:14:59.720 align:middle line:84% that it is not anymore something that our next generation 00:14:59.720 --> 00:15:00.930 align:middle line:90% will be impacted by. 00:15:00.930 --> 00:15:03.150 align:middle line:84% It's actually that our generation is impacted. 00:15:03.150 --> 00:15:05.570 align:middle line:84% And especially when you think about insurance companies, 00:15:05.570 --> 00:15:07.342 align:middle line:84% pension funds and so forth, those 00:15:07.342 --> 00:15:09.050 align:middle line:84% are already within the investment horizon 00:15:09.050 --> 00:15:10.130 align:middle line:90% of those folks. 00:15:10.130 --> 00:15:12.590 align:middle line:84% And when you are thinking about buying an asset 00:15:12.590 --> 00:15:17.150 align:middle line:84% to hold it for using purposes and so forth, 20, 00:15:17.150 --> 00:15:20.933 align:middle line:84% 30 years is something that it is not anymore the next guy that 00:15:20.933 --> 00:15:22.850 align:middle line:84% buys the building, but it's actually something 00:15:22.850 --> 00:15:26.570 align:middle line:84% that it is me the one that is going to suffer the expected 00:15:26.570 --> 00:15:30.170 align:middle line:84% damages of a hurricane or the expected cost associated 00:15:30.170 --> 00:15:34.770 align:middle line:84% with having an AC running full power not 20 days a year, 00:15:34.770 --> 00:15:36.460 align:middle line:90% but actually 40 days a year. 00:15:36.460 --> 00:15:37.860 align:middle line:90% So this is exactly-- 00:15:37.860 --> 00:15:40.125 align:middle line:84% this is the key of climate change. 00:15:40.125 --> 00:15:42.000 align:middle line:84% This is actually what we have to think about. 00:15:42.000 --> 00:15:46.480 align:middle line:84% How that changes is going to influence the real estate 00:15:46.480 --> 00:15:46.980 align:middle line:90% market. 00:15:46.980 --> 00:15:49.350 align:middle line:84% That is going to influence the real estate investment 00:15:49.350 --> 00:15:49.920 align:middle line:90% decisions. 00:15:49.920 --> 00:15:53.910 align:middle line:84% It is going from, ah, it seems nothing changes to, 00:15:53.910 --> 00:15:56.550 align:middle line:84% oh, it seems that there is a change here in the atmosphere, 00:15:56.550 --> 00:15:58.883 align:middle line:84% and actually, it seems that it's actually something that 00:15:58.883 --> 00:16:02.923 align:middle line:84% is related to how we produce goods and how we heat buildings, 00:16:02.923 --> 00:16:04.340 align:middle line:84% the CO2 emissions that we produce, 00:16:04.340 --> 00:16:05.940 align:middle line:84% but it's also something that we know 00:16:05.940 --> 00:16:08.410 align:middle line:84% is not going to change in the next few years. 00:16:08.410 --> 00:16:10.650 align:middle line:84% And this actually is something that, hey, it 00:16:10.650 --> 00:16:12.300 align:middle line:84% seems that we have enough evidence 00:16:12.300 --> 00:16:15.210 align:middle line:84% to see that the climate already changed when you compare it 00:16:15.210 --> 00:16:19.320 align:middle line:84% to the last 20, 30 years beforehand. 00:16:19.320 --> 00:16:22.020 align:middle line:84% OK, how is it changing, and where is it changing? 00:16:22.020 --> 00:16:26.250 align:middle line:84% If you see-- so on the one hand, as I said, as we saw, 00:16:26.250 --> 00:16:27.840 align:middle line:90% the weather is-- 00:16:27.840 --> 00:16:29.790 align:middle line:84% the climate is getting hotter and hotter. 00:16:29.790 --> 00:16:32.910 align:middle line:84% The amount of heat waves are increasing everywhere 00:16:32.910 --> 00:16:33.490 align:middle line:90% in the world. 00:16:33.490 --> 00:16:36.030 align:middle line:84% So if you compare the differences with 1980s 00:16:36.030 --> 00:16:39.060 align:middle line:84% in temperature, you see that everywhere in the world is 00:16:39.060 --> 00:16:40.000 align:middle line:90% getting hotter. 00:16:40.000 --> 00:16:42.570 align:middle line:84% And that means that people are exposed 00:16:42.570 --> 00:16:45.510 align:middle line:84% to uncomfortably warm weather when 00:16:45.510 --> 00:16:48.240 align:middle line:84% it comes to selecting where to live much more than it 00:16:48.240 --> 00:16:52.050 align:middle line:84% used to be, especially in areas that were already warm. 00:16:52.050 --> 00:16:53.820 align:middle line:84% You have more problems with health, 00:16:53.820 --> 00:16:56.670 align:middle line:84% more problems with different heat-related diseases, 00:16:56.670 --> 00:16:58.810 align:middle line:84% with cardiovascular problems and so forth. 00:16:58.810 --> 00:17:02.910 align:middle line:84% And then you also have a change in the distribution 00:17:02.910 --> 00:17:03.970 align:middle line:90% of precipitation. 00:17:03.970 --> 00:17:06.150 align:middle line:84% So as the atmosphere gets warmer, 00:17:06.150 --> 00:17:11.838 align:middle line:84% it has a different capacity to absorb moisture and actually 00:17:11.838 --> 00:17:12.880 align:middle line:90% distribute that moisture. 00:17:12.880 --> 00:17:14.910 align:middle line:84% So you see that on the one hand, you 00:17:14.910 --> 00:17:18.780 align:middle line:84% get more problems with droughts and people that have-- droughts. 00:17:18.780 --> 00:17:21.030 align:middle line:84% And people that are coming from the area of California 00:17:21.030 --> 00:17:24.180 align:middle line:84% and so forth can speak to the idea that it is much more 00:17:24.180 --> 00:17:27.220 align:middle line:84% severe than it used to be ten, 15, 20 years ago, 00:17:27.220 --> 00:17:28.109 align:middle line:90% and also people-- 00:17:28.109 --> 00:17:29.820 align:middle line:90% I come from Spain. 00:17:29.820 --> 00:17:32.730 align:middle line:84% We have-- what used to be a bad year in terms 00:17:32.730 --> 00:17:35.430 align:middle line:84% of having the lakes almost empty, 00:17:35.430 --> 00:17:37.050 align:middle line:84% now it's sort of the normal routine 00:17:37.050 --> 00:17:39.930 align:middle line:84% to see that the lakes are really being really empty 00:17:39.930 --> 00:17:41.880 align:middle line:84% and having problems for the agriculture 00:17:41.880 --> 00:17:46.350 align:middle line:84% and having problems for giving water to certain cities. 00:17:46.350 --> 00:17:48.960 align:middle line:84% And if you combine hot temperatures 00:17:48.960 --> 00:17:52.350 align:middle line:84% with dry temperatures, you have the perfect scenario 00:17:52.350 --> 00:17:53.350 align:middle line:90% for wildfires. 00:17:53.350 --> 00:17:56.280 align:middle line:84% So, again, if you see something from California, you see that, 00:17:56.280 --> 00:17:58.320 align:middle line:84% year after year, you have in the news 00:17:58.320 --> 00:18:00.720 align:middle line:84% that there has been a wildfire somewhere near a city 00:18:00.720 --> 00:18:03.930 align:middle line:84% and that has some infrastructure being destroyed, 00:18:03.930 --> 00:18:07.060 align:middle line:84% some buildings being at the risk of fire, and so forth. 00:18:07.060 --> 00:18:10.710 align:middle line:84% So, again, something that used to happen once in a decade 00:18:10.710 --> 00:18:12.610 align:middle line:90% is now happening every year. 00:18:12.610 --> 00:18:14.850 align:middle line:84% And that is, again, the probability change 00:18:14.850 --> 00:18:17.645 align:middle line:84% that we want to use in terms of how do people respond 00:18:17.645 --> 00:18:19.020 align:middle line:84% in the real estate market and how 00:18:19.020 --> 00:18:23.100 align:middle line:84% that is affecting the value and the different decisions that 00:18:23.100 --> 00:18:25.590 align:middle line:84% are happening in the built environment. 00:18:25.590 --> 00:18:28.320 align:middle line:84% And on the other hand, you also have 00:18:28.320 --> 00:18:30.820 align:middle line:84% the problem of too much water in other places. 00:18:30.820 --> 00:18:36.160 align:middle line:84% So if you see the level of ice in places like Antarctica, 00:18:36.160 --> 00:18:39.550 align:middle line:84% in places like the North Pole or Greenland, 00:18:39.550 --> 00:18:43.810 align:middle line:84% you see that the amount of ice that is in there 00:18:43.810 --> 00:18:46.130 align:middle line:84% is much, much lower than it used to be. 00:18:46.130 --> 00:18:49.662 align:middle line:84% And it's not only the ice that is generating from year to year, 00:18:49.662 --> 00:18:51.370 align:middle line:84% but actually, the ice that has been there 00:18:51.370 --> 00:18:53.938 align:middle line:84% for thousands of years is now being melted, 00:18:53.938 --> 00:18:55.480 align:middle line:84% and it's going to take a lot of time, 00:18:55.480 --> 00:18:57.680 align:middle line:84% if ever, it's going to be recovered. 00:18:57.680 --> 00:19:00.130 align:middle line:84% That is going to be more water that is coming 00:19:00.130 --> 00:19:01.460 align:middle line:90% into the oceans and the seas. 00:19:01.460 --> 00:19:03.430 align:middle line:84% And it's going to make, ultimately, 00:19:03.430 --> 00:19:05.960 align:middle line:84% that the coastal cities like Boston 00:19:05.960 --> 00:19:10.720 align:middle line:84% is going to have a sea level rise problem. 00:19:10.720 --> 00:19:12.760 align:middle line:84% And not only that, so even if you are not 00:19:12.760 --> 00:19:14.260 align:middle line:84% in the coastal areas, what you see 00:19:14.260 --> 00:19:16.540 align:middle line:84% is that because of the distribution in moisture 00:19:16.540 --> 00:19:18.262 align:middle line:84% in the atmosphere, you are not only 00:19:18.262 --> 00:19:19.720 align:middle line:84% having more problems with droughts, 00:19:19.720 --> 00:19:22.000 align:middle line:84% but also you have it that when there is rain, 00:19:22.000 --> 00:19:26.035 align:middle line:84% it's more likely to be a bigger storm that is going to discharge 00:19:26.035 --> 00:19:30.257 align:middle line:84% a big amount of water in a given point of time in a given region. 00:19:30.257 --> 00:19:32.590 align:middle line:84% And it's going to make it very difficult for that region 00:19:32.590 --> 00:19:33.490 align:middle line:90% to absorb-- 00:19:33.490 --> 00:19:35.110 align:middle line:90% the soil to absorb that. 00:19:35.110 --> 00:19:38.350 align:middle line:84% The water is going to generate a lot of problems with floods 00:19:38.350 --> 00:19:40.060 align:middle line:84% all over the place, and especially 00:19:40.060 --> 00:19:41.480 align:middle line:90% next to these big rivers. 00:19:41.480 --> 00:19:45.910 align:middle line:84% So there is no area that is not impacted 00:19:45.910 --> 00:19:49.630 align:middle line:84% by this risk in a lot of places like the United States-- 00:19:49.630 --> 00:19:52.180 align:middle line:84% not only the ones next to the sea, 00:19:52.180 --> 00:19:55.540 align:middle line:84% but also, all over the region, you 00:19:55.540 --> 00:19:57.430 align:middle line:84% have the problem that you can have 00:19:57.430 --> 00:20:00.580 align:middle line:84% the chance to these big storms being larger 00:20:00.580 --> 00:20:04.390 align:middle line:84% and, therefore, having big problems for water management 00:20:04.390 --> 00:20:07.270 align:middle line:84% and being able to cope with that amount of water 00:20:07.270 --> 00:20:08.660 align:middle line:90% in a very short term. 00:20:08.660 --> 00:20:10.970 align:middle line:84% This will happen, for example, in Germany, 00:20:10.970 --> 00:20:13.170 align:middle line:90% for those that are from Europe. 00:20:13.170 --> 00:20:17.150 align:middle line:84% A couple of years ago, I was actually really nearby. 00:20:17.150 --> 00:20:19.940 align:middle line:84% There, out of the sudden, there was a big storm, 00:20:19.940 --> 00:20:21.260 align:middle line:90% and there was this-- 00:20:21.260 --> 00:20:23.450 align:middle line:84% one of the main rivers that got flooded. 00:20:23.450 --> 00:20:28.790 align:middle line:84% And areas in Belgium, in Germany, and in the Netherlands 00:20:28.790 --> 00:20:31.620 align:middle line:84% got completely dilapidated by the water. 00:20:31.620 --> 00:20:34.250 align:middle line:84% And a lot of people died because, especially in Germany, 00:20:34.250 --> 00:20:36.780 align:middle line:90% people can live in basements. 00:20:36.780 --> 00:20:38.633 align:middle line:90% And they were warned too late. 00:20:38.633 --> 00:20:40.050 align:middle line:84% They couldn't escape the basement. 00:20:40.050 --> 00:20:42.110 align:middle line:84% And then the water came in into their houses, 00:20:42.110 --> 00:20:43.320 align:middle line:90% and then they died. 00:20:43.320 --> 00:20:46.593 align:middle line:84% And at the same time, Siqi is originally from-- 00:20:46.593 --> 00:20:47.510 align:middle line:90% AUDIENCE: [INAUDIBLE]. 00:20:47.510 --> 00:20:48.635 align:middle line:90% JUAN PALACIOS: --Zhengzhou. 00:20:48.635 --> 00:20:52.610 align:middle line:84% At the very same time, there was a big flood in Zhengzhou 00:20:52.610 --> 00:20:55.430 align:middle line:84% for the exact same reason of big precipitation 00:20:55.430 --> 00:20:59.390 align:middle line:84% coming in and being unable to absorb all of that water. 00:20:59.390 --> 00:21:02.990 align:middle line:84% So those events that, again, used 00:21:02.990 --> 00:21:06.020 align:middle line:84% to happen once in a lifetime now are happening more and more 00:21:06.020 --> 00:21:06.870 align:middle line:90% often. 00:21:06.870 --> 00:21:10.220 align:middle line:84% And what used to be something that you wouldn't care 00:21:10.220 --> 00:21:12.080 align:middle line:84% at all when you were underwriting any asset 00:21:12.080 --> 00:21:14.240 align:middle line:84% or making any decision, now it comes 00:21:14.240 --> 00:21:18.200 align:middle line:84% to be very responsible if you have no consideration for them, 00:21:18.200 --> 00:21:20.360 align:middle line:84% because it's very, very-- much more frequent 00:21:20.360 --> 00:21:21.360 align:middle line:90% than it used to be. 00:21:21.360 --> 00:21:22.970 align:middle line:84% And this is, again, the probability 00:21:22.970 --> 00:21:25.730 align:middle line:84% that we want to think carefully about how that 00:21:25.730 --> 00:21:27.720 align:middle line:90% impacts the real estate market. 00:21:27.720 --> 00:21:30.480 align:middle line:90% And this is the overall trend. 00:21:30.480 --> 00:21:33.080 align:middle line:90% This is the number of-- 00:21:33.080 --> 00:21:36.950 align:middle line:84% every bar is the number of $1 billion disasters 00:21:36.950 --> 00:21:39.600 align:middle line:84% across different type of events-- 00:21:39.600 --> 00:21:42.630 align:middle line:84% so droughts, wildfires, flooding, and so forth. 00:21:42.630 --> 00:21:44.540 align:middle line:84% And if you see, over the last decade, 00:21:44.540 --> 00:21:48.980 align:middle line:84% there is a clear upward trend into the number 00:21:48.980 --> 00:21:50.340 align:middle line:90% of events that are happening. 00:21:50.340 --> 00:21:52.200 align:middle line:84% And these are events of $1 billion events. 00:21:52.200 --> 00:21:54.450 align:middle line:84% These are not the smallest storms that you are seeing. 00:21:54.450 --> 00:21:57.210 align:middle line:84% These are actually storms that are causing big damages. 00:21:57.210 --> 00:21:59.780 align:middle line:84% And then you see in the lines how 00:21:59.780 --> 00:22:06.060 align:middle line:84% also the amount of the cost in billions of those disasters 00:22:06.060 --> 00:22:07.400 align:middle line:90% are also going up. 00:22:07.400 --> 00:22:11.100 align:middle line:84% So those are billions of dollars that are happening. 00:22:11.100 --> 00:22:13.890 align:middle line:84% And they used to be just this much. 00:22:13.890 --> 00:22:16.100 align:middle line:84% And they used to be this small here 00:22:16.100 --> 00:22:19.500 align:middle line:84% and now are going all the way up. 00:22:19.500 --> 00:22:23.000 align:middle line:84% So those billions are being distributed ultimately 00:22:23.000 --> 00:22:25.910 align:middle line:84% among the public sector, among the insurance companies, 00:22:25.910 --> 00:22:27.840 align:middle line:90% and among the private sector. 00:22:27.840 --> 00:22:29.990 align:middle line:84% But it's very clear that somehow we 00:22:29.990 --> 00:22:33.200 align:middle line:84% will all pay in one form or the other for it 00:22:33.200 --> 00:22:34.970 align:middle line:84% because the insurance are not going 00:22:34.970 --> 00:22:39.350 align:middle line:84% to keep absorbing billions and billions of dollars of climate 00:22:39.350 --> 00:22:43.220 align:middle line:84% disasters, because there is just no way that you can actually 00:22:43.220 --> 00:22:45.920 align:middle line:84% keep making business sense of keep absorbing billions 00:22:45.920 --> 00:22:49.220 align:middle line:84% of dollars in places like Louisiana, places like Florida, 00:22:49.220 --> 00:22:50.160 align:middle line:90% and so forth. 00:22:50.160 --> 00:22:53.840 align:middle line:84% Kevin and I and Siqi were talking over breakfast 00:22:53.840 --> 00:22:58.040 align:middle line:84% how insurance companies are exiting markets like Louisiana 00:22:58.040 --> 00:23:01.710 align:middle line:84% just because there is just no financial model, 00:23:01.710 --> 00:23:04.610 align:middle line:84% no business sense to keep absorbing a lot of those damages 00:23:04.610 --> 00:23:09.360 align:middle line:84% if you have such a frequency of those disasters in that region. 00:23:09.360 --> 00:23:12.970 align:middle line:84% So, you know, for a while, they can be a-- 00:23:12.970 --> 00:23:14.600 align:middle line:84% they can give you some bandwidth. 00:23:14.600 --> 00:23:18.250 align:middle line:84% But if this becomes the systematic change there, 00:23:18.250 --> 00:23:23.200 align:middle line:84% where, every year, you have to absorb all of those billions, 00:23:23.200 --> 00:23:26.410 align:middle line:84% and even more because you see that the trend is going upward, 00:23:26.410 --> 00:23:28.930 align:middle line:84% then ultimately, you will go bankrupt, 00:23:28.930 --> 00:23:32.083 align:middle line:84% or you will just decide to exit to make to keep making money out 00:23:32.083 --> 00:23:34.000 align:middle line:84% of your own business, because if you keep just 00:23:34.000 --> 00:23:36.370 align:middle line:84% absorbing the punches, eventually, it just 00:23:36.370 --> 00:23:38.320 align:middle line:84% doesn't make any financial sense. 00:23:38.320 --> 00:23:41.710 align:middle line:90% So this is the situation. 00:23:41.710 --> 00:23:43.340 align:middle line:84% I hope that you are all depressed. 00:23:43.340 --> 00:23:44.770 align:middle line:90% [LAUGHTER] 00:23:44.770 --> 00:23:46.345 align:middle line:90% No? 00:23:46.345 --> 00:23:48.970 align:middle line:84% When someone tells you that they hope that you'll be depressed, 00:23:48.970 --> 00:23:50.470 align:middle line:90% you shouldn't laugh. 00:23:50.470 --> 00:23:51.530 align:middle line:90% So impolite. 00:23:51.530 --> 00:23:54.400 align:middle line:84% AUDIENCE: [INAUDIBLE] this will also bring us 00:23:54.400 --> 00:23:55.730 align:middle line:90% a lot of job opportunities. 00:23:55.730 --> 00:23:57.070 align:middle line:90% [LAUGHTER] 00:23:57.070 --> 00:24:01.360 align:middle line:84% JUAN PALACIOS: Yeah, for rebuilders, yeah. 00:24:01.360 --> 00:24:01.970 align:middle line:90% Exactly. 00:24:01.970 --> 00:24:03.845 align:middle line:84% AUDIENCE: All the real estate companies, they 00:24:03.845 --> 00:24:07.162 align:middle line:84% need us to [? start ?] the kind of risks, right? 00:24:07.162 --> 00:24:09.370 align:middle line:84% JUAN PALACIOS: Yeah, job opportunities for those that 00:24:09.370 --> 00:24:11.350 align:middle line:90% know and understand this. 00:24:11.350 --> 00:24:12.500 align:middle line:90% Yeah. 00:24:12.500 --> 00:24:13.547 align:middle line:90% AUDIENCE: Only from us. 00:24:13.547 --> 00:24:14.380 align:middle line:90% JUAN PALACIOS: Yeah. 00:24:14.380 --> 00:24:16.270 align:middle line:84% Well, definitely, I mean, there is 00:24:16.270 --> 00:24:19.570 align:middle line:84% a lot of people that never got these type of insights. 00:24:19.570 --> 00:24:23.740 align:middle line:84% And they keep living and making decisions 00:24:23.740 --> 00:24:26.860 align:middle line:84% in a world that look like this, while hopefully, 00:24:26.860 --> 00:24:28.960 align:middle line:84% after these sessions and after this course, 00:24:28.960 --> 00:24:30.760 align:middle line:84% you understand how to make decisions 00:24:30.760 --> 00:24:36.690 align:middle line:84% and how to think in a world that looks like present. 00:24:36.690 --> 00:24:38.910 align:middle line:84% So that's where your job opportunities 00:24:38.910 --> 00:24:42.690 align:middle line:84% come, thinking not like this, but thinking like this. 00:24:42.690 --> 00:24:44.460 align:middle line:84% And this is also one of the sessions. 00:24:44.460 --> 00:24:46.413 align:middle line:84% Carlos, you want to think like this. 00:24:46.413 --> 00:24:47.580 align:middle line:90% AUDIENCE: I have a question. 00:24:47.580 --> 00:24:48.510 align:middle line:90% JUAN PALACIOS: Sure. 00:24:48.510 --> 00:24:51.780 align:middle line:84% AUDIENCE: Looking into the graphs and seeing that the green 00:24:51.780 --> 00:24:54.030 align:middle line:84% component, which is severe storm count, 00:24:54.030 --> 00:24:57.330 align:middle line:84% is the one that has grown substantially, 00:24:57.330 --> 00:25:02.610 align:middle line:84% and also looking at the 5-year average cost line, 00:25:02.610 --> 00:25:08.730 align:middle line:84% is there any correlation between how population has grown 00:25:08.730 --> 00:25:14.970 align:middle line:84% into big urban areas and how that has affected, indeed, 00:25:14.970 --> 00:25:21.130 align:middle line:84% the costs of the ongoing disasters that are related, 00:25:21.130 --> 00:25:23.297 align:middle line:84% at least with the storms and floodings? 00:25:23.297 --> 00:25:24.130 align:middle line:90% JUAN PALACIOS: Yeah. 00:25:24.130 --> 00:25:27.490 align:middle line:84% AUDIENCE: Because I imagine it's more costly if you 00:25:27.490 --> 00:25:29.950 align:middle line:84% have more people living in dense areas 00:25:29.950 --> 00:25:36.220 align:middle line:84% than maybe separated, small, rural, suburban concentration 00:25:36.220 --> 00:25:37.090 align:middle line:90% of people. 00:25:37.090 --> 00:25:39.250 align:middle line:84% I don't know if it has any correlation 00:25:39.250 --> 00:25:41.700 align:middle line:84% with the ongoing growing of costs. 00:25:41.700 --> 00:25:42.940 align:middle line:90% JUAN PALACIOS: Yeah, yeah. 00:25:42.940 --> 00:25:44.887 align:middle line:84% It will not-- that's a very good point, 00:25:44.887 --> 00:25:46.220 align:middle line:90% and that's a very good question. 00:25:46.220 --> 00:25:51.080 align:middle line:84% So it will not explain the total amount of damages. 00:25:51.080 --> 00:25:55.030 align:middle line:84% But it is true that one of the market failures that 00:25:55.030 --> 00:25:58.480 align:middle line:84% are creating that the damages are more severe 00:25:58.480 --> 00:26:02.140 align:middle line:84% is that we keep letting people develop in areas that we know 00:26:02.140 --> 00:26:04.000 align:middle line:84% are at risk of flooding and we know 00:26:04.000 --> 00:26:08.150 align:middle line:84% that are at risk of suffering some of those events. 00:26:08.150 --> 00:26:11.770 align:middle line:84% So it doesn't make sense that, if you think about areas that 00:26:11.770 --> 00:26:16.300 align:middle line:84% are at very high risk of suffering a wildfire 00:26:16.300 --> 00:26:19.640 align:middle line:84% or suffering a storm, that you keep letting people 00:26:19.640 --> 00:26:20.658 align:middle line:90% develop in those areas. 00:26:20.658 --> 00:26:22.700 align:middle line:84% And you have-- for example, in the United States, 00:26:22.700 --> 00:26:24.350 align:middle line:84% you have the FEMA maps where you have 00:26:24.350 --> 00:26:29.030 align:middle line:84% a very accurate view on what are risky areas, what 00:26:29.030 --> 00:26:30.480 align:middle line:90% are not risky areas. 00:26:30.480 --> 00:26:33.830 align:middle line:84% And in a lot of places, we let people develop 00:26:33.830 --> 00:26:35.720 align:middle line:90% as that risk is not there. 00:26:35.720 --> 00:26:37.820 align:middle line:84% And we let people develop in areas 00:26:37.820 --> 00:26:40.130 align:middle line:84% where we know that sooner than later, there 00:26:40.130 --> 00:26:43.820 align:middle line:84% will be something that will blow away those houses, 00:26:43.820 --> 00:26:46.460 align:middle line:84% and therefore, the damages and the human lives that are 00:26:46.460 --> 00:26:49.320 align:middle line:90% involved in that are at risk. 00:26:49.320 --> 00:26:53.360 align:middle line:84% So we definitely need to rethink about different zoning 00:26:53.360 --> 00:26:58.563 align:middle line:84% areas that are helping to mitigate those risks by avoiding 00:26:58.563 --> 00:27:00.980 align:middle line:84% that people are exposed to certain things in certain areas 00:27:00.980 --> 00:27:04.430 align:middle line:84% that we know are at disproportionately high risk 00:27:04.430 --> 00:27:07.815 align:middle line:84% of suffering, a wildfire, flooding, and so forth. 00:27:07.815 --> 00:27:09.440 align:middle line:84% So this is part of the problem, that we 00:27:09.440 --> 00:27:12.470 align:middle line:84% let people keep developing next to the coastal line, 00:27:12.470 --> 00:27:13.560 align:middle line:90% we need to [INAUDIBLE]. 00:27:13.560 --> 00:27:15.980 align:middle line:84% And while we don't put infrastructure in place 00:27:15.980 --> 00:27:18.710 align:middle line:84% to prevent the flooding, we let people 00:27:18.710 --> 00:27:22.730 align:middle line:84% to be living next to river flows that 00:27:22.730 --> 00:27:24.440 align:middle line:84% are at risk of flooding when there is 00:27:24.440 --> 00:27:26.310 align:middle line:90% these severe storms happening. 00:27:26.310 --> 00:27:32.120 align:middle line:84% But a lot of it is that as you see in the-- 00:27:32.120 --> 00:27:32.930 align:middle line:90% let me go back. 00:27:32.930 --> 00:27:35.150 align:middle line:84% As you see in this map, those events-- 00:27:35.150 --> 00:27:37.490 align:middle line:84% this is only for heat waves, but that happens everywhere 00:27:37.490 --> 00:27:39.560 align:middle line:90% in a lot of those events, too. 00:27:39.560 --> 00:27:42.710 align:middle line:84% Those events are being more and more widespread. 00:27:42.710 --> 00:27:48.990 align:middle line:84% And they are more and more damaging year after year. 00:27:48.990 --> 00:27:56.740 align:middle line:84% So that is the big part of that graph, that something 00:27:56.740 --> 00:27:58.450 align:middle line:90% that if you see here-- 00:27:58.450 --> 00:28:00.610 align:middle line:84% if you think about Latin America here, 00:28:00.610 --> 00:28:02.620 align:middle line:90% you see that it used to be-- 00:28:02.620 --> 00:28:04.180 align:middle line:90% it starts in blue. 00:28:04.180 --> 00:28:05.720 align:middle line:90% And it's really nothing there. 00:28:05.720 --> 00:28:08.350 align:middle line:84% But as you go on, you see that it starts 00:28:08.350 --> 00:28:09.920 align:middle line:90% to be part of Latin America. 00:28:09.920 --> 00:28:12.670 align:middle line:84% And now, as the graph goes on, it's 00:28:12.670 --> 00:28:15.340 align:middle line:84% the entire Latin America that is affected by heat waves. 00:28:15.340 --> 00:28:17.380 align:middle line:84% So it is growing more and more widespread, 00:28:17.380 --> 00:28:19.610 align:middle line:84% and it's growing more and more damaging. 00:28:19.610 --> 00:28:23.140 align:middle line:84% And that is what is causing this trend 00:28:23.140 --> 00:28:26.320 align:middle line:84% to go up, together with the idea that we don't let people 00:28:26.320 --> 00:28:28.417 align:middle line:84% be protected, given that it seems that we 00:28:28.417 --> 00:28:29.500 align:middle line:90% don't learn from the past. 00:28:29.500 --> 00:28:31.900 align:middle line:84% And then we keep letting them live wherever 00:28:31.900 --> 00:28:34.150 align:middle line:84% a developer decides them to live, 00:28:34.150 --> 00:28:37.040 align:middle line:84% or they themselves decide to build a parcel of land. 00:28:37.040 --> 00:28:38.500 align:middle line:84% And we will talk about resiliency, 00:28:38.500 --> 00:28:40.810 align:middle line:84% and we will talk about those things later, too. 00:28:40.810 --> 00:28:41.575 align:middle line:90% Bill? 00:28:41.575 --> 00:28:42.770 align:middle line:84% AUDIENCE: Kind of off of that point-- 00:28:42.770 --> 00:28:44.500 align:middle line:84% and if you're going to touch on it later, 00:28:44.500 --> 00:28:46.520 align:middle line:84% then feel free to skip the question. 00:28:46.520 --> 00:28:47.020 align:middle line:90% But-- 00:28:47.020 --> 00:28:47.895 align:middle line:90% JUAN PALACIOS: Sorry. 00:28:47.895 --> 00:28:51.490 align:middle line:84% AUDIENCE: --we're dealing with finite amounts of public funds, 00:28:51.490 --> 00:28:52.910 align:middle line:90% private sector funds. 00:28:52.910 --> 00:28:54.405 align:middle line:84% And like you said, there's already 00:28:54.405 --> 00:28:56.030 align:middle line:84% people living next to that river that's 00:28:56.030 --> 00:28:59.720 align:middle line:84% going to start overflowing every 5 years rather than every 100 00:28:59.720 --> 00:29:00.470 align:middle line:90% years. 00:29:00.470 --> 00:29:02.390 align:middle line:84% Where do you put money into adaptation, 00:29:02.390 --> 00:29:05.090 align:middle line:84% and where do you put money into mitigation? 00:29:05.090 --> 00:29:07.743 align:middle line:90% Is it context-specific? 00:29:07.743 --> 00:29:09.660 align:middle line:84% JUAN PALACIOS: Yeah, that's a very good point. 00:29:09.660 --> 00:29:12.170 align:middle line:84% A lot of it comes down to a political decision 00:29:12.170 --> 00:29:13.440 align:middle line:90% of where do you want to do. 00:29:13.440 --> 00:29:16.310 align:middle line:84% And a lot of it, we will talk about beliefs about climate 00:29:16.310 --> 00:29:17.310 align:middle line:90% change and so forth. 00:29:17.310 --> 00:29:19.970 align:middle line:84% So then it is also some belief story there. 00:29:19.970 --> 00:29:26.580 align:middle line:84% We will talk about, later today or early on Thursday-- 00:29:26.580 --> 00:29:29.480 align:middle line:84% I think it will be early on Thursday given the time --and I 00:29:29.480 --> 00:29:32.510 align:middle line:84% want to give Kevin enough time to talk-- 00:29:32.510 --> 00:29:34.380 align:middle line:90% about resiliency investments. 00:29:34.380 --> 00:29:37.220 align:middle line:84% So we will talk-- we will go through the case of Boston 00:29:37.220 --> 00:29:40.190 align:middle line:84% Seaport and how do we make those decisions, 00:29:40.190 --> 00:29:43.910 align:middle line:84% all going down to the valuation of those disasters 00:29:43.910 --> 00:29:51.260 align:middle line:84% and the valuation of the expected effectiveness 00:29:51.260 --> 00:29:52.760 align:middle line:84% of defensive investments that we are 00:29:52.760 --> 00:29:54.885 align:middle line:84% going to do with different city walls and so forth. 00:29:54.885 --> 00:29:58.340 align:middle line:84% And then we are going to see how those decisions are being 00:29:58.340 --> 00:30:01.910 align:middle line:84% influenced by mitigation versus adaptation preferences, 00:30:01.910 --> 00:30:05.180 align:middle line:84% and also your beliefs about different risks associated 00:30:05.180 --> 00:30:06.090 align:middle line:90% with it and so forth. 00:30:06.090 --> 00:30:07.910 align:middle line:84% And there we can talk more about it 00:30:07.910 --> 00:30:09.650 align:middle line:84% with those numbers in front of it. 00:30:09.650 --> 00:30:10.520 align:middle line:90% Anyone else? 00:30:10.520 --> 00:30:12.920 align:middle line:90% David? 00:30:12.920 --> 00:30:16.250 align:middle line:84% AUDIENCE: Matching that spike in disaster cost in 2005 00:30:16.250 --> 00:30:17.140 align:middle line:90% is Katrina. 00:30:17.140 --> 00:30:18.770 align:middle line:90% Do you know what happened in-- 00:30:18.770 --> 00:30:21.999 align:middle line:90% what's 2007? 00:30:21.999 --> 00:30:22.832 align:middle line:90% JUAN PALACIOS: 2007. 00:30:22.832 --> 00:30:23.499 align:middle line:90% AUDIENCE: Sandy. 00:30:23.499 --> 00:30:24.844 align:middle line:90% JUAN PALACIOS: Sandy, yeah. 00:30:24.844 --> 00:30:26.110 align:middle line:90% AUDIENCE: 2008? 00:30:26.110 --> 00:30:30.240 align:middle line:84% AUDIENCE: '16 [INAUDIBLE], Sandy that destroyed New Jersey? 00:30:30.240 --> 00:30:33.590 align:middle line:84% AUDIENCE: Pretty sure '17 was either Harvey or Irma. 00:30:33.590 --> 00:30:35.590 align:middle line:84% But then there was a ton of wildfires that year. 00:30:35.590 --> 00:30:39.020 align:middle line:90% 00:30:39.020 --> 00:30:41.385 align:middle line:90% [INTERPOSING VOICES] 00:30:41.385 --> 00:30:42.260 align:middle line:90% JUAN PALACIOS: Great. 00:30:42.260 --> 00:30:45.950 align:middle line:84% So one of the things that I want to do now 00:30:45.950 --> 00:30:50.970 align:middle line:84% is all of those disasters have some implications 00:30:50.970 --> 00:30:51.835 align:middle line:90% for real estate. 00:30:51.835 --> 00:30:53.460 align:middle line:84% And now what we are going to do is also 00:30:53.460 --> 00:30:56.940 align:middle line:84% thinking about how those type of disasters 00:30:56.940 --> 00:30:59.930 align:middle line:84% are going to translate ultimately to the bottom line. 00:30:59.930 --> 00:31:01.650 align:middle line:84% One of the first steps is to start 00:31:01.650 --> 00:31:03.240 align:middle line:90% classifying those disasters. 00:31:03.240 --> 00:31:07.440 align:middle line:84% It's not the same for the built environment 00:31:07.440 --> 00:31:09.210 align:middle line:84% and for an investment in real estate 00:31:09.210 --> 00:31:12.330 align:middle line:84% to be thinking about exposure to a heat wave, 00:31:12.330 --> 00:31:16.830 align:middle line:84% to being exposed to a wildfire, or to being exposed to sea level 00:31:16.830 --> 00:31:18.850 align:middle line:90% rise or flooding. 00:31:18.850 --> 00:31:23.890 align:middle line:84% Some of them have direct risk of destroying our properties. 00:31:23.890 --> 00:31:27.510 align:middle line:84% Some of them will have implications for the operating 00:31:27.510 --> 00:31:28.790 align:middle line:90% cost of that property. 00:31:28.790 --> 00:31:33.810 align:middle line:84% Some of them are actually things that are related to risk. 00:31:33.810 --> 00:31:39.630 align:middle line:84% And some of them are thinking related to experiencing 00:31:39.630 --> 00:31:43.350 align:middle line:84% disamenities and this utility of being in that place. 00:31:43.350 --> 00:31:45.630 align:middle line:84% If you look at the classification 00:31:45.630 --> 00:31:48.460 align:middle line:84% that is usually taken in the real estate industry, 00:31:48.460 --> 00:31:52.180 align:middle line:84% and if you see the reports of ULI and other big think tanks, 00:31:52.180 --> 00:31:55.480 align:middle line:84% you will see that you have a classification of physical risk 00:31:55.480 --> 00:31:57.230 align:middle line:90% that is divided into two. 00:31:57.230 --> 00:31:58.820 align:middle line:90% You have acute climate risk. 00:31:58.820 --> 00:32:01.210 align:middle line:84% That is basically all of these catastrophic events, 00:32:01.210 --> 00:32:03.040 align:middle line:84% these $1 billion events that I showed you 00:32:03.040 --> 00:32:04.310 align:middle line:90% in the previous slide. 00:32:04.310 --> 00:32:07.060 align:middle line:84% But you also have more chronic climate risks 00:32:07.060 --> 00:32:09.730 align:middle line:84% that are basically disanemities like the increasing heat 00:32:09.730 --> 00:32:12.430 align:middle line:84% waves and also sea level rise, those things that 00:32:12.430 --> 00:32:16.720 align:middle line:84% are not necessarily things that will generate an impact as 00:32:16.720 --> 00:32:18.220 align:middle line:84% of now, but it's actually increasing 00:32:18.220 --> 00:32:20.420 align:middle line:84% the risk of a lot of other stuff to happen. 00:32:20.420 --> 00:32:21.998 align:middle line:90% So that's a big difference. 00:32:21.998 --> 00:32:23.540 align:middle line:84% And then we have the transition risk. 00:32:23.540 --> 00:32:25.207 align:middle line:84% That is a lot of the things that we also 00:32:25.207 --> 00:32:26.620 align:middle line:90% cover in the first block-- 00:32:26.620 --> 00:32:28.570 align:middle line:84% regulatory changes, market changes 00:32:28.570 --> 00:32:31.450 align:middle line:84% that will actually make those assets be less attractive. 00:32:31.450 --> 00:32:33.610 align:middle line:90% So it's not only here we have-- 00:32:33.610 --> 00:32:37.040 align:middle line:84% the physical risk is the first-order effect. 00:32:37.040 --> 00:32:41.740 align:middle line:84% So once my asset is hit by that event, how will that respond? 00:32:41.740 --> 00:32:44.560 align:middle line:84% But also, you have all the market responses associated 00:32:44.560 --> 00:32:48.400 align:middle line:84% with people believing that that heat will happen more often 00:32:48.400 --> 00:32:50.422 align:middle line:90% and will be more severe. 00:32:50.422 --> 00:32:51.880 align:middle line:84% These are the two things that we're 00:32:51.880 --> 00:32:54.940 align:middle line:84% going to cover in the course, and especially actually thinking 00:32:54.940 --> 00:32:56.690 align:middle line:84% about the market risk and transition risk. 00:32:56.690 --> 00:32:59.440 align:middle line:84% So before-- we want to be preventive here, 00:32:59.440 --> 00:33:02.800 align:middle line:84% and we want to actually teach you how to avoid the punches. 00:33:02.800 --> 00:33:05.110 align:middle line:84% So we actually want to teach you how 00:33:05.110 --> 00:33:08.590 align:middle line:84% to be ahead of those severe events and actually 00:33:08.590 --> 00:33:11.620 align:middle line:84% how to cope with them using market signals and market 00:33:11.620 --> 00:33:14.890 align:middle line:90% strategies. 00:33:14.890 --> 00:33:19.310 align:middle line:84% There are a few things here that you'll want to think about. 00:33:19.310 --> 00:33:21.010 align:middle line:84% It's a lot of the things of rising 00:33:21.010 --> 00:33:23.080 align:middle line:84% sea levels, rising average temperatures, 00:33:23.080 --> 00:33:24.910 align:middle line:84% have to do with things that are happening 00:33:24.910 --> 00:33:27.220 align:middle line:90% on a very continuous basis. 00:33:27.220 --> 00:33:29.920 align:middle line:84% Year after year, you have more higher temperatures. 00:33:29.920 --> 00:33:33.910 align:middle line:84% Year after year, you have also a higher level of sea rise. 00:33:33.910 --> 00:33:35.660 align:middle line:84% Those are things that we are experiencing. 00:33:35.660 --> 00:33:38.100 align:middle line:84% We can actually almost continuously incorporate it 00:33:38.100 --> 00:33:38.600 align:middle line:90% into this. 00:33:38.600 --> 00:33:39.975 align:middle line:84% And then you have a lot of things 00:33:39.975 --> 00:33:42.100 align:middle line:84% that are catastrophic events that will happen 00:33:42.100 --> 00:33:44.480 align:middle line:90% every 10 years, every 15 years. 00:33:44.480 --> 00:33:48.530 align:middle line:84% And those are events that are related to the risks. 00:33:48.530 --> 00:33:50.322 align:middle line:84% You don't experience them on a daily basis. 00:33:50.322 --> 00:33:52.197 align:middle line:84% You don't experience them on an annual basis. 00:33:52.197 --> 00:33:53.650 align:middle line:84% Those are things that are the risk 00:33:53.650 --> 00:34:00.310 align:middle line:84% to happen of very severe bad things in 10, 15, 20 years. 00:34:00.310 --> 00:34:01.520 align:middle line:90% Let me skip this. 00:34:01.520 --> 00:34:06.280 align:middle line:84% And now we want to do-- in the last 10 minutes of this, 00:34:06.280 --> 00:34:10.475 align:middle line:84% I want to actually use one of the key tools 00:34:10.475 --> 00:34:12.100 align:middle line:84% that you learn in real estate economics 00:34:12.100 --> 00:34:15.880 align:middle line:84% to understand how all of this translates into real estate 00:34:15.880 --> 00:34:21.280 align:middle line:84% markets and real estate building and asset values. 00:34:21.280 --> 00:34:24.010 align:middle line:84% There is a lot of-- and the reason why this is important is 00:34:24.010 --> 00:34:26.260 align:middle line:84% that there is a lot of literature-- 00:34:26.260 --> 00:34:28.810 align:middle line:84% every year, every month, you get a new paper 00:34:28.810 --> 00:34:30.880 align:middle line:84% showing that there is this climate 00:34:30.880 --> 00:34:34.570 align:middle line:84% event or this disaster that is linked to a drop in value 00:34:34.570 --> 00:34:35.360 align:middle line:90% and so forth. 00:34:35.360 --> 00:34:40.060 align:middle line:84% So there is a lot of different scattered pieces out there, 00:34:40.060 --> 00:34:42.949 align:middle line:84% and it will happen more and more over the years. 00:34:42.949 --> 00:34:44.679 align:middle line:84% So when you graduate, and when you 00:34:44.679 --> 00:34:46.054 align:middle line:84% need to incorporate those things, 00:34:46.054 --> 00:34:47.659 align:middle line:84% there will be tons of new papers. 00:34:47.659 --> 00:34:49.719 align:middle line:84% And what we need to do here is to give you 00:34:49.719 --> 00:34:52.389 align:middle line:84% a good framework and a good way to understand 00:34:52.389 --> 00:34:55.659 align:middle line:84% how those translates, ultimately, into asset values 00:34:55.659 --> 00:34:58.420 align:middle line:84% and how those actually connect with each other in a way 00:34:58.420 --> 00:35:00.460 align:middle line:84% that if you see that on the one side, 00:35:00.460 --> 00:35:02.110 align:middle line:84% tenants are affected, how you actually 00:35:02.110 --> 00:35:05.410 align:middle line:84% think from your developer chair about the consequences 00:35:05.410 --> 00:35:06.950 align:middle line:90% of your decisions. 00:35:06.950 --> 00:35:09.230 align:middle line:84% So one of the things that I want to do 00:35:09.230 --> 00:35:13.190 align:middle line:84% is get someone to help me understand 00:35:13.190 --> 00:35:14.190 align:middle line:90% the four-quadrant model. 00:35:14.190 --> 00:35:17.330 align:middle line:84% So who can tell me what it is, and who can tell me 00:35:17.330 --> 00:35:19.440 align:middle line:90% who is in each of the spaces? 00:35:19.440 --> 00:35:21.510 align:middle line:90% So who is in this space? 00:35:21.510 --> 00:35:23.600 align:middle line:84% You start here from the top right. 00:35:23.600 --> 00:35:24.660 align:middle line:90% Who is in this space? 00:35:24.660 --> 00:35:25.860 align:middle line:90% Who meets in this space? 00:35:25.860 --> 00:35:28.770 align:middle line:84% The developer, the construction companies, the tenants, 00:35:28.770 --> 00:35:30.690 align:middle line:90% the banks? 00:35:30.690 --> 00:35:31.980 align:middle line:90% Landlords and tenants. 00:35:31.980 --> 00:35:32.950 align:middle line:90% All right. 00:35:32.950 --> 00:35:35.320 align:middle line:84% And how do they relate to each other? 00:35:35.320 --> 00:35:36.810 align:middle line:90% Julio? 00:35:36.810 --> 00:35:38.080 align:middle line:90% What are they doing here? 00:35:38.080 --> 00:35:39.790 align:middle line:90% What is this curve telling me? 00:35:39.790 --> 00:35:40.570 align:middle line:90% I see stock. 00:35:40.570 --> 00:35:41.370 align:middle line:90% I see rent. 00:35:41.370 --> 00:35:42.300 align:middle line:90% Who decides what? 00:35:42.300 --> 00:35:43.883 align:middle line:84% AUDIENCE: The [INAUDIBLE] demand curve 00:35:43.883 --> 00:35:45.720 align:middle line:90% like the one you see right now. 00:35:45.720 --> 00:35:48.240 align:middle line:84% It's not showing the quadrant, but you also 00:35:48.240 --> 00:35:49.180 align:middle line:90% have the supply curve. 00:35:49.180 --> 00:35:50.280 align:middle line:84% They both [? reach ?] [INAUDIBLE] 00:35:50.280 --> 00:35:51.920 align:middle line:84% price based on the supply and demand. 00:35:51.920 --> 00:35:52.837 align:middle line:90% JUAN PALACIOS: Mm-hmm. 00:35:52.837 --> 00:35:56.610 align:middle line:84% So the way that we usually start is that the supply is fixed. 00:35:56.610 --> 00:35:59.560 align:middle line:84% We don't move the building stock from year to year. 00:35:59.560 --> 00:36:03.130 align:middle line:84% It takes some time to build housing, to build the buildings. 00:36:03.130 --> 00:36:05.680 align:middle line:84% So this zero is a starting point. 00:36:05.680 --> 00:36:08.730 align:middle line:84% And then, given the demand for a space of tenants, 00:36:08.730 --> 00:36:11.890 align:middle line:84% this is the amount of rent that they will pay. 00:36:11.890 --> 00:36:16.750 align:middle line:84% If the tenants want more space than this, 00:36:16.750 --> 00:36:18.280 align:middle line:90% this line will go to the right. 00:36:18.280 --> 00:36:20.810 align:middle line:84% If the tenants will go less, will need less space, 00:36:20.810 --> 00:36:23.780 align:middle line:90% this curve will move inwards. 00:36:23.780 --> 00:36:27.730 align:middle line:84% So if you think about nowadays, working from home and so forth, 00:36:27.730 --> 00:36:30.320 align:middle line:84% these tenants will actually demand less space. 00:36:30.320 --> 00:36:31.970 align:middle line:90% So this curve will go inwards. 00:36:31.970 --> 00:36:34.000 align:middle line:84% So for whatever the amount of buildings 00:36:34.000 --> 00:36:38.300 align:middle line:84% are in a city like New York, I will need less space 00:36:38.300 --> 00:36:40.080 align:middle line:90% than it used to be. 00:36:40.080 --> 00:36:40.590 align:middle line:90% OK? 00:36:40.590 --> 00:36:45.210 align:middle line:84% So now we have supply and meeting the tenants. 00:36:45.210 --> 00:36:47.430 align:middle line:90% What about the asset market? 00:36:47.430 --> 00:36:49.760 align:middle line:90% Who meets there. 00:36:49.760 --> 00:36:51.835 align:middle line:84% AUDIENCE: It's buyers and sellers. 00:36:51.835 --> 00:36:52.460 align:middle line:90% So given that-- 00:36:52.460 --> 00:36:52.715 align:middle line:84% JUAN PALACIOS: Buyers and sellers. 00:36:52.715 --> 00:36:53.840 align:middle line:84% AUDIENCE: --level we just established 00:36:53.840 --> 00:36:55.298 align:middle line:84% will then determine what the market 00:36:55.298 --> 00:36:56.610 align:middle line:90% price is for transactions. 00:36:56.610 --> 00:36:59.690 align:middle line:84% So like you said, if your rent increases, the price increases. 00:36:59.690 --> 00:37:01.160 align:middle line:84% But if it's decreasing, the price 00:37:01.160 --> 00:37:03.193 align:middle line:84% will decrease-- fewer transactions. 00:37:03.193 --> 00:37:04.610 align:middle line:84% JUAN PALACIOS: And how do we think 00:37:04.610 --> 00:37:06.090 align:middle line:90% about movements in this curve? 00:37:06.090 --> 00:37:08.400 align:middle line:90% What makes that move? 00:37:08.400 --> 00:37:10.453 align:middle line:84% Here, moves that curve to the right. 00:37:10.453 --> 00:37:12.370 align:middle line:84% AUDIENCE: Stronger fundamentals in the market. 00:37:12.370 --> 00:37:15.360 align:middle line:84% So higher rents means higher value, or lower rent 00:37:15.360 --> 00:37:16.530 align:middle line:90% would mean lower value. 00:37:16.530 --> 00:37:18.120 align:middle line:84% JUAN PALACIOS: Yeah, but that would be movements 00:37:18.120 --> 00:37:19.150 align:middle line:90% along the curve, right? 00:37:19.150 --> 00:37:22.990 align:middle line:84% So if this trend will be here, then that price will be there. 00:37:22.990 --> 00:37:26.940 align:middle line:84% But how should we think about movements in this curve? 00:37:26.940 --> 00:37:31.530 align:middle line:84% What would make that for a given rent, the price would be higher, 00:37:31.530 --> 00:37:33.570 align:middle line:84% or for a given rent, the price would be lower? 00:37:33.570 --> 00:37:35.190 align:middle line:90% AUDIENCE: Changes in cap rates? 00:37:35.190 --> 00:37:37.740 align:middle line:84% JUAN PALACIOS: OK, and what generates changes in cap rate? 00:37:37.740 --> 00:37:40.690 align:middle line:84% AUDIENCE: Underlying financial systems, 00:37:40.690 --> 00:37:43.650 align:middle line:90% economics, interest rates. 00:37:43.650 --> 00:37:45.210 align:middle line:90% JUAN PALACIOS: OK. 00:37:45.210 --> 00:37:48.790 align:middle line:84% So what about asset-specific perception? 00:37:48.790 --> 00:37:49.927 align:middle line:90% AUDIENCE: Sure. 00:37:49.927 --> 00:37:50.760 align:middle line:90% JUAN PALACIOS: Risk? 00:37:50.760 --> 00:37:52.320 align:middle line:84% What happens if the risk of an asset 00:37:52.320 --> 00:37:55.057 align:middle line:84% is higher or perceived as higher? 00:37:55.057 --> 00:37:56.640 align:middle line:84% AUDIENCE: The cap rate would increase. 00:37:56.640 --> 00:37:58.580 align:middle line:84% JUAN PALACIOS: And that means that these guy will be here. 00:37:58.580 --> 00:37:59.300 align:middle line:90% AUDIENCE: Right. 00:37:59.300 --> 00:38:00.980 align:middle line:84% JUAN PALACIOS: Because for a given rent, 00:38:00.980 --> 00:38:04.120 align:middle line:84% the risk will be higher, and therefore, the more reluctant 00:38:04.120 --> 00:38:06.620 align:middle line:84% I will be to hold that asset, because at the end of the day, 00:38:06.620 --> 00:38:09.623 align:middle line:84% as an investor, what I care about is not 00:38:09.623 --> 00:38:11.790 align:middle line:84% how beautiful is the building or anything like that. 00:38:11.790 --> 00:38:15.420 align:middle line:84% What I care is about my chances to retrieve back cash flows. 00:38:15.420 --> 00:38:18.110 align:middle line:84% So as those cash flows are getting riskier, 00:38:18.110 --> 00:38:20.930 align:middle line:84% then my willingness to pay for that asset 00:38:20.930 --> 00:38:23.270 align:middle line:84% is going to be lower because, you know, 00:38:23.270 --> 00:38:24.900 align:middle line:84% it might be that the tenants go away. 00:38:24.900 --> 00:38:26.810 align:middle line:84% If you think about holding the same asset 00:38:26.810 --> 00:38:28.850 align:middle line:84% before and after COVID or before and after 00:38:28.850 --> 00:38:32.510 align:middle line:84% the work-from-home changes in New York, 00:38:32.510 --> 00:38:35.390 align:middle line:84% it is broadly the same lease structure and so forth in a lot 00:38:35.390 --> 00:38:35.910 align:middle line:90% of assets. 00:38:35.910 --> 00:38:40.050 align:middle line:84% But now I'm way more worried that those tenants will leave. 00:38:40.050 --> 00:38:43.550 align:middle line:84% And even though I'm buying the same set of contracts, 00:38:43.550 --> 00:38:47.460 align:middle line:84% my expectation that those leases will stop is much higher. 00:38:47.460 --> 00:38:50.510 align:middle line:84% So for whatever the rental value is, as of now, 00:38:50.510 --> 00:38:52.100 align:middle line:84% I'm going to pay much lower price 00:38:52.100 --> 00:38:54.750 align:middle line:90% because I'm way more worried. 00:38:54.750 --> 00:38:57.370 align:middle line:84% OK, who can help me with the bottom? 00:38:57.370 --> 00:39:00.370 align:middle line:90% 00:39:00.370 --> 00:39:02.080 align:middle line:90% Bill? 00:39:02.080 --> 00:39:05.350 align:middle line:84% AUDIENCE: As prices increase for assets, 00:39:05.350 --> 00:39:10.260 align:middle line:84% the developers respond by building more square footage. 00:39:10.260 --> 00:39:11.250 align:middle line:90% JUAN PALACIOS: OK. 00:39:11.250 --> 00:39:13.450 align:middle line:90% And what about this-- 00:39:13.450 --> 00:39:15.120 align:middle line:84% why is not-- the rest of the lines 00:39:15.120 --> 00:39:19.580 align:middle line:84% start here, in the cross of the two axes. 00:39:19.580 --> 00:39:21.990 align:middle line:84% Why is that line started only here? 00:39:21.990 --> 00:39:24.360 align:middle line:84% AUDIENCE: I'm assuming because you already 00:39:24.360 --> 00:39:30.600 align:middle line:84% have a certain amount of stock, you're not going to go to zero. 00:39:30.600 --> 00:39:33.570 align:middle line:84% You're going to always have some square footage, some stock. 00:39:33.570 --> 00:39:35.320 align:middle line:84% And that's why it doesn't start from zero. 00:39:35.320 --> 00:39:36.750 align:middle line:90% But I'm just guessing there. 00:39:36.750 --> 00:39:38.167 align:middle line:84% JUAN PALACIOS: Any other thoughts? 00:39:38.167 --> 00:39:41.240 align:middle line:90% 00:39:41.240 --> 00:39:43.340 align:middle line:84% AUDIENCE: At that point, contractor 00:39:43.340 --> 00:39:44.520 align:middle line:90% doesn't make any money. 00:39:44.520 --> 00:39:48.600 align:middle line:84% So at a certain price, it started to make some profit, 00:39:48.600 --> 00:39:50.050 align:middle line:90% and that's where it stopped. 00:39:50.050 --> 00:39:50.883 align:middle line:90% JUAN PALACIOS: Yeah. 00:39:50.883 --> 00:39:53.880 align:middle line:84% So you can think about this as the number of square feet 00:39:53.880 --> 00:39:57.030 align:middle line:84% that are built. If you don't reach a certain amount, 00:39:57.030 --> 00:39:58.230 align:middle line:90% you will not build at all. 00:39:58.230 --> 00:40:02.100 align:middle line:84% You will not make any sense of building a building at all. 00:40:02.100 --> 00:40:03.600 align:middle line:90% What makes this curve move? 00:40:03.600 --> 00:40:07.710 align:middle line:90% 00:40:07.710 --> 00:40:09.780 align:middle line:84% Here we have preferences of tenants. 00:40:09.780 --> 00:40:11.910 align:middle line:84% Here we have the cap rates and the assessment 00:40:11.910 --> 00:40:13.530 align:middle line:90% of risk of an asset. 00:40:13.530 --> 00:40:16.900 align:middle line:90% What do we have here? 00:40:16.900 --> 00:40:17.620 align:middle line:90% Julio? 00:40:17.620 --> 00:40:19.165 align:middle line:84% AUDIENCE: Construction prices and-- 00:40:19.165 --> 00:40:20.540 align:middle line:84% JUAN PALACIOS: Construction cost. 00:40:20.540 --> 00:40:21.220 align:middle line:90% AUDIENCE: Yeah. 00:40:21.220 --> 00:40:22.053 align:middle line:90% JUAN PALACIOS: Yeah. 00:40:22.053 --> 00:40:23.373 align:middle line:90% And something else? 00:40:23.373 --> 00:40:24.790 align:middle line:84% AUDIENCE: It doesn't change a lot, 00:40:24.790 --> 00:40:27.170 align:middle line:90% but let's say permitting and-- 00:40:27.170 --> 00:40:28.750 align:middle line:84% JUAN PALACIOS: Yeah, so those are 00:40:28.750 --> 00:40:31.780 align:middle line:90% costs of building that asset-- 00:40:31.780 --> 00:40:34.280 align:middle line:90% material costs and other things. 00:40:34.280 --> 00:40:36.430 align:middle line:84% So, Carlos, you were saying maybe 00:40:36.430 --> 00:40:39.130 align:middle line:84% we shouldn't let people live in areas that are going 00:40:39.130 --> 00:40:40.670 align:middle line:90% to be hit by certain disasters. 00:40:40.670 --> 00:40:42.490 align:middle line:84% If we make those things more difficult 00:40:42.490 --> 00:40:47.290 align:middle line:84% and we make the resiliency requirements for assets 00:40:47.290 --> 00:40:50.790 align:middle line:84% to be higher, it is great on the hand 00:40:50.790 --> 00:40:52.540 align:middle line:84% that the assets that are going to be built 00:40:52.540 --> 00:40:53.715 align:middle line:90% are going to be safer. 00:40:53.715 --> 00:40:55.090 align:middle line:84% But on the other hand, there will 00:40:55.090 --> 00:40:56.632 align:middle line:84% be some assets that will not be built 00:40:56.632 --> 00:40:59.390 align:middle line:84% because the cost of construction are going up. 00:40:59.390 --> 00:41:02.320 align:middle line:84% So then you need prices to be higher up 00:41:02.320 --> 00:41:05.140 align:middle line:84% to make sure that you compensate for the increased requirements 00:41:05.140 --> 00:41:09.640 align:middle line:90% in building certain buildings. 00:41:09.640 --> 00:41:11.630 align:middle line:90% And what about the last one? 00:41:11.630 --> 00:41:13.460 align:middle line:84% This one relates the amount of buildings 00:41:13.460 --> 00:41:15.710 align:middle line:84% that are constructed with the amount of buildings that 00:41:15.710 --> 00:41:20.130 align:middle line:90% are standing in the market. 00:41:20.130 --> 00:41:22.222 align:middle line:90% [? Amir? ?] 00:41:22.222 --> 00:41:24.430 align:middle line:84% AUDIENCE: In the market, there's the existing assets, 00:41:24.430 --> 00:41:27.190 align:middle line:84% and there's a depreciation of the existing stock. 00:41:27.190 --> 00:41:28.828 align:middle line:84% And the new amount of construction 00:41:28.828 --> 00:41:30.370 align:middle line:84% that comes in from the third quadrant 00:41:30.370 --> 00:41:31.790 align:middle line:90% will increase that value. 00:41:31.790 --> 00:41:34.090 align:middle line:84% But if construction slows down, you already 00:41:34.090 --> 00:41:36.910 align:middle line:84% have the existing stock, but that's decreasing 00:41:36.910 --> 00:41:39.590 align:middle line:90% at the depreciation rate. 00:41:39.590 --> 00:41:42.980 align:middle line:84% So new stock feeds that higher, and a stall in construction 00:41:42.980 --> 00:41:44.717 align:middle line:84% means that the number comes down. 00:41:44.717 --> 00:41:45.592 align:middle line:90% JUAN PALACIOS: Right. 00:41:45.592 --> 00:41:46.970 align:middle line:90% What can move that curve? 00:41:46.970 --> 00:41:49.196 align:middle line:90% The depreciation? 00:41:49.196 --> 00:41:52.600 align:middle line:84% AUDIENCE: I mean, if there is a replacement or demolition 00:41:52.600 --> 00:41:56.000 align:middle line:84% of a [INAUDIBLE] asset [INAUDIBLE], 00:41:56.000 --> 00:41:58.700 align:middle line:84% that might not have been [INAUDIBLE] [? tend ?] to shift 00:41:58.700 --> 00:41:59.277 align:middle line:90% downwards. 00:41:59.277 --> 00:42:00.110 align:middle line:90% JUAN PALACIOS: Yeah. 00:42:00.110 --> 00:42:05.300 align:middle line:84% So if things like, for example, the amount of-- 00:42:05.300 --> 00:42:07.820 align:middle line:84% how harsh is the place in terms of the depreciation 00:42:07.820 --> 00:42:12.200 align:middle line:84% of that assets, or maybe even when it comes to equipment, 00:42:12.200 --> 00:42:13.700 align:middle line:84% the requirements for that equipment 00:42:13.700 --> 00:42:16.040 align:middle line:84% to be full power all the time in terms of temperature 00:42:16.040 --> 00:42:18.953 align:middle line:84% and so forth, then the amount of depreciation would be higher. 00:42:18.953 --> 00:42:20.870 align:middle line:84% But also, if you have the risk of these assets 00:42:20.870 --> 00:42:23.090 align:middle line:84% to be vanished every other decade, 00:42:23.090 --> 00:42:25.575 align:middle line:84% then you also have somehow there a probability 00:42:25.575 --> 00:42:27.200 align:middle line:84% that whatever you are building is going 00:42:27.200 --> 00:42:28.670 align:middle line:90% to be destroyed at some point. 00:42:28.670 --> 00:42:31.520 align:middle line:84% And the stock is not going to translate one-on-one 00:42:31.520 --> 00:42:32.990 align:middle line:90% to the construction. 00:42:32.990 --> 00:42:34.500 align:middle line:84% So we are going to use those things. 00:42:34.500 --> 00:42:37.160 align:middle line:84% And the important thing is that everything 00:42:37.160 --> 00:42:38.790 align:middle line:90% is ultimately connected. 00:42:38.790 --> 00:42:42.620 align:middle line:84% So if something is happening to our tenants, 00:42:42.620 --> 00:42:44.990 align:middle line:84% it's going to shift this curve, and it's 00:42:44.990 --> 00:42:49.583 align:middle line:84% going to ultimately shift the prices of assets in the market, 00:42:49.583 --> 00:42:51.500 align:middle line:84% and it's going to shift the construction rate, 00:42:51.500 --> 00:42:54.920 align:middle line:84% and it's going to shift ultimately the supply of assets 00:42:54.920 --> 00:42:55.740 align:middle line:90% in the market. 00:42:55.740 --> 00:42:56.940 align:middle line:90% So everything is connected. 00:42:56.940 --> 00:42:59.660 align:middle line:84% So whenever we have a report, whenever 00:42:59.660 --> 00:43:01.070 align:middle line:84% we have a study that will tell us 00:43:01.070 --> 00:43:04.760 align:middle line:84% that this quadrant is affected or that quadrant is affected, 00:43:04.760 --> 00:43:07.640 align:middle line:84% ultimately, the whole market and everyone in that market 00:43:07.640 --> 00:43:08.700 align:middle line:90% is affected. 00:43:08.700 --> 00:43:12.750 align:middle line:84% And the key is that if we don't have that view, 00:43:12.750 --> 00:43:16.620 align:middle line:84% we will have a very myopic view of the whole climate change 00:43:16.620 --> 00:43:19.800 align:middle line:84% because we will only think about this partial view of, OK, rents 00:43:19.800 --> 00:43:23.790 align:middle line:84% will change, but yeah, if rent changes, then the investors will 00:43:23.790 --> 00:43:26.827 align:middle line:84% act differently, and then the construction companies will 00:43:26.827 --> 00:43:29.410 align:middle line:84% act differently, and ultimately, the supply will be different. 00:43:29.410 --> 00:43:32.400 align:middle line:84% So all of these long-term/short-term effects is 00:43:32.400 --> 00:43:35.167 align:middle line:84% something that we have to be very present when we are 00:43:35.167 --> 00:43:37.500 align:middle line:84% analyzing the consequences of climate change in the real 00:43:37.500 --> 00:43:38.260 align:middle line:90% estate industry. 00:43:38.260 --> 00:43:42.740 align:middle line:84% And that's where one of the key values of knowing real estate 00:43:42.740 --> 00:43:44.490 align:middle line:84% economics when we are thinking about this, 00:43:44.490 --> 00:43:47.370 align:middle line:84% and that's the value for those that are doing the MSRED program 00:43:47.370 --> 00:43:50.110 align:middle line:84% to come from that course all the way into here. 00:43:50.110 --> 00:43:52.240 align:middle line:84% So if you think about the demand side-- 00:43:52.240 --> 00:43:52.740 align:middle line:90% [? Leah? ?] 00:43:52.740 --> 00:43:54.365 align:middle line:84% AUDIENCE: I just have a quick question. 00:43:54.365 --> 00:43:55.240 align:middle line:90% So can you go back-- 00:43:55.240 --> 00:43:57.060 align:middle line:90% JUAN PALACIOS: Sure. 00:43:57.060 --> 00:43:58.750 align:middle line:84% AUDIENCE: This is for the rental market? 00:43:58.750 --> 00:44:01.120 align:middle line:84% How does it work for homeownership? 00:44:01.120 --> 00:44:02.860 align:middle line:84% JUAN PALACIOS: Yeah, so here we are 00:44:02.860 --> 00:44:05.890 align:middle line:84% thinking about commercial real estate properties. 00:44:05.890 --> 00:44:09.250 align:middle line:90% In this center, we have-- 00:44:09.250 --> 00:44:11.860 align:middle line:84% thanks to David Geltner that kind of brainwashed 00:44:11.860 --> 00:44:15.190 align:middle line:84% us, we think about commercial real estate 00:44:15.190 --> 00:44:17.030 align:middle line:84% as any income-generating property. 00:44:17.030 --> 00:44:20.590 align:middle line:84% So you can think also here as [INAUDIBLE] a multifamily 00:44:20.590 --> 00:44:23.470 align:middle line:84% and, if you will, rent an apartment, 00:44:23.470 --> 00:44:25.120 align:middle line:90% it will be part of this. 00:44:25.120 --> 00:44:26.740 align:middle line:84% If you think about homeownership, 00:44:26.740 --> 00:44:29.195 align:middle line:84% that would be-- basically, you will not have this, 00:44:29.195 --> 00:44:31.820 align:middle line:84% but you will have some sort of utility of living in that place. 00:44:31.820 --> 00:44:34.360 align:middle line:84% So you will have a monetization in your head 00:44:34.360 --> 00:44:38.240 align:middle line:84% of what it is, what it means for you to live in that place. 00:44:38.240 --> 00:44:43.060 align:middle line:84% We will see some graph now also from the empirical studies 00:44:43.060 --> 00:44:45.850 align:middle line:84% on how homeowners and homebuyers are actually 00:44:45.850 --> 00:44:49.390 align:middle line:84% changing their willingness to pay to live in a certain place 00:44:49.390 --> 00:44:51.920 align:middle line:84% depending on the temperature of those places. 00:44:51.920 --> 00:44:55.100 align:middle line:84% So there will be some-- that's how we use it in economics. 00:44:55.100 --> 00:44:58.300 align:middle line:84% We will translate your happiness or utility to live in a place 00:44:58.300 --> 00:45:00.830 align:middle line:84% into willingness to pay or any kind of monetary value 00:45:00.830 --> 00:45:05.810 align:middle line:84% that will translate that into some of demand curve. 00:45:05.810 --> 00:45:08.330 align:middle line:84% And then there will be some investors that 00:45:08.330 --> 00:45:10.620 align:middle line:84% is, on the one hand, the equity investors, 00:45:10.620 --> 00:45:13.172 align:middle line:84% so someone that is buying or co-buying 00:45:13.172 --> 00:45:14.130 align:middle line:90% that property with you. 00:45:14.130 --> 00:45:16.700 align:middle line:84% But it's also here there is someone important here-- 00:45:16.700 --> 00:45:19.920 align:middle line:84% there are the banks and the debt providers. 00:45:19.920 --> 00:45:22.500 align:middle line:84% So they are going to be here, even if you are a homeowner. 00:45:22.500 --> 00:45:24.710 align:middle line:84% And that will be applying a lot of the logic 00:45:24.710 --> 00:45:27.077 align:middle line:84% to that four-quadrant model, too. 00:45:27.077 --> 00:45:27.577 align:middle line:90% OK? 00:45:27.577 --> 00:45:30.379 align:middle line:90% 00:45:30.379 --> 00:45:35.350 align:middle line:84% So what can we expect in terms of climate change impacts 00:45:35.350 --> 00:45:38.180 align:middle line:90% on the space market? 00:45:38.180 --> 00:45:39.020 align:middle line:90% What do we think? 00:45:39.020 --> 00:45:40.660 align:middle line:84% Do we think that people are going 00:45:40.660 --> 00:45:43.990 align:middle line:84% to be more happy to live in places that 00:45:43.990 --> 00:45:46.760 align:middle line:84% are going to be at risk of wildfires-- 00:45:46.760 --> 00:45:48.370 align:middle line:90% so let's think about California? 00:45:48.370 --> 00:45:49.870 align:middle line:84% Or are we going to think that people 00:45:49.870 --> 00:45:51.260 align:middle line:90% are less happy to live there? 00:45:51.260 --> 00:45:54.330 align:middle line:84% And how are we going to see that in the market? 00:45:54.330 --> 00:45:55.960 align:middle line:90% Yeah? 00:45:55.960 --> 00:45:58.780 align:middle line:84% AUDIENCE: Some certain risk areas, 00:45:58.780 --> 00:46:01.963 align:middle line:84% people will move [? there ?] [INAUDIBLE]. 00:46:01.963 --> 00:46:02.796 align:middle line:90% JUAN PALACIOS: Yeah. 00:46:02.796 --> 00:46:04.287 align:middle line:90% AUDIENCE: [INAUDIBLE] 00:46:04.287 --> 00:46:05.120 align:middle line:90% JUAN PALACIOS: Yeah. 00:46:05.120 --> 00:46:06.860 align:middle line:84% AUDIENCE: And the curve [INAUDIBLE] 00:46:06.860 --> 00:46:08.170 align:middle line:90% [? shift ?] [INAUDIBLE]. 00:46:08.170 --> 00:46:09.310 align:middle line:90% JUAN PALACIOS: Yeah. 00:46:09.310 --> 00:46:12.220 align:middle line:84% And that will have a direct impact on the rents. 00:46:12.220 --> 00:46:13.930 align:middle line:84% But ultimately, because the rents 00:46:13.930 --> 00:46:17.470 align:middle line:84% now are lower in that market, prices, and, ultimately, 00:46:17.470 --> 00:46:18.740 align:middle line:90% the construction activity. 00:46:18.740 --> 00:46:23.270 align:middle line:84% So that's how that shifts the whole idea. 00:46:23.270 --> 00:46:27.340 align:middle line:84% And if we want to put it into what will determine that, 00:46:27.340 --> 00:46:29.900 align:middle line:84% it will be the attractiveness of that space. 00:46:29.900 --> 00:46:33.610 align:middle line:84% So if you are exposed not only to a couple of days 00:46:33.610 --> 00:46:36.040 align:middle line:84% of heat waves a year, but actually now it has to be, 00:46:36.040 --> 00:46:39.250 align:middle line:84% like, two weeks, three weeks a year of heat waves, then, 00:46:39.250 --> 00:46:40.870 align:middle line:84% as a resident of that place, you're 00:46:40.870 --> 00:46:44.510 align:middle line:84% going to be less keen on living in that place. 00:46:44.510 --> 00:46:45.462 align:middle line:90% Yeah, Julio? 00:46:45.462 --> 00:46:47.920 align:middle line:84% AUDIENCE: That could also work the other way around, right? 00:46:47.920 --> 00:46:49.510 align:middle line:84% When you have people moving from one place 00:46:49.510 --> 00:46:51.040 align:middle line:84% to the other because of climate change? 00:46:51.040 --> 00:46:51.650 align:middle line:90% JUAN PALACIOS: Correct. 00:46:51.650 --> 00:46:52.630 align:middle line:84% AUDIENCE: It could have a positive effect 00:46:52.630 --> 00:46:53.620 align:middle line:90% in some [? states. ?] 00:46:53.620 --> 00:46:54.010 align:middle line:90% JUAN PALACIOS: Correct. 00:46:54.010 --> 00:46:55.990 align:middle line:84% Here we are thinking about areas that 00:46:55.990 --> 00:47:01.330 align:middle line:84% are badly impacted by that-- so more heat waves, cities 00:47:01.330 --> 00:47:03.460 align:middle line:84% like New York, a city like Boston, 00:47:03.460 --> 00:47:07.120 align:middle line:84% that are experiencing more and more heat waves and so forth. 00:47:07.120 --> 00:47:08.390 align:middle line:90% Also, impacts of occupants-- 00:47:08.390 --> 00:47:10.390 align:middle line:84% So these are for people that want to live there. 00:47:10.390 --> 00:47:13.660 align:middle line:84% But companies that are renting space to work there, 00:47:13.660 --> 00:47:15.710 align:middle line:84% they will be worried about performance changes. 00:47:15.710 --> 00:47:18.740 align:middle line:84% They will be worried about behavior change of consumers. 00:47:18.740 --> 00:47:21.160 align:middle line:84% So people are actually less likely to go to the shopping 00:47:21.160 --> 00:47:25.750 align:middle line:84% mall because it's impacted for more severe storms, 00:47:25.750 --> 00:47:27.500 align:middle line:84% for more heat waves, and so forth. 00:47:27.500 --> 00:47:30.940 align:middle line:84% They are all going to [? beat ?] lower in their leasing 00:47:30.940 --> 00:47:33.140 align:middle line:84% [? beats ?] than they used to be. 00:47:33.140 --> 00:47:36.670 align:middle line:84% And then, also, ultimately, the impact on amenities and also 00:47:36.670 --> 00:47:38.500 align:middle line:90% the climate risk disclosures. 00:47:38.500 --> 00:47:39.920 align:middle line:90% This is what you see. 00:47:39.920 --> 00:47:45.310 align:middle line:84% So here, this is translated into this model of Roback model 00:47:45.310 --> 00:47:47.290 align:middle line:84% where you say, well, the amount of money 00:47:47.290 --> 00:47:51.130 align:middle line:84% that you are going to pay for living in a place of rent 00:47:51.130 --> 00:47:53.600 align:middle line:84% is going to be affected by the amount of money 00:47:53.600 --> 00:47:57.110 align:middle line:84% that you earn in the labor market 00:47:57.110 --> 00:48:00.110 align:middle line:84% and also your appreciation for that place. 00:48:00.110 --> 00:48:05.210 align:middle line:84% So you can actually be willing to earn 00:48:05.210 --> 00:48:08.360 align:middle line:84% less if you are in a place that really gives you 00:48:08.360 --> 00:48:09.960 align:middle line:84% a lot of utility, a lot of nice place. 00:48:09.960 --> 00:48:13.280 align:middle line:84% So if you are living in a very bad place-- 00:48:13.280 --> 00:48:16.190 align:middle line:84% think about a very bad with low amenities 00:48:16.190 --> 00:48:18.450 align:middle line:84% industrial area in the middle of nowhere-- 00:48:18.450 --> 00:48:19.940 align:middle line:84% they really need to pay you a lot 00:48:19.940 --> 00:48:23.340 align:middle line:84% to attract someone as talented as you guys to be working there. 00:48:23.340 --> 00:48:27.980 align:middle line:84% But if someone has a little bit lower paycheck but is in an area 00:48:27.980 --> 00:48:30.470 align:middle line:84% next to a nice lake, mountains, whatever, 00:48:30.470 --> 00:48:35.335 align:middle line:84% you are going to be less greedy when it comes to negotiating 00:48:35.335 --> 00:48:37.460 align:middle line:84% those terms, because you really want to live there, 00:48:37.460 --> 00:48:39.050 align:middle line:84% or if you have the family next to you, 00:48:39.050 --> 00:48:42.330 align:middle line:84% or whatever you want to give you a quality of life. 00:48:42.330 --> 00:48:44.750 align:middle line:84% So as the quality of life reduces, 00:48:44.750 --> 00:48:46.520 align:middle line:84% the people will have-- the companies will 00:48:46.520 --> 00:48:48.770 align:middle line:84% have to pay you more, or the landlords 00:48:48.770 --> 00:48:51.290 align:middle line:84% will have to ask you less rent because you are less 00:48:51.290 --> 00:48:52.620 align:middle line:90% attracted to live in that area. 00:48:52.620 --> 00:48:55.490 align:middle line:90% So climate change is actually-- 00:48:55.490 --> 00:48:58.850 align:middle line:84% or, for example, temperature exposure 00:48:58.850 --> 00:49:00.840 align:middle line:84% will actually reduce that quality of life. 00:49:00.840 --> 00:49:03.980 align:middle line:84% That will mean that either you are required to pay less 00:49:03.980 --> 00:49:06.385 align:middle line:84% to be in that place or the employers will 00:49:06.385 --> 00:49:07.260 align:middle line:90% have to pay you more. 00:49:07.260 --> 00:49:10.820 align:middle line:84% But basically, the real rents will actually need to go down. 00:49:10.820 --> 00:49:11.320 align:middle line:90% Yeah? 00:49:11.320 --> 00:49:11.860 align:middle line:84% AUDIENCE: I have a quick question. 00:49:11.860 --> 00:49:13.000 align:middle line:90% JUAN PALACIOS: Sure. 00:49:13.000 --> 00:49:15.670 align:middle line:84% AUDIENCE: Considering the change in climate, 00:49:15.670 --> 00:49:18.010 align:middle line:84% will more people be compelled to make adaptation, 00:49:18.010 --> 00:49:20.425 align:middle line:84% and will that not increase the cost of construction 00:49:20.425 --> 00:49:21.250 align:middle line:90% and [INAUDIBLE]? 00:49:21.250 --> 00:49:22.060 align:middle line:84% JUAN PALACIOS: Yeah, that is also 00:49:22.060 --> 00:49:23.060 align:middle line:90% something that would be there. 00:49:23.060 --> 00:49:24.560 align:middle line:84% So that would be the other quadrant. 00:49:24.560 --> 00:49:29.620 align:middle line:84% This is more for the demand for a space. 00:49:29.620 --> 00:49:32.590 align:middle line:84% So there is not the adaptation, but it's more like 00:49:32.590 --> 00:49:35.590 align:middle line:84% if there is a set of buildings that are built for you, 00:49:35.590 --> 00:49:38.440 align:middle line:84% and where do you choose to live, and how much are you choosing 00:49:38.440 --> 00:49:39.830 align:middle line:90% to pay for those buildings? 00:49:39.830 --> 00:49:41.788 align:middle line:84% And then there will be the construction company 00:49:41.788 --> 00:49:44.470 align:middle line:84% that is trying to match those preferences 00:49:44.470 --> 00:49:47.060 align:middle line:84% to the characteristics of those of those places. 00:49:47.060 --> 00:49:50.170 align:middle line:84% And indeed, if now you require to live in a place 00:49:50.170 --> 00:49:53.950 align:middle line:84% or to work in a place that needs an infrastructure 00:49:53.950 --> 00:49:57.280 align:middle line:84% upgrade, because now you need to have a fancier AC unit, 00:49:57.280 --> 00:50:02.560 align:middle line:84% you need to have a stronger seawall around the property, 00:50:02.560 --> 00:50:04.750 align:middle line:84% then that will increase the construction cost, 00:50:04.750 --> 00:50:07.690 align:middle line:84% and that will have an ultimate effect 00:50:07.690 --> 00:50:13.080 align:middle line:84% on the supply and the cost and the price for those properties. 00:50:13.080 --> 00:50:15.100 align:middle line:84% And this is what you see in the empirical data. 00:50:15.100 --> 00:50:17.580 align:middle line:84% So you see that people actually-- this 00:50:17.580 --> 00:50:20.190 align:middle line:84% is the amount of money that people are 00:50:20.190 --> 00:50:21.640 align:middle line:90% willing to pay per square feet. 00:50:21.640 --> 00:50:24.310 align:middle line:84% And this is the winter temperature in Fahrenheit. 00:50:24.310 --> 00:50:26.010 align:middle line:84% So you see that people want to live 00:50:26.010 --> 00:50:31.770 align:middle line:84% in places that are warmer in winter 00:50:31.770 --> 00:50:36.880 align:middle line:84% and also cooler in summer for any region in the United States. 00:50:36.880 --> 00:50:39.940 align:middle line:84% And these are the effects on behavior and so forth. 00:50:39.940 --> 00:50:43.140 align:middle line:90% What about the asset market? 00:50:43.140 --> 00:50:44.140 align:middle line:90% What happens there. 00:50:44.140 --> 00:50:46.030 align:middle line:84% What do we think about climate risk? 00:50:46.030 --> 00:50:52.635 align:middle line:84% Is there any impact of climate risk on the asset market or no? 00:50:52.635 --> 00:50:55.010 align:middle line:84% I keep pressing twice, and then I keep giving the answer. 00:50:55.010 --> 00:50:58.210 align:middle line:84% But what I like is the logic, not so much the-- 00:50:58.210 --> 00:50:58.820 align:middle line:90% [? Ashley? ?] 00:50:58.820 --> 00:51:02.810 align:middle line:84% AUDIENCE: Despite being in the space market, if wildfires 00:51:02.810 --> 00:51:07.156 align:middle line:84% are burning down trees, [INAUDIBLE] then the building, 00:51:07.156 --> 00:51:10.150 align:middle line:84% [INAUDIBLE] building materials might decrease. 00:51:10.150 --> 00:51:11.830 align:middle line:84% JUAN PALACIOS: Yes, that is true. 00:51:11.830 --> 00:51:15.580 align:middle line:84% That is not the space market but is the asset-- 00:51:15.580 --> 00:51:19.330 align:middle line:84% the construction market, because that will ultimately 00:51:19.330 --> 00:51:20.860 align:middle line:84% impact the price of timber, and that 00:51:20.860 --> 00:51:25.120 align:middle line:84% will ultimately impact how much it costs to build a building. 00:51:25.120 --> 00:51:26.110 align:middle line:90% Andy? 00:51:26.110 --> 00:51:26.900 align:middle line:84% AUDIENCE: Like we had said before, 00:51:26.900 --> 00:51:28.567 align:middle line:84% we're talking about shifts in the curve. 00:51:28.567 --> 00:51:30.490 align:middle line:84% Given a current rent level, if there's 00:51:30.490 --> 00:51:32.740 align:middle line:84% perceived higher risk or future higher costs 00:51:32.740 --> 00:51:35.200 align:middle line:84% to maintaining the property, the curve 00:51:35.200 --> 00:51:38.110 align:middle line:84% is going to shift in so that at that current rent level, 00:51:38.110 --> 00:51:39.950 align:middle line:84% there's a lower price in the rental market. 00:51:39.950 --> 00:51:42.940 align:middle line:84% JUAN PALACIOS: Can we think on a specific event that 00:51:42.940 --> 00:51:45.820 align:middle line:84% will make that curve shift or that will increase 00:51:45.820 --> 00:51:47.200 align:middle line:90% the perception of risk? 00:51:47.200 --> 00:51:49.180 align:middle line:84% AUDIENCE: Insurance premiums double or triple 00:51:49.180 --> 00:51:50.385 align:middle line:90% in a given market-- 00:51:50.385 --> 00:51:50.660 align:middle line:90% JUAN PALACIOS: Correct. 00:51:50.660 --> 00:51:52.580 align:middle line:84% AUDIENCE: --your operating expenses are that much higher. 00:51:52.580 --> 00:51:52.930 align:middle line:90% JUAN PALACIOS: Correct. 00:51:52.930 --> 00:51:54.310 align:middle line:84% AUDIENCE: So you're going to pay a lower price 00:51:54.310 --> 00:51:55.687 align:middle line:90% to adjust for that added cost. 00:51:55.687 --> 00:51:57.020 align:middle line:90% JUAN PALACIOS: Correct, correct. 00:51:57.020 --> 00:52:00.650 align:middle line:84% So the rents-- what you get is not actually the rents. 00:52:00.650 --> 00:52:02.350 align:middle line:84% What you get is the ultimate profit 00:52:02.350 --> 00:52:07.160 align:middle line:84% of holding that asset every year as an owner of that asset. 00:52:07.160 --> 00:52:08.240 align:middle line:90% So that is one. 00:52:08.240 --> 00:52:10.520 align:middle line:90% And there will be also-- 00:52:10.520 --> 00:52:13.790 align:middle line:84% so you have it here, an also greater awareness 00:52:13.790 --> 00:52:16.830 align:middle line:84% of investors that will actually adjust the risk. 00:52:16.830 --> 00:52:20.180 align:middle line:84% Kevin, I'll give you the floor in one minute. 00:52:20.180 --> 00:52:24.890 align:middle line:84% And there are things like the TCFD, the Task 00:52:24.890 --> 00:52:27.050 align:middle line:84% force on Climate-related Financial Disclosures, 00:52:27.050 --> 00:52:32.570 align:middle line:84% where major banks and investors are actually forcing companies 00:52:32.570 --> 00:52:35.060 align:middle line:84% to disclose the climate risk associated with their assets 00:52:35.060 --> 00:52:38.390 align:middle line:84% so they can actually price it in their in their conditions 00:52:38.390 --> 00:52:42.720 align:middle line:84% and terms where they are giving debt to building owners. 00:52:42.720 --> 00:52:47.120 align:middle line:84% So all of these will make that for whatever rent tenants are 00:52:47.120 --> 00:52:50.360 align:middle line:84% willing to pay, ultimately, the price for those assets 00:52:50.360 --> 00:52:51.383 align:middle line:90% are going to be lower. 00:52:51.383 --> 00:52:53.300 align:middle line:84% That is going to impact the construction, too, 00:52:53.300 --> 00:52:56.365 align:middle line:84% and it's going to impact the long-term supply in the market. 00:52:56.365 --> 00:52:58.950 align:middle line:90% 00:52:58.950 --> 00:53:00.550 align:middle line:90% And I have it here. 00:53:00.550 --> 00:53:02.490 align:middle line:84% And that is also something that if you see-- 00:53:02.490 --> 00:53:05.280 align:middle line:84% and I'll discuss this next week in more detail. 00:53:05.280 --> 00:53:06.750 align:middle line:84% But what you see is that actually, 00:53:06.750 --> 00:53:08.550 align:middle line:84% when you see the empirical data, you 00:53:08.550 --> 00:53:10.920 align:middle line:84% see that a lot of the changes in property prices 00:53:10.920 --> 00:53:13.440 align:middle line:84% are not coming by changes in ROI and rents, 00:53:13.440 --> 00:53:16.230 align:middle line:84% but actually coming from increases in cap rate. 00:53:16.230 --> 00:53:19.030 align:middle line:84% It's coming from the perception of risk of those properties. 00:53:19.030 --> 00:53:22.080 align:middle line:84% So for any given rent that is out there, 00:53:22.080 --> 00:53:25.047 align:middle line:84% actually, now, owners and investors 00:53:25.047 --> 00:53:27.630 align:middle line:84% are willing to pay less, because they have a higher perception 00:53:27.630 --> 00:53:28.900 align:middle line:90% of risk on those properties. 00:53:28.900 --> 00:53:30.400 align:middle line:84% And it makes sense because those are 00:53:30.400 --> 00:53:33.030 align:middle line:84% the ones that have a long-term horizon versus the ones that 00:53:33.030 --> 00:53:36.870 align:middle line:84% are making a lease for two, three, five years' time. 00:53:36.870 --> 00:53:40.080 align:middle line:84% And finally, just as a recap, finally, 00:53:40.080 --> 00:53:42.090 align:middle line:84% the construction-- what you see is 00:53:42.090 --> 00:53:46.050 align:middle line:84% that as the cost of materials and the different requirements 00:53:46.050 --> 00:53:50.130 align:middle line:84% of companies to construct in certain places, 00:53:50.130 --> 00:53:52.980 align:middle line:84% you see that the amount of construction 00:53:52.980 --> 00:53:54.070 align:middle line:90% is going to go down. 00:53:54.070 --> 00:53:57.160 align:middle line:84% The price is going to also reflect that, 00:53:57.160 --> 00:53:59.300 align:middle line:84% and the rents are also going to reflect those. 00:53:59.300 --> 00:54:02.650 align:middle line:84% And finally, as the likelihood of the stock 00:54:02.650 --> 00:54:07.720 align:middle line:84% to be destroyed increases, then for whatever unit of whatever 00:54:07.720 --> 00:54:09.820 align:middle line:84% amount of construction is happening now 00:54:09.820 --> 00:54:11.560 align:middle line:84% is going to survive less, and that 00:54:11.560 --> 00:54:13.510 align:middle line:84% is going to decrease the supply and have 00:54:13.510 --> 00:54:15.740 align:middle line:84% all the bad consequences for rents and so forth. 00:54:15.740 --> 00:54:18.312 align:middle line:84% And remember that at the same time that we have the climate 00:54:18.312 --> 00:54:20.770 align:middle line:84% crisis, we have in a lot of places an affordability crisis. 00:54:20.770 --> 00:54:24.490 align:middle line:84% So we really don't want supply to be even more constrained, 00:54:24.490 --> 00:54:26.840 align:middle line:84% especially when it comes to the housing market. 00:54:26.840 --> 00:54:29.260 align:middle line:84% So all of these things is going to put a lot of stress 00:54:29.260 --> 00:54:31.300 align:middle line:84% into markets, and it's going to make 00:54:31.300 --> 00:54:35.520 align:middle line:84% a lot of the-- lives of a lot of people even more miserable. 00:54:35.520 --> 00:54:52.000 align:middle line:90%