IDEAS home Printed from https://ideas.repec.org/p/arz/wpaper/eres2023_64.html
   My bibliography  Save this paper

Natural Hazard Exposure and REIT Equity Risk

Author

Listed:
  • Bing Zhu
  • Franz Fuerst

Abstract

This paper investigates if exposure to natural hazards in its underlying assets affects the equity risk of a real estate fund. In a panel dataset of 139 distinct Real Estate Investment Trusts (REITs) over the period of 2004 to 2021, we find that REITs with a higher natural hazard exposure show a higher market beta. This finding persists even when possible endogenous market selection is taken into account, using historical hurricanes as a natural experiment and an instrumental variables approach. The increased systematic risk is explained by the increased cost of debt and reduced rental income. Assets in more resilient communities, more green buildings in the portfolio, and higher ESG performance are all shown to attenuate the impact of natural hazard risk on the market beta of a REIT. Investors seeking to lower their exposure to climate risk can use the proposed metrics at various levels of spatial aggregation to gauge the resilience of their investments.

Suggested Citation

  • Bing Zhu & Franz Fuerst, 2023. "Natural Hazard Exposure and REIT Equity Risk," ERES eres2023_64, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2023_64
    as

    Download full text from publisher

    File URL: https://eres.architexturez.net/doc/oai-eres-id-eres2023-64
    Download Restriction: no
    File URL: https://eres.architexturez.net/system/files/P_20230130140215_7366.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Asset Pricing Model; Market Beta; Natural Hazard Risk; REITs;
    All these keywords.

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arz:wpaper:eres2023_64. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Architexturez Imprints (email available below). General contact details of provider: https://edirc.repec.org/data/eressea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.