Hurricane Harvey and its sister storm, Irma — which is threatening the Southeast Coast — are beginning to shine a light on the risk the increased incidence of extreme weather is posing on investments.
The exact toll Harvey will have on investor portfolios — especially in real estate, infrastructure and energy — will not be fully understood for a month or two. Managers are in the process of determining the damage now.
For example, there are more than 1,500 properties with a balance of $19.4 billion in commercial mortgage-backed securities at elevated risk because of the flooding in Texas caused by Harvey, according to an Aug. 30 report by Morningstar Credit Ratings LLC. And close to 5,000 securitized single-borrower, single-family rental properties with a combined value of roughly $832.6 million might be affected by flooding in the Houston area, Morningstar stated Aug. 31.
While Houston is an important city for real estate investors, real estate investment trusts have less than 15% exposure to properties in Houston, said Jeremy Anagnos, chief investment officer, infrastructure, in the Radnor, Pa., office of CBRE Clarion Securities, which manages listed real estate and infrastructure portfolios.
While the human toll has been horrific, Mr. Anagnos said there has been minimal damage to CBRE Clarion Securities' portfolios, he said.
Most of CBRE Clarion Securities' infrastructure investments in the region are related to energy. In some cases, energy companies closed their refining and petrochemical facilities ahead of the storm as a safety precaution, Mr. Anagnos said, and remained shut down for days after the hurricane made landfall. What's more, a change in Texas regulations means utilities in the region will be able to charge ratepayers more quickly for repair costs after the storm. CBRE Clarion Securities executives expect little impact on these utilities' bottom lines in the third and the fourth quarters because of the regulation change.
However, Mr. Anagnos said it is difficult to determine the full impact on CBRE Clarion Securities' energy infrastructure holdings because the storm could have affected areas miles away from Texas and Louisiana, he said.
"The storm may impact a company that sends energy down to the Gulf to be exported because the (ports) have been disrupted," Mr. Anagnos said. "It impacts on the value chain of the energy market."
But even as managers are in the early days of assessing the impact to their own portfolios, some are looking ahead to improvements they can make.