Real Estate Climate Value at Risk (RECVR)

5 October 2023

Introducing RECVR

A unique methodology which addresses the “value at risk” and cashflow impact of the climate and sustainability agenda on real estate assets held for investment purposes and as debt collateral.

Developed specifically for real estate investors and lenders, RECVR aligns conventional valuation methodology with a highly transparent and explicit reflection of climate and sustainability related risks in order that the scale and timing of impacts can be visualised, quantified and addressed within decision making – whether that be at the point of acquisition or during asset management strategy reviews.

Asset specific consideration

Whether it be geography, construction, leasing profile or market dynamics, no two assets are the same. Similarly, the climate and sustainability agenda is not simply a “cost to comply” challenge – a range of valuation levers are impacted including void risk, rental growth potential and discount rate. RECVR draws together a range of real estate valuation, modelling and ESG skillsets from Deloitte and Longevity Partners to provide an advisory service grounded upon the specific circumstances for each individual asset.

RECVR calculates an indicative “Value at Risk” and also provides a profile illustrating the impact on cashflow over time – thereby providing insight on “stranding” concerns and aiding the development of asset management strategies to mitigate the risks.

Transparency to support understanding

After initial assessments by Deloitte and Longevity specialists, RECVR is used to calculate the value at risk “as is” and to assess the mitigating effect of asset management interventions.

Critically, the reasoning for the Value at Risk impact is entirely transparent and shared with clients during an interactive workshop. The workshop also provides the opportunity for clients to visualise the sensitivity of inputs and to participate in flexing the scenarios and asset management approaches adopted to mitigate the impact.

The resulting output for the client is a practical and concise deliverable highlighting the climate and sustainability profile of an asset through a financial impact lense and with clarity on strategies to address concerns.

Informing Asset and Portfolio-level strategies

RECVR addresses asset-specific considerations – drawing together both its climate and sustainability credentials and its leasing profile. However, a further benefit of RECVR is its ability to provide a consolidated portfolio perspective, thereby enabling further prioritisation of asset management initiatives and the potential to identify advantageous pan-portfolio procurement opportunities.

Supporting Credit Risk decisions for lenders

Climate and sustainability credentials, coupled with clear borrower strategies to manage and mitigate the ensuing risks are increasingly critical to lending decisions. Importantly, RECVR is able to consider the risk profile both “today” and also over desired hold/loan periods thereby providing valuable insight as to an asset’s suitability as security for a loan. Similarly, RECVR can be used to support the lending rationale and action-plan for the provision of “green finance”.

With central Banks also increasingly focused on climate-related stress tests, RECVR provides valuable insight to support lending decisions.

Contact Us:

Olivia O’Brien – Associate Director – Head of Climate Resilience, Service Line Lead

Email: ob@longevity.co.uk