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CRE Finance World, Winter 2013

Pending Seismic Rating System Will Improve Commercial Property Resilience and Value “I think that commercial property owners and tenants will become increasingly aware of the importance of assessing seismic risk, and USRC’s efforts to create a standard, recognizable, and understandable rating system can be an important step in making this happen.” Engineering (CoRE®) Ratings, much like the US Green Building they were built, but are now known to be safety hazards or may be Council® issues LEED® ratings. The USRC intends that CoRE demolition candidates after a major earthquake. Ratings become the standard for quantifying the value of improved disaster resilience, and a key metric for due diligence in real estate The USRC offers a technically sound and replicable methodology transactions. Ratings will benefit building owners, lenders, tenants for implementing a consistent and measurable rating system. and government jurisdictions by increasing the value of well-designed Ratings will build upon existing technical standards. The USRC properties and providing a means to quantify risk. Policy makers will provide accreditation, training and peer review. CoRE Ratings will use CoRE ratings to compare and prioritize relative risks and will be usable by both the public and private sector, by building to form a basis for developing long-term resilience policy. owners and occupants, for financial and safety assessments. It is important to distinguish resilience from sustainability. New Tom Sullivan, Principal with the development firm, Westwood York City has the largest number of LEED® certified buildings in Development Partners, points out: “Seismic risk should be a very the country, but according to Jonathan Rose, an urban planner, significant consideration for commercial tenants and other building Hurricane Sandy revealed that these buildings “were designed to occupants, not only in areas like San Francisco that are widely generate lower environmental impacts, but not to respond to the known to be seismically active, but in broad areas of the country, impacts of the environment.”4 Given the millions of tons of debris where a lack of recent seismic activity masks the fact that the risks generated as a result of Sandy, and the volume of new building are real and substantial. I think that commercial property owners materials that will be required to rebuild, one might say that resiliency and tenants will become increasingly aware of the importance of implies sustainability, but not the reverse. assessing seismic risk, and USRC’s efforts to create a standard, recognizable, and understandable rating system can be an important The USRC will establish an accreditation program for professional step in making this happen.” engineers who wish to employ the CoRE system. Accreditation will require specific knowledge and training in structural engineering and the performance of buildings under natural and manmade hazards. CoRE Rating certification will also include peer review and validation by the USRC, to ensure that its highest technical standards are maintained. Initially, CoRE ratings will be offered for earthquake resilient structures. Over time, the USRC expects to adopt CoRE rating systems for other natural and/or manmade perils (e.g. hurricanes, flood, blast). For the U.S., the proposed seismic rating system will initially be voluntary, and while its use may not be widespread in the short term, these ratings will likely affect rents and cap rates before the end of the 10-year projected holding period, used to make many commercial property purchase and loan decisions. Of course the occurrence of a major earthquake will hasten the market’s awareness and adoption of the rating systems. The New Zealand Christchurch earthquakes in 2010/2011 prompted the country to quickly develop a seismic rating system, known as QuakeStar, to communicate measures of building earthquake resilience to the 1 Earthquake Engineering Research Institute, Securing Society Against marketplace simply and objectively. Catastrophic Earthquake Losses: A Research and Outreach Plan in Earthquake Engineering, June 2003 Government regulation of buildings codes is akin to regulation of 2 Meyer, John D., Seismic Issues that Derail Closings, California Mortgage automobiles. Safety technology evolves and eventually is reflected Bankers Association, Closing Issues Forum, 2004 in government standards for new cars; crumple zones, air bags, side 3 Sposato, William, In Tokyo, Stronger Structures Rise, Wall Street Journal, impact panels were all added as requirements over time. However, November 06, 2012 once a car is sold, it is basically legal forever. The government 4 Zolli, Andrew, Learning to Bounce Back, New York Times, November does not pull unsafe cars off the road and crush them. So too with 02, 2012 many older buildings that met building code requirements when CRE Finance World Winter 2013 40


CRE Finance World, Winter 2013
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