BlackRock, among the world’s largest asset managers and a significant investor in publicly traded real estate companies, including Realogy, Zillow and RE/MAX, drew the attention of Wall Street — and perhaps the real estate industry — when it’s chairman announced on Tuesday the company would begin making sustainability an integral part of how the company constructs its portfolio.
In an annual letter closely watched by chief executives, BlackRock Chairman and CEO Larry Fink indicated that future investments could hinge on how environmentally sustainable certain companies are — such as those in the coal industry — or how aggressively management teams deal with environmental challenges. BlackRock currently has nearly $7 trillion in investments.
“Climate change has become a defining factor in companies’ long-term prospects,” Fink wrote. “Last September, when millions of people took to the streets to demand action on climate change, many of them emphasized the significant and lasting impact that it will have on economic growth and prosperity – a risk that markets to date have been slower to reflect. But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.”
Fink laid out a number of questions in the letter, such as how high the cost of food could climb, spiking inflation and interest rates, and the fate of urban infrastructures, especially in coastal cities. But he also specifically questioned what will happen to the 30-year mortgage – which he noted is a key building block of finance – when we enter an era where lenders cannot model the longterm risk of climate change, or there’s not viable flood or fire insurance?
“These questions are driving a profound reassessment of risk and asset values,” Fink continued in the letter. “And because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself. In the near future – and sooner than most anticipate – there will be a significant reallocation of capital.”
It was not immediately clear how the new investment strategy would impact publicly traded residential real estate companies including RE/MAX, Redfin, Realogy and eXp World Holdings, all of which BlackRock has a large investment stake in.
BlackRock owns 17,792,940 shares of Realogy, or 15.56 percent; 3,118,787 shares of RE/MAX’s Class A stock, or 17.49 percent; 5,977,885 shares of Redfin, or 6.51 percent; 1,390,458 shares of eXp World Holdings, or 2.22 percent. BlackRock even owns 2,307,963 shares of Zillow Group’s Class A stock and 6,437,582 shares of its Class C stock.
Previous studies have attempted to estimate the catastrophic impact climate change will have on housing, but it’s unclear what, if any, impact it could have in the near term on the residential real estate brokerage space.
David Burt, the founder of DeltaTerra Capital, is betting against the mortgage market because he believes we could be on the verge of another foreclosure crisis due to the market’s failure to integrate climate science with investment analysis.
“The market’s failure to integrate climate science with investment analysis has created a mispricing phenomenon that is possibly larger than the mortgage credit bubble of the mid-2000s,” Burt wrote in a presentation to prospective clients, obtained by Reuters.
It’s not clear if BlackRock will view the residential real estate industry as the risk others have called it. The letter specifically notes that BlackRock will consider, “exiting investments that present a high sustainability-related risk, such as thermal coal producers,” and doesn’t mention the real estate industry.
It’s also not clear what the overall impact of BlackRock strategically divesting from the industry, in this theoretical scenario, would be. A spokesperson for the company did not immediately return a request for comment.
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