Preparation Led to Minimal U.S. CRE Quake Damage

Business sector financial data and analysis provider SNL Financial--which covers 41 real estate companies that have exposure in five coastal prefectures--found that the damage to properties owned by the entities it analyzes has been nominal to this point.

March 15, 2011
By Barbra Murray, Contributing Editor

Courtesy Flickr Creative Commons user Yuichiro Haga

The number of lives claimed by the magnitude-8.9 earthquake that struck the east coast of Japan on March 11 continues to soar beyond the inconceivable. Real estate is certainly not comparable to human lives; nor is the impact the natural disaster had on properties comparable to the toll it is still taking on the human population. Business sector financial data and analysis provider SNL Financial–which covers 41 real estate companies that have exposure in five coastal prefectures–has found that the damage to properties owned by the entities it analyzes has been nominal to this point.

“The majority of the companies we cover are reporting light damage, but they are not reporting any collapses so far,” Jason Lail, senior industry analyst with SNL, told CPE. “It could have been much worse, which is a somewhat positive light in this dismal situation, in terms of not incurring major collapses that might have taken even more lives.”

Miyagi, Iwate, Fukushima, Ibaraki and Chiba are the Japanese coastal prefectures that were hardest hit. Of the 41 SNL-covered real estate concerns with a presence in those districts, four are based in the United States: Starwood Hotels & Resorts Worldwide Inc., shopping mall REIT Simon Property Group Inc., leading global distribution centers provider ProLogis and industrial real estate firm AMB Property Corp., which recently agreed to a merger of equals with ProLogis.

The containment of property destruction in the earthquake can be attributed to preparation. “Real estate owners in Japan are already cognizant of the seismic risk field and I think that’s why there was so little damage,” Lail said. There’s a built-in awareness.”

It is an awareness born of experience. A 7.2-magnitude quake struck the Kobe area in 1995 and in 1998, a magnitude 6.3 jolt hit off the coast of Honshu. “Developers have learned from the past. When constructing assets, they’re going to be more robust in standing up to earthquakes. The demand for rigor in the quality of assets is already there.”

For the companies SNL covers, the average expected property loss incurred in the case of a seismic event is 7.8 percent. While the assets owned by these entities were not brought to the ground by last week’s earthquake, there remains something to fear in the near term. Everyone is hoping that the impact of a potential multi-reactor meltdown is something that will not be learned through experience.