Seismic risk assessments for real estate portfolios: Impact of engineering investigation on quality of seismic risk studies

2021 ◽  
pp. 875529302110429
Author(s):  
Yajie Lee ◽  
William P Graf ◽  
Charles C Thiel ◽  
Zhenghui Hu ◽  
Mark Ellis
Keyword(s):  
Real Estate ◽  
Seismic Risk ◽  
Evaluation Studies ◽  
Risk Assessments ◽  
Exceedance Probability ◽  
Portfolio Risk ◽  
Financial Decisions ◽  
Risk Metric ◽  
Engineering Investigation ◽  
Technical Professionals

Seismic risk evaluation studies for real estate portfolios conducted by technical professionals (often Civil and Structural Engineers) have become increasingly desirable and common in financial decisions. In this article, we develop a series of risk measures and ratings based on common outcomes from probabilistic portfolio seismic risk assessments. We first define two portfolio risk metrics: Portfolio Expected Loss (PELα) and Portfolio Upper Loss (PULα), where “α” is the annual exceedance probability, or the corresponding return period (“1/α”). PULα/PELα ratio characterizes the uncertainty in estimated portfolio risks which results from the uncertainty in seismic performance of the individual assets. Three uncertainty levels are defined, namely, low, medium, and high, based on the PULα/PELα. We then develop an asset risk metric, called Tail Contribution Index (TCIα), that characterizes the contribution of individual assets to the portfolio losses that fall within the high-consequence “tail” of the portfolio loss distribution. To describe the overall engineering efforts of a portfolio seismic risk study, we develop a portfolio risk metric, called Portfolio Level of Investigation (PLIα), that characterizes the effective level of engineering investigation. Three investigation levels are defined: low ( desktop), medium ( semi-engineered), and high ( engineered), based on the PLIα. Finally, based on the combination of uncertainty level and investigation level, we develop a rating scheme by which the quality (Qα) of a portfolio seismic risk study is characterized. Five quality levels are defined: very poor, poor, fair, good, and very good. These risk indices and ratings can help stakeholders and technical professionals better diagnose and communicate portfolio seismic risks, scope adequate studies, effectively utilize valuable resources, and base financial decisions on risk assessment results that have the desired reliability.

scholarly journals Simplified Estimation of Economic Seismic Risk for Buildings

2004 ◽  
Vol 20 (4) ◽  
pp. 1239-1263 ◽  
Author(s):  
Keith A. Porter ◽  
James L. Beck ◽  
Rustem Shaikhutdinov
Keyword(s):  
Real Estate ◽  
Seismic Risk ◽  
Financial Analysis ◽  
Active Regions ◽  
Market Force ◽  
Exceedance Probability ◽  
Planning Period ◽  
Frame Building ◽  
Linear Assembly ◽  
Probable Maximum Loss

A seismic risk assessment is often performed on behalf of a buyer of commercial buildings in seismically active regions. One outcome of the assessment is that a probable maximum loss ( PML) is computed. PML is of limited use to real-estate investors as it has no place in a standard financial analysis and reflects too long a planning period. We introduce an alternative to PML called probable frequent loss ( PFL), defined as the mean loss resulting from shaking with 10% exceedance probability in 5 years. PFL is approximately related to expected annualized loss ( EAL) through a site economic hazard coefficient (H) introduced here. PFL and EAL offer three advantages over PML: (1) meaningful planning period; (2) applicability in financial analysis (making seismic risk a potential market force); and (3) can be estimated using a single linear structural analysis, via a simplified method called linear assembly-based vulnerability (LABV) that is presented in this work. We also present a simple decision-analysis framework for real-estate investments in seismic regions, accounting for risk aversion. We show that market risk overwhelms uncertainty in seismic risk, allowing one to consider only expected consequences in seismic risk. We illustrate using 15 buildings, including a 7-story nonductile reinforced-concrete moment-frame building in Van Nuys, California, and 14 buildings from the CUREE-Caltech Woodframe Project.

Evaluating the cost and benefits of earthquake protection of buildings

2018 ◽  
Vol 11 (2) ◽  
pp. 263-278 ◽  
Author(s):  
Benedetto Manganelli ◽  
Marco Vona ◽  
Pierfrancesco De Paola
Keyword(s):  
Real Estate ◽  
Seismic Risk ◽  
Risk Mitigation ◽  
Tax Incentives ◽  
Seismic Retrofitting ◽  
Content Type ◽  
Seismic Risk Mitigation ◽  
The Cost ◽  
Earthquake Protection ◽  
Real Estate Assets

Purpose The purpose of this study is the evaluation of the cost and benefits of earthquake protection of buildings to verify whether the legislative push, through tax incentives, will produce results and lead to a redevelopment of private real estate assets. Design/methodology/approach Through contingent valuation, this research aims to measure the propensity of homeowners to invest in the seismic security of their properties. The sample of homeowners was selected in a southern Italy city, which was characterized by a medium-high seismic hazard. The willingness to pay, once made independent from the family income, was compared with the actual cost of a seismic retrofitting technique to assess its cost-effectiveness. Findings The analysis developed on an example case shows that the economic sustainability of the intervention is only verified when considering the current tax incentives for this type of intervention. Practical implications Choosing to introduce a system to compulsory insurance against seismic risk could certainly be a strong incentive for the implementation of retrofitting interventions on private real estate assets. In this direction, investigations like this can be fundamental to establish the fair risk premium. Originality/value The need for effective seismic risk mitigation policies is also based on the growing awareness of the, often fatal, effects of seismic events, emphasized by the recent medium and high intensity events that hit Italy. The issue of the security of residential buildings is therefore a very topical issue in view of their high seismic vulnerability and the vast number of buildings requiring major seismic retrofitting. Therefore, the propensity of owners to intervene in improving the seismic performance of their properties can be crucial in seismic risk mitigation.

scholarly journals The Impact of Corporate Performance on Mental Accounting and Loss Aversion in Financial Decisions

2021 ◽  
Vol 12 (4) ◽  
pp. 259
Author(s):  
Mona Hassabelrasoul Mohammad ◽  
Dalal Mohamed Ebrahim Mohamed ◽  
Elsaid Abd Elazim Tolba Elsharkawi
Keyword(s):  
Graduate Students ◽  
Real Estate ◽  
Loss Aversion ◽  
Corporate Performance ◽  
Mental Accounting ◽  
Organization Performance ◽  
Financial Decisions ◽  
Real Estate Company ◽  
The Impact

This study investigates the effect of the organization performance on two psychological biases, mental accounting and aversion to loss, on financial decisions to both investors and managers. To achieve this, two experiments are conducted. The first experiment consists of 40 graduate students as investors, while the second one consists of 40 accountants in a real estate company as managers. The results of the study indicate that the performance of companies impacts both mental accounting and aversion to loss of investors, whereas the performance of companies affects the mental accounting of managers in making their financial decisions but does not affect the aversion to loss.

scholarly journals Real estate as a portfolio risk diversifier

2016 ◽  
Vol 13 (2) ◽  
pp. 45-52
Author(s):  
Ahmad Etebari
Keyword(s):  
Real Estate ◽  
Portfolio Risk ◽  
Optimal Portfolios ◽  
Investment Performance ◽  
Optimization Framework ◽  
Expected Inflation ◽  
Common Stocks ◽  
Asset Class ◽  
The U.S ◽  
Return Data

This study provides evidence on the investment performance of real estate relative to bonds and common stocks in the U.S. Using quarterly total return data over the years 1978-2012, the analyses show that, over this period, on a risk-adjusted basis real estate was the top performing asset class, outperformed both bonds and stocks. Real estate, in the Eastern U.S., was the top performer, outperforming both bonds and stocks. The results also show that real estate provided a partial hedge against actual and expected inflation, and that, in combinations with bonds and stocks, it made up a major share of optimal portfolios constructed for various target returns within the Markowitz optimization framework

Real Estate Portfolio Risk Reduction through Intracity Diversification

1998 ◽  
Vol 4 (1) ◽  
pp. 35-41 ◽  
Author(s):  
Marvin Wolverton ◽  
Ping Cheng ◽  
William Hardin
Keyword(s):  
Real Estate ◽  
Risk Reduction ◽  
Portfolio Risk

Probabilistic seismic risk assessment of India

2020 ◽  
Vol 36 (1_suppl) ◽  
pp. 345-371
Author(s):  
Anirudh Rao ◽  
Debashish Dutta ◽  
Pratim Kalita ◽  
Nick Ackerley ◽  
Vitor Silva ◽  
...  
Keyword(s):  
Seismic Hazard ◽  
Seismic Risk ◽  
Risk Model ◽  
Building Design ◽  
Design Guidelines ◽  
Exposure Model ◽  
Economic Losses ◽  
Exceedance Probability ◽  
Earthquake Risk ◽  
Earthquake Insurance

This study presents a comprehensive open probabilistic seismic risk model for India. The proposed model comprises a nationwide residential and non-residential building exposure model, a selection of analytical seismic vulnerability functions tailored for Indian building classes, and the open implementation of an existing probabilistic seismic hazard model for India. The vulnerability of the building exposure is combined with the seismic hazard using the stochastic (Monte Carlo) event-based calculator of the OpenQuake engine to estimate probabilistic seismic risk metrics such as average annual economic losses and the exceedance probability curves at the national, state, district, and subdistrict levels. The risk model and the underlying datasets, along with the risk metrics calculated at different scales, are intended to be used as tools to quantitatively assess the earthquake risk across India and also compare with other countries to develop risk-informed building design guidelines, for more careful land-use planning, to optimize earthquake insurance pricing, and to enhance general earthquake risk awareness and preparedness.

SEL versus SUL: managing seismic risk in commercial real estate investments

2010 ◽  
Vol 21 (6) ◽  
pp. 389-404 ◽  
Author(s):  
Charles C. Thiel ◽  
Thomas E. Kosonen ◽  
David A. Stivers
Keyword(s):  
Real Estate ◽  
Seismic Risk ◽  
Commercial Real Estate ◽  
Real Estate Investments

Impacts on catastrophe risk assessments from multi-segment and multi-fault ruptures in the UCERF3 model

2021 ◽  
pp. 875529302110420
Author(s):  
Yajie Lee ◽  
Zhenghui Hui ◽  
Siamak Daneshvaran ◽  
Farhad Sedaghati ◽  
William P Graf
Keyword(s):  
Risk Management ◽  
Return Period ◽  
Risk Measures ◽  
Risk Assessments ◽  
Exceedance Probability ◽  
Critical Examination ◽  
Ground Shaking ◽  
Catastrophe Risk ◽  
Earthquake Losses ◽  
Average Annual Loss

The Uniform California Earthquake Rupture Forecast Version 3 (UCERF3) relaxes fault segmentation, allowing multi-segment and multi-fault ruptures through fault-to-fault “jumps,” with lengths up to ∼1200 km along the San Andreas Fault. Local faults are also highly interconnected, including ruptures on the order of hundreds of kilometers. These prescribed long ruptures did not exist in older models. Longer ruptures produce larger aggregate loss estimates for geographically dispersed assets (portfolios) due to the wider areas that are affected by strong ground shaking. In this study, we model probabilistic earthquake losses of a hypothetical state-wide building portfolio in California. We develop risk deaggregation methods to identify multi-segment and multi-fault ruptures that contribute significantly to high portfolio-wide risks. Three risk measures that are commonly used in risk management decisions are examined: Average Annual Loss (AAL), Return Period Loss (RPLα), and Tail Conditional Expectation (TCEα), for an annual exceedance probability “α,” or corresponding return period “1/α.” Our results show that while the super long ruptures (>500 km) contribute modestly (∼7%) to the portfolio AAL estimate, they contribute more significantly to portfolio catastrophe risk estimates. Specifically, at a 250 year return period, these long ruptures contribute about 26% and 32% to RPL250 and TCE250 estimates, respectively. At a 500-year return period, the corresponding contributions reach about 35% and 39%. Ruptures that connect complex fault systems are also found to be highly influential to estimated portfolio risks. At a 500-year return period, a mere six rupture groups contribute nearly 70% to the RPL500 estimate. Due to the importance of the UCERF3 model to many risk management and public policy decisions, a critical examination of the limit and uncertainty of fault connectivity and rupture lengths of future earthquakes, as well as their impacts on catastrophe risk assessments, is warranted in future model updates.

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