Flood Analytics Are Proliferating Among Service Firms, But CRE Is Slow To Invest

The commercialization of flood risk analysis has grown in recent years, reflecting improvements in computing power, richer data sources, increased general awareness of flooding risk in the wake of events like Hurricane Harvey, and growing interest from individuals and businesses to purchase flood insurance.

Property owners and developers typically gain insight into their flood risk from external engineering or insurance firms, which are hired to perform those analyses. But flood risk can be assessed in a myriad of ways, and not all tools are the same.

Walter P Moore Senior Principal Charlie Penland said the usefulness of flooding analytics products comes down to the ability of the engineers to interpret and use those tools.

"It's sort of like, does a hammer make you a good carpenter?" Penland said.

Flood analytics can vary widely in purpose and sophistication, but there are some core pieces of data that help modelers build software that can estimate flooding risk.

Modelers use parcel databases, which contain geographical information about individual properties and tax ownership boundaries around the country. Data like topography and soil information contribute to the accuracy of flood analytics, as those factors influence water drainage and absorption.

Distance from rivers, streams and bayous are also factored in. The Federal Emergency Management Agency’s flood plain maps can be layered into models to show if the property has a historical risk of flooding. Updated information about rainfall and storm surges are also a key element of flood modeling, providing key insight into how changing hydrology could impact the physical environment.

Engineers are one of the heaviest users of flood analytics data. To build a new project in Harris County, developers must meet various requirements from the Harris County Flood Control District, the Harris County Engineering Department and the city of Houston.

Harris County Flood Control District Deputy Director Matt Zeve told Bisnow that Harris County also has a strict “no adverse impact” policy: a new development cannot increase the flood hazards for any other development upstream or downstream.

Zeve said that from time to time, HCFCD works directly with commercial real estate owners and developers, but for the most part, the agency interacts with their engineers instead.

HCFCD itself does not use any specific flood analytics tools that have been commercially developed in recent years. Instead, the agency has a large geographical information systems department, which works on analyses for the flood district. Zeve said the GIS department uses software developed by the Environmental Systems Research Institute.

“I will tell you that using GIS tools through ESRI is the industry standard,” Zeve said.

There is no one tool or product that can satisfy every flood modeling need. CivilTech Engineering President Melvin Spinks told Bisnow that if engineers wanted to examine rivers or flood plains, they would use U.S. Army Corps of Engineers models. However, to study street flooding and neighborhood flooding with storm sewers, they would probably use the Environmental Protection Agency’s Storm Water Management Model.

Spinks said engineering firms sometimes use commercially available products for flood modeling since the private sector has developed some enhancements. That doesn’t necessarily make them better than other products, but they can be used for different applications.

“Some are just more robust, they have routines in them that are commercialized to add efficiency to the user. So the user can gain some efficiency in how it's run, and particularly how the data is [input] into it. But the overall engines [in] them have been — you know, they're part of science that's been established over time,” Spinks said.

While engineers tend to use modeling software developed by ESRI or the U.S. Army Corps of Engineers, commercially available products are more commonly used by the insurance and banking industries. For those entities, the priority is understanding how flood risk translates into real financial repercussions.

CoreLogic Principal of Content Strategy Tom Larsen told Bisnow that many of the company’s flood analytics customers come from insurance and banking, assessing the flooding risk of their own commercial real estate customers. CoreLogic’s customer base also includes real estate management companies, particularly if they have a large portfolio.

“The direct owners tend to use their insurance agent as their risk manager, and so we service them,” Larsen said.

There are a vast array of flood zone determination companies, which specialize in identifying which flood zone applies to a property. Though they may use some data and analytics, their products and services are usually not designed for the same kind of technical flooding analysis performed by engineering firms.

Larsen said that around the same time that Hurricane Harvey hit in 2017, the flood analytics industry was beginning to leverage data to create more powerful models. At the time, the ability to quantify insurance and give insurers the ability to correctly price a flood was just developing.

“Hurricane Harvey just reminded everybody that there's a big gap [in] the market that is not buying insurance that could,” Larsen said.

Some insurers can integrate analytics and flood insurance at the same time, which can be cost-effective for customers. That has led to a more vibrant flood insurance market, according to Larsen.

The growing intensity of flood events is spurring more interest in flood risk assessment from the commercial real estate sector. LightBox Vice President of Data Science Zach Wade said that over the past two years, the interest around incorporating climate change in real estate decision-making has increased. 

“I've definitely seen a lot of additional interest in flooding and climate change analysis,” Wade said.

LightBox was founded in 2018, backed by Silver Lake Partners. The company has built its analytics offerings by acquiring five other small companies in the space of two years, each with its own particular area of expertise.

The company in May announced a partnership with First Street Foundation to focus on the effects of climate change on the commercial real estate sector. First Street Foundation is a nonprofit organization that works with academia to build flood modeling, down to profiling individual properties and buildings.

By combining datasets with Lightbox, First Street can estimate the depth of water anticipated under a variety of climate change scenarios over the next 30 years. The new modeling provided by the First Street-Lightbox partnership is slated for release in July.

The increase in advanced flood analytics services is a reflection of more powerful computers. Zeve, Penland and Spinks all pointed to the recent advancement of two-dimensional hydraulic modeling, which commonly shows the flow of water in multiple directions and how it interacts with existing structures, as well as velocity and depth.

In the past, it was rare for engineering firms to have computers that could handle two-dimensional flood modeling, and software was cumbersome and slow. These days, that modeling is widely available and preferred by most engineers.

“Now, it's very common, these days, for engineering firms to carry that computing power to look at these more advanced hydraulic systems that give us not only the flood levels, but we can depict it to the public by the terrain,” Spinks said.

The National Flood Insurance Program, established in 1968 and administered by FEMA, has also driven interest from the private sector to develop tools focused on assessing flood risk for individuals and businesses.

“I think all these tools and companies, I think there's a proliferation of a lot [of] this because it's built around the National Flood Insurance Program, which is a huge program,” Spinks said.

Rising awareness of flood risk, coupled with more companies providing services and products that focus on flooding, has led to a rapidly expanding market. Larsen said commercial companies have been differentiating themselves based on things like speed, granularity of data and specific needs.

“There are an awful lot of new entrants. Are they directly competitors? No. Some of them are, but there's also a broadening market, because there's a lot more focus on sea level rise and regulatory disclosure,” Larsen said.

“Right now, yes, it is competition, but it's not a matter of competing for the existing market that we have right now, it's a competition with the different vendors to support the market that we're growing.”

Though there are many flood analytics tools available in the market, commercial real estate companies are unlikely to go out of their way to utilize them.

Zeve said most developers in Houston will meet the requirements outlined by the various city and county departments, as well as FEMA, but rarely pay for additional analysis or tools to examine flooding risk.

“A lot of it's a question of basically the economics. They want to minimize their cost, and shorten their timeline to [whenever] their project is ready to go,” Zeve said.

Penland said the attitude of developers and owners will vary, depending on the purpose of a property. If an asset is mission-critical, like a hospital or data center, they will be more willing to put effort into ensuring they have minimal flood risk.

“If I'm a standard subdivision, a residential developer, I just want to sell the lots. I'm going to meet the requirements, and as long as I meet that minimum threshold, my whole deal is to turn it over and keep going,” Penland said. “Yes, I'm going to meet the rules, but there's no real incentive for me to go beyond that.”

Penland noted that in the immediate aftermath of events like Hurricane Harvey, property owners are willing to spend huge amounts of money to protect themselves. But once engineers actually perform a flood risk analysis and outline the cost of structural changes to protect the property, that enthusiasm tends to dissipate.

“The further you get away from the storm, the less urgent any of that stuff is,” Penland said.

“I've dealt with people a lot on that basis, where up front, they're willing to do what it takes to protect, until they find out what it is, and then they're not willing to do so much.”