‘No Shelter from the Storm? Hurricane Sandy and Commercial Real Estate Values’
by Erkan Yönder
Ph.D. in Finance, Maastricht University
We use micro-level data to study how investors price hurricane risk in the US commercial real estate market. Using Hurricane Sandy as a natural experiment, we find that properties exposed to hurricane risk experience 4 to 21 percent lower price appreciation post-Sandy as compared to their pre-Sandy counterparts matched on locational hurricane risk exposure. This price effect dissipates over time but, in the cross-section, it extends beyond areas immediately affected by the disaster to similar locations that have not yet experienced a hurricane strike, such as Massachusetts. We also document that the price effect of hurricane risk operates through mainly discount rates. Lastly, we present evidence for contagion effects from locally important occupiers adversely affected by Sandy to the value of unrelated properties nearby. A placebo test for Chicago confirms our results.