Earthquake damageability criteria for due diligence investigations (original) (raw)

Accounting for Seismic Risk in Financial Analysis of Property Investment

2002

A methodology is presented for making property investment decisions using loss analysis and the principles of decision analysis. It proposes that the investor choose among competing investment alternatives on the basis of the certainty equivalent of their net asset value which depends on the uncertain discounted future net income, uncertain discounted future earthquake losses, initial equity and the investor’s risk tolerance. The earthquake losses are modelled using a seismic vulnerability function, the site seismic hazard function, and an assumption that strong shaking at a site follows a Poisson process. A building-specific vulnerability approach, called assembly-based vulnerability, or ABV, is used. ABV involves a simulation approach that includes dynamic structural analyses and damage analyses using fragility functions and probability distributions on unit repair costs and downtimes for all vulnerable structural and nonstructural components in a building. The methodology is demo...

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

The Structural Design of Tall and Special Buildings, 2010

Two common scenario loss ratios are used when calculating Probable Maximum Losses from earthquakes: Scenario Expected Loss (SEL) and Scenario Upper Loss (SUL). Analyses of seismic loss ratios prepared by fi ve seismic consulting fi rms, four loan pools securitized in the capital markets, two very large loans with many properties, two large hospitality portfolios and a general account portfolio indicate that use of SUL rather than SEL would yield signifi cantly larger numbers of loans with loss ratios in excess of 20%. When using SEL, the percentage of loans in the four large pools exceeding a 20% loss ratio was 3.8%. When SUL was used on this same data set, 47.8% of these properties had SUL values above 20%. Common industry practice has been to use SEL. Some of the implications of tightening seismic underwriting standards to apply a 20% threshold to the SUL, rather than SEL, may include: lower loan production, properties may lose value, properties may be costlier and more diffi cult to fi nance, existing loan portfolios may appear more seismically risky, and demand for insurance and seismic retrofi t could go up. Equally undesirable effects could be that seismic consultants and lenders who do more rigorous analysis will be less competitive than those who do not.

Probable maximum loss estimation in earthquakes: an application to welded steel moment frames

The Structural Design of Tall Buildings, 1997

Earthquake vulnerability is an important financial issue in evaluating the acceptability of a property as a security for a loan or for an equity position. Such analyses are usually performed as part of the due diligence assessment of the property. Probable Loss (PL) and Scenario Loss (SL), for both design basis and maximum capable earthquakes, were assessed to determine their utility in damageability analyses. Evaluations were made for a range of building damageabilities and for 14 sites throughout the United States that are representative of seismic hazard from very high to low. Portfolios from one to 16 buildings are considered. The analysis indicates that none of the damageability criteria are sufficient to distinguish between good and bad buildings to be securities for loans or to be good risks for equity investment for general use throughout the United States. Scenario Upper Loss (SUL) and Probable Loss (PL) values are consistently very stringent criteria for individual buildings in moderate and high risk regions, while scenario expected loss (SEL) values are too lenient in moderate risk areas. PL and SUL criteria are much too stringent at the 20% threshold level to be used generally, except for a group of well-designed buildings. They can be acceptable if threshold values for acceptance were set to be above 20%. The SEL criterion is evaluated as not adequate to discriminate between good and bad damageability buildings by itself. It can work well in combination with a stability criterion so that buildings with poor predicted earthquake performance are eliminated based on stability, not damageability. It is recommended that combined criteria be used for fiduciary evaluation that includes both an assessment of the stability of the building(s) and a damageability assessment to achieve a balanced, consistent evaluation of the suitability of buildings as securities or as investments. Four alternative acceptance criteria are recommended for due diligence assessments. It is recommended that all due diligence reports include evaluations of scenario and probable losses for each building and the group so that they can enter into the decision process for the property.

Effect of Seismic Risk on Lifetime Property Value

Earthquake Spectra, 2004

We examine seismic risk from the commercial real estate investor's viewpoint. We present a methodology to estimate the uncertain net asset value ( NAV) of an investment opportunity considering market risk and seismic risk. For seismic risk, we employ a performance-based earthquake engineering methodology called assembly-based vulnerability (ABV). For market risk, we use evidence of volatility of return on investment in the United States. We find that uncertainty in NAV can be significant compared with investors’ risk tolerance, making it appropriate to adopt a decision-analysis approach to the investment decision, in which one optimizes certainty equivalent, CE, as opposed to NAV. Uncertainty in market value appears greatly to exceed uncertainty in earthquake repair costs. Consequently, CE is sensitive to the mean value of earthquake repair costs but not to its variance. Thus, to a real estate investor, seismic risk matters only in the mean, at least for the demonstration buildi...

Risk and Vulnerability in the Analysis of Apartment Buildings

Ovidius University Annals of Constanta - Series Civil Engineering, 2021

The real estate funds in Romania in the category of condominiums presents an important subject to be analyzed after several considerastions. Securing apartment buildings raises issues of high complexity. The present study focuses on the presentation of the criteria of analisys, the earthquake as a degradation factor of these buildings, the evolution of norms regarding seismic actions concluding with an important study case building – the Simu apartments block in Bucharest. The authors also synthesized information from several publications over time in Romania.

Reliability of Seismic Performance Assessments for Individual Buildings and Portfolios

Risks

Seismic performance and loss assessments are required in areas of Insurance, Finance and Public Policy. Providers are Structural Engineers and Risk Management Firms. There are no current procedures to evaluate the epistemic and aleatory uncertainties for such assessments. The essential issue is whether or not there is sufficient reliability in the result to use the result as the basis for risk management decisions and actions. For a single building this may be whether or not a prescribed earthquake performance level is met, life safety or if a portfolio’s vulnerability level is acceptable, whether the. loss for a given time period is less than a stated value. A method based in part on Federal Emergency Management Agency P-695, is developed for evaluating the reliability of performance and/or loss assessments for both individual and portfolios of buildings. Consideration is given to how well the building investigation and corresponding evaluation process have been performed, the qual...

Evaluation of the Vulnerability of Existing Building Stocks Under Single and Multi Hazard Impact

2018

An engineering based, mathematically well-founded evaluation system for the vulnerability of building stocks under the impact of the natural hazards (earthquake, flood, tsunami and wind) and their combined consideration in the sense of a Multi Hazard vulnerability is of increasing importance, but so far not available. The presented evaluation system is based on the elements of the European Macroseismic Scale 1998 (EMS-98, Grünthal et al. 1998), considering the vulnerability classes of structural types are derived from the observed effects as well as eventand region-specific data analyses. The presented methodology allows the specification of the most likely vulnerability classes, the probable ranges of scatter and their extension for the exceptional cases of different building types. Following the principles of EMS-98, for each natural hazard a Vulnerability Table is derived. It assigns the probable vulnerability classes for the predominant building types. Depending on the type of n...

Real estate investment in seismically active regions: Feasibility assessment and decision making

AFRICAN JOURNAL OF BUSINESS MANAGEMENT, 2012

Lots of major cities worldwide are located in the seismically active regions. Due to natural disasters, the profits of real estate investment in these regions may be corroded. This study proposed a reliability-based decision making process for real estate investment in seismically active regions. Based on the Monte Carlo simulation technique with net present value (NPV) as the indicator, a sampling process was repeatedly performed to construct the relation curves of annual rate of return versus corresponding reliability for candidate investment projects. Then, these curves were used as a tool to prioritize the projects and make decisions. An example to demonstrate the decision making process and illustrate how to effectively estimate potential costs to repair earthquake damages was presented.

Controlling Parameters in the Assessment of the Seismic Vulnerability of Buildings

2016

The probabilistic seismic risk assessment in terms of economic losses for building portfolios requires the seismic hazard assessment, the definition and characterization of the building portfolio and the estimation of the expected economic losses of specific building typologies for increasing seismic intensities. The probability distribution function of economic losses for different seismic intensities can be estimated by integration of individual building component ́s repair costs. By means of Monte Carlo simulations, all relevant variables that influences the final repair cost can be introduced into the analysis. The results of the analysis are integrated and represented through specific vulnerability functions for each building typology, which relates the expected economic losses and its corresponding uncertainty measure with the seismic intensity level. The integration of losses considers the uncertainties associated with the hazard assessment, the dynamic response of the model,...

Rating in the Assessment of Investment Property

Real Estate Management and Valuation, 2014

The implementation of rating procedures is associated with searching for tools that provide an objective and standardized assessment of investment risk. For this reason, rating is an important and often essential element of investment decision-making processes which determines the development of the capital market, including the real estate investment market. In the investment property market, not only does rating provide transparency of property risk, but it can also be used for real estate portfolio analysis, investment controlling, and the analysis of factors determining investment decisions (ESV 2012). In this article, the authors present an assessment of the suitability of the rating recommended by TEGoVA for properties considered as active investments, namely properties in the course of development and intended for future development projects. The analysis will include criteria affecting the assessment of property quality and risk, taking into account four classes: market, loc...