The Sustainability Story Daniel Warcholak, CFA: Understanding Climate Risk in Mortgage-Backed Securities
Sep 7, 2025
Daniel Warcholak, Head of Capital Markets at Basis Investment Group, brings over 25 years of expertise in securitized real estate debt. He dives into how climate risks, like extreme weather events and transition costs, are reshaping mortgage-backed securities. Daniel discusses the financial benefits of LEED certifications and green incentives, showing how sustainable investments are increasingly rewarded. The conversation covers risk management strategies and the real impacts of sustainability on both individual and institutional investment outcomes.
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Katrina Triggered Focus On Climate Risk
- Daniel's attention to climate risk began after Hurricane Katrina in 2005 when properties backing his bonds were severely damaged.
- That event highlighted how physical disasters directly translate into credit risk for mortgage-backed securities.
Three Pillars Of Climate Risk
- Climate risk for CMBS splits into three major drivers: physical risk, transition risk, and insurance risk.
- Each driver affects property cash flows and long-term credit profiles differently and must be evaluated separately.
Rising Cost Of Extreme Events
- Billion-dollar disaster events have grown materially over the past two decades according to NOAA.
- Rising frequency and cost of events make climate risk impossible to ignore for real-estate backed investors.