Commercial real estate investors in the U.S. are getting ready to make their first forays into property derivatives. Some management firms are also looking to set up dedicated derivative funds.
Property derivatives are actively traded in the U.K., usually as a swap referencing an index. And last week in the U.S., Credit Suisse, Goldman Sachs, Merrill Lynch, and Bank of America inked a license with the National Council of Real Estate Investment Fiduciaries to write forwards, total-return swaps and other derivatives based on the NCREIF benchmark index, opening the market to U.S. property fund managers.
A head of acquisitions at a private real estate firm in New York said, "We've seen what's happened in England and are pointing it out to our investors." He added, "We've talked with all the dealers involved and those guys know derivatives. But at the end of the day we are talking about dirt and capitalization rates."
Jim Valente, managing director at Broadway Partners in New York, said he expects many real estate investors will use derivatives to leverage property positions.
"All major real estate funds are benchmarked to NCREIF. It makes perfect sense that they would hedge with this at the very least," Valente said. He added that he wouldn't be surprised if there were a fund dedicated to these types of trades in the U.S. before the year-end.
--Nicoletta Kotsianas
