Inter-dealer broker ICAP is planning to broker a first-of-a-kind cross-sector property derivatives trade. The deal will swap different sub-sectors of the Investment Property Databank, with one counterparty paying a spread over three-month LIBOR and the other receiving the returns of the index. James Adam, property derivatives product head in London, said ICAP wanted to set up the swap to establish a foot-hold in the budding market. "We are interested in anything with the potential for growth," he said.
The swap will most likely manage exposure to London's West End and City offices, or U.K. shopping centers. "There are strong two-way views on both out there," Adam said. He declined to name the pricing of the swap, but said the results of a recent property derivatives trading forum, a mock trading day held to gauge potential liquidity in the market, were reflective of the real market. At the forum, three-year swaps on shopping centers traded at three-month LIBOR plus 80 basis points and London offices at LIBOR plus 450 bps.
Adam declined to name potential trade counterparties, but said he will consider a number of institutions with which ICAP has established relationships. "We have a list ready to go," he said, adding the aim is to seal the deal within a month.
Other brokers and property firms are reported to be looking at cross-sector swaps, but none have been closed.
