Heller, Bernstein & Associates and asset manager CB Richard Ellis have capital-protected a real estate investment trust using constant proportion portfolio insurance. Officials said the firms would also consider using an option plus zero-coupon bond strategy if an investment bank were willing to write an option on the fund.
The use of an option strategy is not easy due to the difficulty of writing an option on an actively managed international real estate fund, which can constrain the manger's investment policy, said Robert Bernstein, Chicago-based co-founder of Heller Bernstein. Still, certain firms will write options on actively managed international equity funds, a much more liquid asset class, he said, adding, "Bottom line, if there is such a bank, we would love to be talking to them." An option plus zero coupon bond is preferable to CPPI because it avoids the risk of the investment locking into cash if the fund suddenly loses value.
The CPPI deal, dubbed Panopolis, is a 10-year structure which invests in mostly pan-European commercial real estate. The structure features a 6% income stream which is guaranteed because the coupon payment is backed by an AA-rated U.K. shop and is independent from the underlying property. Bernstein declined to name the firm. A CBRE official who worked on the deal did not comment by press time.
