REAL ESTATE - A year after they set up a market for real estate derivatives in the UK, CB Richard Ellis and derivatives broker GFI have done it again – this time in the US.
GFI’s Phil Barker, who will staff the venture’s New York broking desk, said: "It’s a natural progression from the UK model. The US real estate market is the largest in the world, but up to now there hasn’t been method to hedge risk in this way."
The partners say the new market will give existing real estate investors access to US property for the first time and attract new ones, including pension funds and insurance firms.
Mike Melody, vice-chairman of CBRE Melody, CBRE’s brokerage subsidiary, said in a press statement: "The derivatives market in other asset classes has matured meaningfully within three to five years. Commercial property has the potential to develop in the same way."
In fact, this is the second derivatives market GFI has set up in as many months. It launched a Hong Kong property derivatives market in October.
Whether the market succeeds will depend on the quality of available real estate data. In the UK, data were already available in the IPD index. In Asia, the partners worked with the University of Hong Kong to form an index based on repeat sales.
In the US, the partners had been waiting for the recent announcement by the National Council of Real Estate Investment Fiduciaries (NCREIF) that Credit Suisse is to waive its exclusive right to deal in swaps based on its indices. The Chicago Mercantile Exchange has also indicated that it will offer real estate futures and options contracts.
"There are a number of different indices to trade against," said Barker.
He did not rule out expanding the model to other markets but he added: "There’s a lot of work to be done in the US."