31 March 2013
Benefits and Usage of Alternative Real Estate Investment Products such as Indices
Real estate transactions often require extended periods to negotiate and close. Further, information regarding those transactions may be difficult to find. As such, participation in these markets is frequently limited to very large real estate investors.
Real Estate Investment Trusts, Investment Certificated, Indices and other related financial products such as derivatives of futures and options potentially offer significant benefits for both institutional and retail investors in the form of liquidity and pricing transparency:
– Lenders – Insurance companies and commercial banks can achieve “downside” risk protection on real estate loan portfolios.-
– Institutional Investors – Pension and hedge funds may gain ready exposure to real estate investments, thus diversifying their portfolios. Further, they can hedge various property types or geographic risks in existing real estate investment portfolios.
– Real Estate Developers – Can hedge development risk by development period, product type and geographic location.
– Foreign Investors – May access the local real estate market through a low cost “synthetic” investment, thereby creating global real estate portfolios while retaining the ability to mix-and-match with other derivative products.
– Real Estate Portfolio Managers – Benefit through low cost allocation to real estate by property type and geographic location; a portfolio hedge in down markets; and, portfolio yield enhancement through property type and geographic location selection.
– High Net Worth Individuals – Investors can create personal portfolio insurance over real estate property types and geographic portfolio diversification thereby optimizing their portfolio concentration and exposure, while enhancing yields.
Over the long term, we anticipate that alternative real estate investment products will serve to reduce the otherwise very significant costs associated with real estate portfolio diversification, construction, and concentration by offering liquidity and transparent pricing.