Will these structures stand the test of time?
Credit Suisse is the latest bank to attempt to cash in on demand for commercial property derivatives. It has exclusive rights to develop a series of swap products based on the indices of the National Council of Real Estate Investment Fiduciaries (NCREIF), a US organization that provides real estate performance information to institutional investors, such as pension funds, that have direct investments in real estate.
NCREIF’s main NPI index calculates the capital appreciation return and yield of the US commercial property market every quarter. One of Credit Suisse’s new swap products, in which the bank’s securitization group in tandem with its real estate finance unit did one trade last year, simply allows investors to go long or short on the total return of the NPI index, which consists of 4,700 US-based commercial properties with an estimated value of more than $189 billion. Last year, a major real estate holder added more real estate exposure without purchasing property by entering into a total-return swap that paid the index total return on a notional amount of $25 billion.
Another swap product enables investors to take a view on one part of the index against the other, for example, long on office space, short apartments, which was the two-year $10 million notional trade another real estate fund put on with the bank in February.