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Euromoney Liquid real estate March 2007

by Angus Duncan, Cadwalader, Wickersham & Taft

For a region that has had a long-term love affair with property, Asia’s first property derivative could mean the start of a beautiful new relationship. In February, ABN Amro and Hong Kong broker, Sun Hung Kai Financial executed Asia’s maiden property derivative based on Hong Kong residential properties.

by Brian Lancaster, managing director, head of structured products research at Wachovia Capital Markets.

Real estate derivatives volumes are growing at a staggering pace, and there is still plenty of scope for growth. The UK is leading the way but the European, Asian and US markets are picking up too. Market participants speak optimistically of real estate derivatives being the next credit default swap market.

What's next in Sam Zell's sights

ABN Amro and Merrill Lynch have executed the property market’s first ever industrial sector swap. The two banks have taken a position of £10 million. The trade is the latest development in a continuously evolving swaps business. For ABN Amro, it completes the set of sector-specific property swaps.

The number of funds with a dedicated real estate strategy is only slowly growing. Dominated by long-biased funds, the market will expand only if managers prove that shorting can be profitable. Helen Avery reports.

Marks & Spencer’s innovative deal to use the value of its real estate to fund its pension deficit without relinquishing control of any properties will intrigue many companies. Many are carrying more hidden value in their property than in their core business. And while they all want to cash in on that, most would rather not cede ownership of the buildings that they need to operate from and which are rising in value. Peter Lee reports

Kjerstin Hatch is portfolio manager for Madison Capital’s illiquid real estate fund that invests in unlisted Reits or limited partnerships. The significant infrastructure required to manage the fund means that competitors are few and far between. It is indeed a unique strategy.

Hines is a graphic illustration of the rate of growth – and potential – in the real estate industry. Today it is as much an investment manager as a developer. It is present across the globe. And its latest focus is on developing markets, notably in the Middle East. Julian Marshall reports.

Sam Zell is full of surprises. Having just realized huge returns for shareholders in his Reit by selling it in the biggest ever LBO, he says that if he had owned the whole thing he would have kept it. He argues that the take-private deal is a vindication of public indirect share ownership of real estate, not a retreat from it. He warns new leveraged buyers to be careful when the property market turns, and extols the defensive qualities of Reits. And even while their shares are being de-listed, he predicts the sector will only get bigger. Peter Lee reports on how Zell’s vision for the business has been fulfilled.