Barriers to growth in the US real estate derivatives market

Commercial real estate is an important asset class but it does not yet have a well-developed derivatives market in the United States. A derivative is a contract that derives its value from an underlying index or asset. Examples of the most well-known derivatives that have been widely used and traded for years are stock options, commodity futures and interest rate swaps. The advent of direct real estate equity derivative products has created the opportunity for similar applications in both the US and international commercial real estate markets. The United States is currently experiencing a convergence between real estate and finance and it appears that the real estate derivatives market might be ready to take off. The use of derivatives could improve the functioning of the real estate industry by allowing investors to gain or reduce exposure to the commercial real estate asset class without directly buying or selling properties. The increased liquidity and reduced up front capital requirements provide added flexibility in executing real estate investment strategies (i.e. speculating) and managing risk (i.e. hedging). This has resulted in significant interest in the development of commercial property derivatives by key players in all sectors. A number of barriers (e.g., indices, pricing, education, fund mandates, tax and accounting treatment) still exist that hinder the successful implementation and growth of real estate derivatives in the US commercial real estate market. It is crucial for the market to overcome these barriers in order to revolutionize the institutional world and allow investors to gain exposure to the real estate asset class and to hedge private real estate risk. This thesis analyzes these barriers to the development of a synthetic market that is on the brink of expanding.

Department dc:contributor.department

Massachusetts Institute of Technology. Dept. of Urban Studies and Planning.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2007

Author dc:creator

• Venter, Jani

Advisor dc:contributor.advisor

• Gloria Schuck.

• Urban Studies and Planning.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/42015

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/42015