Real estate derivatives : products and prospects

The paper reviews the development, structure and trade of past real estate equity hedging instruments. The reviewed products represent a wide array of real estate derivatives, covering multiple property types, index methodologies and trading domains. Based on a series of interviews with leading product developers, market makers, traders and scholars, the paper examines and defines the unique features of the different products and analyzes their value proposition, market conditions and performance. In order to gain an overall perspective on the prospects of real estate derivatives, the paper discusses types of market demand for real estate investing and hedging. In this context, we present real estate debt hedging instruments and compare their trade and use with past real estate equity products. In addition, we discuss recent regulatory acts and their influence on trading requirements and costs, market making and players as well as market efficiency. In the last chapter, the paper presents Pure Property, a current real estate hedging solution, marketed by NAREIT and FTSE. We research Pure Property and compare it to past products. The paper points on Pure Property's new concept and its implications on asset valuation, product functionality and trading liquidity. The paper studies the ETF structure of the product and its contribution to arbitrage activity. For the above-mentioned advantages, the paper predicts that Pure Property is likely to establish a liquid, real estate hedging market.

Department dc:contributor.department

Massachusetts Institute of Technology. Center for Real Estate. Program in Real Estate Development.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2013

Author dc:creator

• Eisenberg, Oriel

Advisor dc:contributor.advisor

• David Geltner.

• Center for Real Estate. Program in Real Estate Development.

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/1721.1/84177

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/84177