I recently joined a real estate fund from a rates s&t background. I’m interested to hear how derivatives other than the real vanilla products gets used in “high” real estate all the way down to the local developer. I’m an old fashioned nerd so I love this stuff. Any groups using swaptions, forwards, etc?
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Pretty common to hedge with swaps, but other than that I haven't seen a lot of derivatives in my time in the business.
Lot's of action in the commodities market with the larger contractors/developers.
They don't get used much outside of interest rate protection. There is not a strong enough correlation between a commodity index value and the actual current market pricing of that product. We tried to investigate the same when lumber was going haywire to see if we could get some derivative protection but the correlation was surprisingly not strong enough.
could you please share some advice on exiting rates s&t into real estate funds? thx
https://www.wsj.com/articles/chicago-property-developer-scores-with-aud…
You will see it in mortgage REITs a lot more. Other than caps/swaps not much on the direct CRE side.
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