The collaboration combines CB Richard Ellis' leading position in property services with GFI's expertise in broking new derivative products. CB Richard Ellis will not take a principal position in any of the derivative trades arranged by GFI.
Property derivatives typically involve a swap of returns on commercial property against floating interest rates plus a spread for a period of three years or longer. Commercial property is the largest physical asset class not currently taking full advantage of derivatives. However, the use of the Investment Property Database (IPD) UK all-property index should spur more derivative trading within commercial property.
Steve McMillan, senior managing director for GFI in Europe, said, "The European commercial property market is huge - estimated at more than $4.2 trillion, according to Prudential Financial. But unlike other large physical markets, this market remains unsupported by derivatives. This complicates trading and limits liquidity. Derivatives will unlock the potential of this market by removing physical delivery thereby enabling faster, cheaper and more effective execution of allocation strategies, short-term hedges, risk transfer and geographical diversification."
"Property investors will have an opportunity to trade in new ways and new participants will have easy access to property for the first time," said Martin Samworth, managing director for CB Richard Ellis in the UK. "The derivatives market in other asset classes has matured to at least the same size as the underlying market within 3 to 5 years. Commercial property has the potential to develop in the same way. CB Richard Ellis, working closely with GFI, can play an important role in that evolution, due to the depth of our property market knowledge and our access to capital sources worldwide."