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Grosvenor, the leading privately-owned property group with interests in 17 countries, has carried out the first Italian property derivative transaction based on the IPD Italian Property Index. The two year test trade was executed with BNP Paribas and brokered by ICAP.
The Italian property total return swap follows Grosvenor’s trades in Japan on 26 July 2007, and in Australia on 21 May 2007, both market-firsts which followed trades in the US and UK. It is another milestone for the fledgling but rapidly expanding global property derivatives market.
Property derivatives allow investors to rapidly buy or sell exposure to the real estate market. They also offer an inexpensive way of obtaining the underlying exposure to property, because participants avoid high transaction costs involved in buying and selling property, such as agents’ and legal fees.
The UK was the first country to achieve a successful property derivatives market, there have been several deals in the US, Germany, France, Australia and Hong Kong.
Nick Scarles, Group Finance Director at Grosvenor Group, said: “This test trade is another step towards our using property derivatives as a tool to meet our strategic objectives and adjust our economic exposure to real estate between markets. Derivatives allow us to do this quickly, pending adjustment of our underlying physical portfolio. Through our new Milan office we are building our property business in Italy. We will be keeping a close eye on the Italian market, where we believe the potential impact of derivatives could be significant.”
Andrew Jeyarajah, Head of Property Derivatives, BNP Paribas, said, “We are very pleased to be able to execute this deal on the Italian IPD Index. This is a region in which we believe there will be a strong interest in property derivatives, some of which we are already seeing. This trade further demonstrates our goals in growing this market by working with our clients to facilitate transactions that meet their objectives, whilst helping to expand the range of property indices that can be traded."
Paul Rostas, Head of Property Derivatives at ICAP commented, "We are pleased to be part of yet another step forward in the development of the global property derivative market. The demand for derivative solutions in the property market continues to grow and this transaction demonstrates that ICAP is well placed to provide these solutions."
