New Security Lets Institutions Take a View on Commercial Real Estate

Investors can take either long or short bets on asset class.

Global Index Group has introduced a synthetic real estate index-based security called duETS that allows institutional investors to take a view on the commercial real estate sector. Investors can take either a long or short view, making it easier for them to hedge or adjust their real estate exposure up or down.

The value of Down/Up Equity Trust Securities, or duETS, is tied to movements in the NCREIF NPI Index for US commercial real estate. After two years, GIG, a Tacoma, Wash.-based developer of index-based synthetic financial products, will value the securities based on the performance of the NCREIF NPI, with a two-times multiplier effect tied to the movement of the index. Between the valuation dates, the securities will trade based on investor sentiment as to their likely level at the next valuation. 

Commercial real estate has a relatively low correlation with other asset classes, which makes it attractive to institutional investors, Kelly Haughton, chief executive officer of GIG, pointed out. “Until now, however, investment options have been limited to direct investment, open-end diversified core equity and other private funds, and public and private REITs,” he said. “Often, the ability to get in and out of these private investments is constrained by the illiquidity of the underlying properties, resulting in situations where investors are unable to deploy their capital fully. duETS will provide new tools for investors, including the ability to easily hedge their positions.”

Institutions could also benefit from exposure to commercial real estate nationally, rather than being constrained by region or property type.

GIG has tied up with CBRE Capital Advisors to broker duETS. How big is the potential market? More than $1.7 trillion is available globally for investment in the commercial real estate sector this year, according to CBRE.

Said Philip Barker, senior managing director at CBRE, “duETS can provide an efficient allocation tool for institutional investors that want to adjust or rebalance their real estate portfolio without making a major commitment or changes to new or existing investments. In addition, we expect duETS to be the foundation for further product innovation in the real estate space.”

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