GFI and CB Richard Ellis group in US real estate derivatives venture

New York-based interdealer broker GFI Group and Houston-based CBRE Melody, the mortgage brokerage subsidiary of CB Richard Ellis Group, have launched a joint venture to develop a market for US real estate derivatives.

The partnership - CBRE Melody/GFI – will combine CBRE’s leading position in commercial real estate services with GFI's experience in brokering new derivatives products. The move comes after the two groups launched a similar joint venture in the UK’s property derivatives market in 2005 (See: GFI names traders to spearhead property derivatives venture, Risk News, June 2005).

CBRE Melody/GFI will have a brokering desk in New York, staffed by Phil Barker, GFI’s vice-president, real estate derivatives. Barker said he will be recruiting new people to the brokerage desk as the business expands. Neither GFI nor CB Richard Ellis will take a principal position in any of the derivatives trades arranged by CBRE Melody/GFI.

“Real estate is the largest asset class not currently taking full advantage of derivatives,” said Don Fewer, New York-based senior managing director for GFI, North America. “We believe an over-the-counter derivatives market based on US real estate indices will enable active risk management and trading opportunities in real estate, while reducing the transaction costs and lead times.” CBRE Melody/GFI will offer this service to clients of both companies, which include investment banks and hedge funds.

The venture will also target new potential users, including pension funds, endowments, insurance companies and other institutional investors. Barker said he expects pension funds to use the service in the future. “Pension funds are the largest owners of commercial real estate in the US and they will be able to use the service as a risk management platform,” he said.