The great property price panacea

Property derivatives aren't anything new in the UK commercial property market, but they could experience more explosive growth across the pond, where commercial property prices are poised for dramatic falls in the wake of the subprime crisis. Peter Andresen takes a look at the beginnings of the property derivatives market in the US and analyses how the instruments can be of use to both investors and lenders alike

When property prices are rising there is little need to consider the risks.

However, following a period of five years in which US commercial real estate prices effectively doubled, the effects of the collapse in the residential subprime market are now being felt in the commercial market.

Structures for mitigating such price volatility risk have now gained renewed attention. In particular, focus has been cast upon the nascent property derivatives market.

Property derivatives are contracts that allow