New financial options based on real estate indices designed with the assistance of Haas Professor Robert Edelstein debuted in October on the Chicago Mercantile Exchange.
The options and their underlying indices offer a new way to hedge investments or gain exposure in the $5.3 trillion US commercial real estate market without buying and selling property. Indices reflect a portfolio of market transactions or valuations used to represent and serve as a benchmark for a particular market, in this case, real estate.
Edelstein, co-chairman of UC Berkeley's Fisher Center for Real Estate and Urban Economics, has worked as a primary consultant to help Standard & Poor's and Global Real Analytics LLC, now owned by Charles Schwab Investment Management, to develop the new family of commercial real estate indices. Futures and option contracts on the indices, called the S&P/GRA Commercial Real Estate Indices (SPCREX), began trading on October 28 on the Chicago Mercantile Exchange.
Edelstein helped develop the indices using a different methodology than other real estate indices. While other indices are based on repeat sales of the same property at different times, and/or appraised values, the SPCREX indices are value-weighted, based on average transaction price per square foot and commercial real estate stock data.
Edelstein was intimately involved with designing the transaction-based indices, including evaluating the quality and data used to create them. The indices include a national composite index; five regional indices; and national indexes by property types such as retail, office, and apartments.