IPD says NCREIF still key to U.S. property swaps

LONDON (Reuters) - An index favored by U.S. pension funds will become the index of choice for the embryonic U.S. property derivatives market, despite its shortcomings, a leading European industry figure said on Monday.

The index produced by the National Council of Real Estate Investment Fiduciaries (NCREIF) was still the hot favorite in a 4-way race to breath more life into the lagging U.S. market, Ian Cullen, co-founder of Investment Property Databank (IPD) said at the Reuters Real Estate Summit in London.

IPD produces property indexes which are used as the basis for Europe's -- mainly Britain's -- relatively advanced property swaps market and which also extended to Japan, North America, and South Africa.

"The NCREIF covers probably no bigger a fraction of the U.S. (real estate market) than we do in the Japanese market, and that's our weakest link in our chain," Cullen said. "And yet this is the only headline index that anyone looks at and takes seriously in the U.S."

"It will be the index of choice eventually because it has that long track record, it has that simplicity of construction, it has that link into the benchmarking of the major management houses," he said.

Like IPD's stable of indexes, the NCREIF property index is based on an aggregation of appraised property values. Rivals such as the S&P/GRA and RCA indexes are derived from prices on property sales, while the REXX index is calculated from property rents in major cities as well as capital values.

Cullen said IPD was keen to get involved in the development of a U.S. property derivatives market, which traders say is still at an early experimental stage.

"If NCREIF or any body else wishes to exploit our knowledge and experience in supporting property derivatives, we would be happy to contribute to that," Cullen said.

Europe's fast-growing property derivatives market offers over-the-counter trading in swaps, largely based on the total return on IPD national indexes over a fixed period in exchange for the London interbank offered rate (LIBOR) plus a spread.  Continued...