Research

Real Estate Finance: Hedging Strategies

In the increasingly diverse and globalised real estate investment market, hedging is now a vital component of many investors’ core strategies.

October 01, 2019

This report explores the different options available to investors who wish to hedge their assets or portfolios, and how to both analyse and execute effective hedging strategies.

Focusing on interest rate hedging and cross-currency hedging, which can both be used across the capital stack to manage financial risks associated with taking on debt and investing across borders as a result of changing interest rates and exchange rates.

The report examines the impact of these strategies and how returns can be optimised and de-risked, and how this can vary for different investor groups.

Adam Liden, Director – Debt & Financial Advisory:
“When I joined the real estate industry two years ago, I was amazed how hedging of interest rates and foreign exchange risks seemed to be a relatively low priority. This was particularly surprising coming from a trading floor where risk management meant everything, into an industry with such a huge amount of capital at risk. The real estate industry is of course very focused on the real estate, but when evaluating an investment, one needs to take the financial components into consideration as well. What happens when you move your capital across borders and currencies? Can you protect your investment? Does 5% cash-on-cash in the UK equate to 5% cash-on-cash in Germany? It’s important to understand risks and implications of investing cross-border – what might be a poor investment for one investor might be a brilliant deal for another just because of interest rates and currencies. That’s what makes the global real estate market so exciting”.

Ian Guthrie, Senior Managing Director – Banking & Capital:
“Hedging, both interest and currency risk, is all too often an area that doesn’t receive the attention it merits – not least because a robust hedging strategy can be the difference between a good investment and a bad one. The JLL team has over 20 years’ experience in the analysis and execution of financial derivative solutions and in 2018 alone, we advised clients on over $3bn of derivative related transactions across Europe. Furthermore, our derivative advisory service complements our extensive suite of financial advisory services including debt advisory, corporate finance and corporate capital markets.”

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