Currency matters: Utilising foreign-exchange swap pricing for commercial real estate investment has its advantages
Real estate market pricing can be determined by a number of factors, ranging from local to domestic and global indicators. But these market forces can sometimes create disconnects in capital markets that can allow cross-border investors an advantage to compete in certain markets. For cross-border investors, one important factor that can, of course, create volatility in investment returns is currency fluctuations. So, where appropriate, cross-border investments should be currency hedged.
There are a number of methods to create a quasi- or semi-hedged investment through the use of debt funding in foreign markets; however, these strategies fail to hedge the disposal proceeds effectively, essentially leaving investors open to large gains or losses upon repatriation of capital. In terms of hedging for capital preservation, foreign-exchange swap contracts can be both a simple and effective tool that in some cases can boost base reporting currency returns whilst simultaneously reduc