GRA, S&P Developing New CRE Indices

SAN FRANCISCO-Ten new real estate indices are in the works thanks to a new partnership of locally headquartered Global Real Analytics and Standard & Poor’s. Developed by GRA for S&P, the indices are expected to launch during first quarter of 2007. The Chicago Mercantile Exchange has said it will trade futures and options on futures on the indices.

The S&P/GRA Commercial Real Estate Indices will be calculated to reflect underlying real estate and capital market fundamentals by measuring the change in commercial real estate prices by property sector and geographic region, according to GRA. Reported index values will be based on a three-month rolling average transaction price per sf, calculated using the broad-based target market geographic definitions, refined property type definitions, and commercial stock weights.

There will be an index for each of five geographic regions and each of four property types, plus a national composite index. The five US regions will be the West, Desert Mountain, Midwest, Northeast, and Mid-Atlantic South. The four national property sectors will be office, retail, warehouse, and apartments.

S&P managing director David Blitzer says the indices will be unique because they will be based completely on closed commercial real estate transactions, “whereby most others are based on appraisals.” Paul Wildes, the director of GRA’s longstanding National Real Estate Index, tells GlobeSt.com the indices could be used by a pension fund that has billions allocated to commercial real estate in the US to gain exposure to the market while they look for properties to acquire.

“When they identify a property, they could then pull down that money they’ve put into the market through futures and options on futures,” Wildes says. “Another user could be a developer of apartments in South Florida that wants to hedge against a drop in prices while his properties are under construction.”

The difference between the new indices and the National Real Estate Index is that the NREI relies on an analysis of the market to come up with prices, cap rates and rents and only looks at class A properties, and then only certain types of class A properties within a certain sector. For example, Wildes says the NREI’s retail data only looks at anchored shopping centers and its apartment data looks only at properties with more than 100 units.

The S&P/GRA Commercial Real Estate Indices will look at all classes and types of properties within a certain sector, and will only use data from closed transactions rather than appraisal data. “With the new indices, everything will go into the bucket,” he says.