Kristen Boen: 701.340.5592
Duane Peterson: 701.240.3660

A Hedgeable Commodity - Commercial Real Estate

A hedge is an investment position intended to offset potential losses/gains that may be incurred by a companion investment. Simply put, a hedge is used to lower any huge losses/gains suffered by an individual or an organization.a Hedgeable commodity in commercial real estate

A hedge can be put together with many various financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, many types of over-the-counter and derivative products, as well as futures contracts.

Public futures markets were established in the 19th century  to allow transparent, standardized, and efficient hedging of agricultural commodity prices.  Since then, they've expanded to include futures contracts for hedging the values of energy, precious metals, foreign currency, and interest rate fluctuations.

This may sound insane but it just might happen because the market will demand it due to transparency and standardization...transparency and standardization of the data available in the commercial real estate markets.

Here's How It'll Go Down:

A building owner in say... Gotham City has vacant space. Let’s use 325,000 square feet as an example. He puts that space on the market at $25 a foot. It for quite a while. He looks at numbers for the market. It’s perhaps trending down. How much longer will it sit? What if he had the ability to check the stability of the market daily?

What would it take to have that ability?

  1. A marketplace for the futures contract to be traded.
  2. "Speculating" Traders.
  3. A defined index of the market price.

Having these three things defines the supply and demand sides of the commercial real estate market, creating a liquid and efficient market.

So go ahead and hedge because we are at the point where the data actually allows it. The systems needed (think NYSE, NASDAQ, The Chicago Board of Trade) already exist. We're on the way to it happening, but there's still some major steps to take!

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