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First French property swap learns from UK

Euromoney Liquid real estate March 2007 

Merrill Lynch and Axa Real Estate Investment Managers’ first French property derivatives swap was most likely a five-year deal with a notional size of substantially more than €20 million, Liquid Real Estate has learned.

The deal, the first continental European swap, carried out in December, was not revolutionary in its structure but its size highlights the market’s increasing breadth.

The trade was based on the Investment Property Data (IPD) France Offices Annual Index. While IPD indices are calculated for almost all global markets, not all are equally robust. "The French index is very suitable for derivatives trades because the index has a good coverage of the overall market," says Alex Winward, a trader at Merrill Lynch in London. "Most institutional-owned property is externally valued and that gives the market confidence."

The French market was also a particularly good starting point for European commercial real estate derivatives because of a broad knowledge of derivatives, gained from observing the UK. "We are not starting from scratch in this market," says Winward. "People in Europe have been monitoring the UK market for the past two years and understand the basic concepts involved."