Lutnick proposes new property derivatives system at Newmark

As Cantor Fitzgerald CEO Howard Lutnick prepares to finalize the purchase of brokerage Newmark Knight Frank, he is also seeking out ways in which he can use his knowledge of bond trading to gain advantage in the real estate game. According to the Wall Street Journal, Lutnick is considering the possibilities for developing a market in property derivatives pegged to rents as a means for landlords and tenants to hedge against surprise market volatility.

“You can hedge orange juice and you can hedge corn,” Lutnick said, “but real estate you can’t. I think property derivatives will become a common part of tenants’ and landords’ transactions in commercial real estate.”

The Real Deal
reported last month that BGC Partners, owner of Cantor, had agreed to purchase the firm for an undisclosed price.

Sign Up for the undefined Newsletter

Some are not convinced that Lutnick’s system would work. The pricing in the office market, they say, is more amorphous than other markets and it may be harder to attach derivatives. “I think it will certainly be a tough sell,” said Gary Rosenberg, a New York-based real estate attorney.

Lutnick points out that BCG Partners has pioneered advances in information technology and that expertise may enable Newmark to pinpoint metrics such as market rents for the purposes of settling derivatives contracts.

“I think it will be an eye-opener to our clients,” he predicted. [WSJ]