Currency Swaps and International Real Estate Investment

Ziobrowski, Alan J.; Ziobrowski, Brigitte J.; Rosenberg, Sidney

doi:10.1111/1540-6229.00713

Cited by 27 publications

(27 citation statements)

References 15 publications

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“…Based on this survey, Cross currency swaps were the most frequently used capital hedging strategy vehicles; eg: Babcock & Brown Japan, Macquarie CountryWide, Macquarie DDR, Macquarie Office, Macquarie ProLogis; confirming previous research on the most effective capital risk management strategy (Johnson et al, 1998;Ziobrowski et al, 1997). Specific cross currency swaps implemented for capital hedging (Macquarie Research, 2006) include:…”

Section: Capital Risk Managementsupporting

confidence: 75%

“…The appropriateness of specific currency hedging techniques has also been assessed, including forward contracts (eg: Ziobrowski and Ziobrowski, 1995), currency options (eg: Ziobrowski and Ziobrowski, 1993) and currency swaps (eg: Johnson et al, 1998;Ziobrowski et al, 1997). Other currency risk management strategies available Mills, 2004, 2006;Newell and Worzala, 1995) are to increase gearing and borrow in local currency as a natural hedge, use local cashflow for interest payments, reinvest in same country, and diversify via establishing a global property portfolio.…”

Section: Currency Risk Managementmentioning

confidence: 99%

“…Given the longer term nature of international property investment, currency swaps were seen to be more effective for currency risk management than the shorter-term currency options and forward contracts Ziobrowski et al, 1997). Issues regarding the significant cost of hedging and the effectiveness of capital hedging, given property's uncertain future value and longer holding period, have also been identified (Chen and Mills, 2006;Murdoch, 2004;Worzala, 1994Worzala, , 1995.…”

Section: Currency Risk Managementmentioning

confidence: 99%

See 2 more Smart Citations

Currency Risk Management Practices by Australian Listed Property Trusts

Newell

MacIntosh

2007

Pacific Rim Property Research Journal

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Section: Capital Risk Managementsupporting

confidence: 75%

Section: Currency Risk Managementmentioning

confidence: 99%

Section: Currency Risk Managementmentioning

confidence: 99%

See 1 more Smart Citation

Currency Risk Management Practices by Australian Listed Property Trusts

Newell

MacIntosh

2007

Pacific Rim Property Research Journal

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“…(for example Ziobrowski & Curcio 1991, Ziobrowski & Ziobrowski 1993, Ziobrowski et al 1997. In fact, very few papers have considered the role that international real estate can play in a portfolio context.…”

mentioning

confidence: 99%

Concordance in Global Office Market Cycles

Stevenson

Akimov²,

Hutson³

et al. 2013

Regional Studies

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A large proportion of international real estate investment is concentrated in the office markets of the world's largest cities. However, many of these global cities are also key financial services centres, highlighting the possibility of reduced economic diversification from an investor's perspective. This paper assesses the degree of synchronization in cycles across twenty of the world's largest office markets, finding evidence of significant concordance across a large number of markets. The results highlight the problems associated with commonalities in the underlying economic bases of the markets. The concentration of investment also raises the possibility of common flow of funds effects that may further reduce diversification opportunities.

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“…Ziobrowski et al (1997) demonstrated how currency risk remains a significant investment influence, even over extended time periods, where trends should theoretically reach equilibrium. This is supported by the 'Exchange-RateDisconnect-Puzzle', which implies a disconnection between economic elements and exchange rates (Cheung et al, 2005;Mark, 1995).…”

Section: Risks In International Real Estate Investmentsmentioning

confidence: 99%

Revisiting currency swaps: hedging real estate investments in global city markets

Bejol¹,

Livingstone

2018

JPIF

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Purpose The purpose of this paper is to re-examine currency swaps as an effective hedging technique for individual asset performance in today’s global real estate market, by considering hypothetical prime office investments across six different cities and five currency pairs. The perspective of a risk-averse, high net worth, non-institutional, smaller-scale Swiss investor is paired with investors from five additional national markets. Design/methodology/approach The study examines currency swaps in key office markets across three continents (Frankfurt, London, New York, Sydney, Warsaw and Zurich) and extends previous work on the topic by adopting both Monte Carlo (MC) and Latin Hypercube (LH) techniques to create stochastic samples for individual asset performance analyses. This is the first paper to apply LH sampling to currency swaps with underlying real estate assets, and the validity of this method is compared with that of MC. Four models are presented: the experience of the domestic investor (no exchange rate (ER) fluctuations); an unhedged direct foreign investment; hedging rental income and initial purchase price via a currency swap; and hedging rental income and anticipated terminal value. Findings The efficacy of a swap depends on the historical framework of the ERs. If the foreign currency depreciates against the domestic one, hedging the repatriated cash flow of a property investment proved superior to the unhedged strategy (EUR, GBP, PLN and USD to the CHF). An investor would benefit from exposure to an appreciating foreign currency (CHF to the EUR, GBP, PLN and USD), with an unhedged strategy clearly outperforming the currency swap as well as the domestic investor’s performance, while a historically sideways fluctuating ER (AUD to the CHF) also favours an unhedged approach. In all scenarios, unexpected economic or market shocks could cause negative consequences on the repatriated proceeds. Practical implications This research is of interest to small-scale, non-institutional investors aiming to develop strategies for currency risk mitigation in international investments for individual assets; however, tax-optimising strategies and the implications on a larger portfolio have not been taken into account. Originality/value There is no recent academic work on the efficacy of currency swaps in today’s global office market, nor has the position of smaller-scale high net worth investors received much academic attention. This research revisits the discussion on their validity, providing contemporary insight into the performance of six markets using LH as an alternative and original sampling technique.

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Currency Swaps and International Real Estate Investment

Cited by 27 publications

References 15 publications

Currency Risk Management Practices by Australian Listed Property Trusts

Currency Risk Management Practices by Australian Listed Property Trusts

Concordance in Global Office Market Cycles

Revisiting currency swaps: hedging real estate investments in global city markets

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