Hedging Video Series: “Why Do Real Estate Owners Hedge?” [Chapter 3]
This is the third video — focusing on, “Why Do Real Estate Owners Hedge” — in a series of eight episodes on the topic of Hedging presented by Jillian Mariutti.
Why do Commercial real estate owners hedge? They hedge to manage the mismatch between income and expenses. Generally the operating income is known but if they execute a floating rate loan, then their interest rate is variable. They also like to hedge to ensure their covenants are met and of course to protect against any adverse changes to their investment return or income. A lot of times, lenders are requiring this interest rate risk management so these hedges are mandatory.