The New Math: Michael Lehrman on his plan to introduce derivatives into New York City’s otherwise staid rental market.
By Daniel Geiger May 29, 2012 10:00 am
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Michael Lehrman thinks the commercial real estate services business is completely staid, calcified, old-fashioned.
He doesn’t use those words specifically. He’s a little more eloquent. He’s a Wall Street man now, and to him it’s practically laughable when major real estate services firms claim to be cutting edge when the heart of their analytical capacity is still rooted in the decades-old practice of collecting troves of market data and organizing them into endless charts in order to divine tomorrow’s market conditions.
“We don’t want to be looking at yesterday’s information,” said Mr. Lehrman, considered one of the chief architects of BGC Partners’ acquisitions and merger of Newmark (NMRK) Knight Frank and Grubb & Ellis, whose real estate lending and services practice he now oversees.
Last week at Newmark Grubb Knight Frank’s ICSC booth in Las Vegas, Mr. Lehrman highlighted BGC Partners’ specialty in creating systems that allow stocks and other financial instruments, even those that are not normally liquid, to be accurately priced at any given moment. Such transparency can stoke trading, he insisted, while also creating markets and the potential for entirely new classes of financial products.
One of the epiphanies of both Mr. Lehrman and his boss, Howard Lutnick, the chief executive of BGC and Cantor Fitzgerald, the better-known Wall Street company it was spun off from, was how the company’s model could be applied to commercial leasing.
Mr. Lehrman reiterated the company’s plans to create derivative products that can be used like insurance against rental price swings in the leasing market. But the goal is two-tiered: The trading of these derivatives could create an index, a Wall Street-style gauge of the rental market, complete with indices that could measure where it’s heading.
“Our goal is to give our clients who are making any investment decision, who are gauging what that investment is going to cost tomorrow or six months or six years from now, the real-time information to make more informed decisions,” Mr. Lehrman said. “What we’re doing is going to create state-of-the-art information about the leasing market. Lease-forecasting analytics that will empower our brokers by having that at their fingertips.”
