How Derivatives Caused the Property Boom

Sitting on the property panel with Bob Toll was Steven Green, of Greenstreet Partners. He had a very good explanation for the run-up in US property values in recent years: financial derivatives.

"People always told you that there was no liquidity in real estate," said Green. "And now the financial derivatives market has created that liquidity, and it's changed the market permanently."

As a result, there has been a huge inflow of institutional money, both public and private, into a market which has historically been dominated by individuals and families. Whenever that happens, there's a big one-off increase in prices. And this time around, there was probably even some overshoot. "I don't think we've seen dramatic reductions in prices yet," said Green. "And I say yet because I think we will see them."

Either way, the property market has been changed for good. "We've seen properties with higher vacancies and lower cashflows which are trading at higher prices, all driven by the financial markets," Green said.

Hedge funds make very different calculations from old-school property magnates, and the latter might indeed be an endangered species.