IPSX Group has gained consent from the Financial Conduct Authority to launch a ground-breaking regulated securities exchange for companies owning single commercial real estate assets.
IPSX, which will allow companies to list individual assets, will be the first regulated exchange dedicated to commercial real estate.
Based on discussions with potential issuers – some of which are international – and subject to market conditions, the group anticipates the first initial public offerings will debut from the beginning of Q2 2019.
Anthony Gahan, founder and chairman of IPSX Group, said: “We have a pretty substantial pipeline of IPO candidates. These are a mix of every vertical in terms of the buildings.”
He added that a number of these assets were valued “in the hundreds of millions of pounds”, and have tended to be much larger than initially expected. “A lot of the buildings have hugely grown in value,” said Gahan. “But the level of liquidity [required by investors] is not something that is automatically available, particularly in the economic context or even the real estate cycle at the moment.”
“As these buildings get bigger, even some of the largest investors in the world are not necessarily all that able to respond to that.”
Gahan said opening up the universe of international investors to the rest of the world – not just to specialist real estate investors, but to generalist investors such as large institutions – was “very important” at a time when some assets are so valuable that few institutions are able to buy alone, and private sale processes result in only one bidder submitting an offer.
It could also enable the “man on the street” to “buy shares in a company owning the building they work in – or even the Premiership football stadium where they watch their favourite team play”.
The group aims to add further exchange-based products to its offering, including a professional market for closely- held REITs. It is also advancing plans to open IPSX exchanges in continental Europe, the US and Asia.
“This is an international proposition,” said Gahan. “Some of the potential issuers are not UK-domiciled real estate assets”.
“This is a specific market created for a huge international asset class. Ultimately, we would like to see IPSX exchanges in the major financial markets around the world, and really deliver on this reimagination of the real estate investment world to democratise access to this asset class for every type of investor.”
What advantages could IPSX offer?
Chairman Anthony Gahan said the exchange will give investors “direct sight” of the specific underlying property asset relating to their investment, as well as clarity over the revenues and associated costs, and tax-efficiencies typically conferred by REIT status. Meanwhile, institutional property owners can gain an alternative public market option to a traditional private sale, along with flexibility to retain an interest in the asset through a shareholding in the company owning the building. For owner-occupiers it would mean that, for the first time, value can be released from strategic freehold assets without entering into a sale-and-leaseback deal or joint venture.
Nothing worthwhile comes easily
Is it time for an index that allows units – or shares – in individual properties to be traded? A stock exchange for real estate? This head of a leading agent believes so.
“We cannot continue demanding our place at the high table and declaring that property is a major investment for funds, while not providing the sort of depth and speed of response to client demands which is offered by competing markets.
“I see a market which is similar in concept to the existing stock market… in which investment property is broken down into relatively small units.”
That was Christopher Jonas, then managing partner of Drivers Jonas, now part of Deloitte, talking to EG – in June 1985. Chair of the RICS policy review committee, he was an early advocate of an idea that moved closer to fruition this week.
The Financial Conduct Authority has authorised IPSX Group to launch a regulated securities exchange for companies owning single commercial real estate assets. Allowing companies to list individual assets, it will be the first and only regulated exchange dedicated to commercial real estate.
This, you will already have gathered, has been no overnight success.
Three years after Jonas spoke to EG, the Investment Property Forum was born. And like the RICS before it, and others since, the IPF has devoted many, many research hours to deliberating how single assets on a public market could be securitised.
IPSX itself launched five years ago and has been building interest, investment and regulatory approval since. After this week’s green light from the FCA, the first IPO should land in Q2. Assets on the exchange will be in the “hundreds of millions”, according to founder and chairman Anthony Gahan.
Of course it would be ludicrous to describe an idea which has been more than three decades in the making as radical, but its impact could be. It has the potential to revolutionise the real estate sector. That would take time, but given that the real estate sector is worth $30tn globally, even gaining a small slice would be hugely impactful.
Gahan asks us to imagine “the ‘man on the street’ buying shares in the building he works in – or even the Premiership football stadium where he watches his favourite team play”. Others are already picturing the hostile takeover of individual assets, the overhaul of conventional valuation models by real-time price movements and the floating of single-asset SPVs as investors and landlords seek to inject equity without losing control.
It begs questions too. What does it mean for space as a service? Will owner occupiers rein back on traditional sale-and-leaseback models and capitalise on value of their buildings while retaining an ongoing interest in the security of their own covenant? And will it strengthen London’s credentials at a time when uncertainty looks set to ramp up?
International issuers are already talking to IPSX and the group itself is eyeing additional exchanges in continental Europe, the US and Asia. Should a stock exchange for real estate succeed – and there are plenty of reasons it might – there will be value in London having succeeded first.
Damian Wild, editor