A new asset class has opened for investors as the International Property Securities Exchange in London prepares for its first initial public offer (IPO) in coming weeks. The IPSX Group is also planning exchanges in Germany, North America and Asia.
The first IPO is still planned for the end of Q1, depending on market conditions, after UK regulator Financial Conduct Authority (FCA) on 9 January issued a Recognition Order in relation to wholly-owned subsidiary IPSX UK Limited to operate a Recognised Investment Exchange (RIE) in the UK.
This is the highest level of authorization and means IPSX joins London Stock Exchange Group, Euronext, Intercontinental Exchange, CME Group, CBOE Global Markets and Hong Kong Exchanges and Clearing in operating an RIE.
The new exchange will enable investors to invest in part of a building, and will free up groups with large headquarters or other assets to realize some of that equity. According to Anthony Hilton writing in Evening Standard: “It would allow people who own property, and particularly those who saw it as ancillary to their main business, to extract some of its value by floating its shares on the exchange”.
A company owning a single building would be able to float on the market, giving investors direct sight of the underlying assets. Building owners would no longer need to sell 100% of a building, they could sell a proportion, say 25%, and then buy it back later. The bourse also has eligibility requirements on portfolio commonality to allow “multiple asset issuers” onto the regulated market.
Hilton writes: “A company like pharmaceuticals giant GlaxoSmithKline, which has huge property assets to the west of London, could get some of the value by listing its shares and using the cash to help with its drug development.
“Similarly, the Football Association might float Wembley rather than try to sell it, as it apparently wants to, and use the proceeds for grass-roots football.”
According to a press release, IPSX Group Limited is a market infrastructure and data products business established in 2014 and dedicated to real assets – initially real estate. A strong group of investors include British Land, M7 Real Estate, Henley Investments, Daily Mail & General Trust and top business figures are on the board.
Another press release says: “Issuers on IPSX will be companies owning single real estate assets. For the first time, investors will have a choice as to where they invest and have direct sight of the specific underlying property asset that their investment relates to, with clarity over the revenues and costs associated with it, typically also benefiting from the tax efficiency conferred by REIT status.”
IPSX founder Anthony Gahan says: “From now on every type of investor can access the returns from institutional investment grade real estate by buying and selling shares in issues through IPSX. Imagine the man in the street buying shares in the company owning the building he works in, or even the Premiership football stadium where he watches his favourite team play.”
Currently investment into large real estate deals is dominated by big funds and institutions, with smaller institutions and family offices going after the medium and small deals. Individuals can buy shares through property companies and real-estate investment trusts (REITs), which decide the mix of assets and when to buy or sell.
According to Hilton, the liquidity offered by the exchange may also encourage open-ended property funds. Previously investors into funds would have to wait to get their money out and the fund might have to take months selling properties in an illiquid market to get cash out at reduced values. That happened after the 2016 UK Brexit referendum to leave Europe, when there were a queue of redemptions and property companies dropped in price.
According to Hilton, the liquidity and clearer regulation of an exchange will change this: “Institutional investors focus on equities, bonds and real estate. But real estate has always been different because investors are in the hands of chartered surveyors who were the ones who ruled on value.
“In good times that could be more than expected; in bad times it could be worse because liquidity often dwindles just when it is needed. So property assets always have that degree of uncertainty. That too should change. Shares in the IPSX will enhance liquidity, and property in time could emerge as an equal, rather than a nice-to-have, asset.”
There is a pipeline worth billions, as owners of City of London and West End blocks could list on IPSX. Commercial real estate as a global asset class is estimated to be worth $30 trillion.
Tax authority HMRC is likely to recognize the exchange as admission/trading venue for REIT tax status.
The IPSX network infrastructure is being developed by Cisilion and IPSX is outsourcing operation of the trading platform to Cinnober and has its data repository and workflow management platform at Goldensource.
According to the press releases: “Importantly, for all, IPSX connects sellers with a new, deep, international investor universe at a time when some real estate assets are so valuable that few institutions are able to buy alone and private sale processes result in only one bidder submitting an offer to buy the asset… IPSX proposes to add further exchange-based products to its offering including a professional market for closely held REITs together with new real estate indices and data products.”
“Anthony Gahan added: ‘This is game-changing news for asset owners and global investors, many of whom have helped to actively shape the IPSX proposition.’”