A new investment exchange dedicated to commercial property
Traditionally, direct investment in commercial real estate has been restricted to large institutional investors, due to the lot size of the assets. IPSX believes there is strong demand for direct access to commercial property from smaller institutions and retail investors. The stated aim is to “take commercial property mainstream” as the “fourth asset class for retail investors, alongside cash equivalents, equities and bonds".
IPSX will be a recognised investment exchange and an EU regulated market. Investors will invest in shares of a single asset vehicle (a “SAV”). A SAV will be a company that owns a single real estate asset – for example an office building or shopping centre – and it is expected that some SAVs will be set up as REIT vehicles. Investors will be able to trade their shares on the exchange in the same way as they can any listed security.
On the sell side, IPSX is principally targeting institutional investors seeking a full or partial exit and it seems likely that partial sell downs could well feature heavily among the transactions on the exchange. This would enable an institutional investor to realise some value while retaining exposure to, and control of, the asset. IPSX could also be used in connection with a sale and leaseback or to refinance or deleverage an asset.
It should be noted that at least 25 per cent of the shares in a SAV will need to be in public hands, so this would be the minimum proportion disposed of in a partial sell down.
IPSX will also act as a potential listing venue for joint venture REITs, which continue to grow in popularity. Unlike the other listing venues typically used for JV REITs, IPSX is a regulated market, and therefore provides increased regulatory oversight.
As IPSX is a market for closed-ended companies (i.e. permanent capital vehicles without redemption rights), IPSX-listed SAVs will not face the liquidity issues, arising from redemption requests, that certain open-ended funds have recently had to contend with. Also, as a market designed specifically for single asset companies, IPSX does not impose the diversification requirements associated with an LSE premium listing and has eligibility tests and ongoing requirements that are designed specifically for this type of company.
IPSX has secured investment from British Land and from partners of property fund management group Tritax, which suggests some early “buy in” from the industry. Indications are that there will be a number of deals ready for launch as soon as the exchange opens for business.
From an investor perspective, it seems likely that access to income-producing investment grade assets will be attractive, particularly to retail investors desperately seeking yield in a low interest rate environment. While there are attractions to investing via a fund or listed propco (including diversification and expert asset selection and management), the option to invest directly in a single, potentially high-profile, asset is likely to appeal to many investors.
We believe that retail investors (many investing through ISAs and SIPPs) will be an important part of the investor landscape on the IPSX. Achieving a good level of engagement from wealth managers is also likely to be an important factor in ensuring the vibrancy of IPSX as a marketplace.
IPSX will clearly bring a new dynamic to the commercial property market, particularly by enabling partial sales and the involvement of retail investors in the market, and will offer an additional and innovative option which could unlock a variety of transaction types.
BLP is actively engaged with IPSX as the rules of the exchange are developed and real estate and listing experts from our market-leading teams are on hand to assist clients who wish to explore the opportunities created by IPSX, or who simply want to know more.
For more information, please contact the author or your usual BLP contact.