I saw a piece on the proposed International Property Securities Exchange (IPSX) a few weeks ago. Apparently it is intended to create an electronic exchange exclusively for special purpose vehicles (SPVs) holding a single commercial building or portfolio. The website, which is worryingly shallow, uses the word ‘will’ quite a lot suggesting that it is still embryonic. The IPSX “will”launch a new security type, Exchange Traded Property (ETP). According to Costar,
IPSX seeks to provide institutional and private investors alike, irrespective of size of investment, with a proxy for direct ownership of commercial real estate in a regulated environment with full transparency and liquidity. Investors will be able to buy and sell shares in companies owning single commercial real estate assets admitted to IPSX in the same way and at a comparable cost to shares in companies traded on existing equity stock exchanges. .. Commercial real estate owners (institutional, private and corporate) will have access to a new capital markets solution to complement existing private market sale options. An admission on IPSX will provide owners with flexibility to retain a majority economic share in a company owning the commercial real estate asset as opposed to binary “own” or “sell” options as well as greater flexibility as to when to sell. The flexibility to sell a minority share in a company admitted to IPSX has already generated interest from commercial real estate owners including owner occupiers with strategically important real estate assets held on balance sheet which could offer a release of cash to the core business and improve return on capital.
Mark Kleinman of Sky News reports that
Analysts said that the venture had the potential to disrupt traditional models of commercial real estate investment and could help to reposition the asset class as a mainstream, rather than alternative, option for investors seeking to deploy capital…Property market sources said it would also enable banks and other financial sector companies who are confronting the impact of new industry regulation to liquidate parts of their real estate holdings.
This isn’t exactly a new idea. In the 1980s and 1990s, Single Asset Property Companies (SAPCOs) and Property Income Certificates (PINCs) tried to offer a similar investment channel for property investors. For various reasons, they failed. However, in the era of online trading and disintermediation, it looks like a compelling model – as it did on paper in the 1980s and 1990s. Its time may well have come. As ever, the devil will be in the detail. I suspect that getting FCA approval will be crucial here to getting a critical mass of assets and investors offering liquidity and diversification. Operating costs and structures for asset and property management are not discussed but will be important in how efficiently and effectively the assets are managed. As ever, governance and ensuring that investors and managers are aligned is likely to be key. I’m not sure how much to read into the fact that British Land have invested (an undisclosed sum) in the IPSX. If it is token, it could be a marketing gimmick. If it is substantive, it is an interesting option.