The first exchange for trading real estate has received a financial boost, setting up a potential launch later this year that could provide a test case for other markets.
The International Property Securities Exchange (IPSX) this month said it received a significant investment from European investor and asset manager M7 Real Estate.
The first regulated exchange of its kind, IPSX will allow the IPO and trading of companies owning single commercial real estate assets, a new route to invest in commercial property markets.
“This might serve as a litmus test,” says Ryan Severino, Chief Economist at JLL. “Other regions may then consider something similar.”
The London-based IPSX will start by operating an EU regulated market, but has already signalled its desire to expand into other major markets in the future. Alternative exchanges could also emerge in other jurisdictions.
Currently, to gain exposure to real estate investors must either commit to direct ownership, or invest in traditional funds. Under the IPSX model, institutional, private and retail investors will be able to invest in transparent CRE-backed and exchange-traded shares.
Continuous two-way prices in retail size will be provided by specialist market maker exchange members. The exchange will also offer periodic intra-day auctions to help build secondary market liquidity.
New capital and investment opportunities
“To date, publicly-traded real estate companies have generally offered more diversified portfolios,” notes Severino. “The idea with the IPSX is to make it easier to take single-building entities public.”
Giving property owners a platform to list their single properties will potentially create opportunities to tap into a broader and deeper array of investors that they have previously struggled to reach. It also presents owners with new options for exiting their commercial property investments.
Opening access to a larger, more diverse capital pool is “always welcome,” Severino says. “In addition, it gives investors the ability to target individual properties, rather than real estate portfolios. If enough single buildings subsequently go public, investors would then have an easier time in crafting a targeted portfolio more closely aligned to their desired risk and performance profile.”
Will it take off?
The big question: will enough single buildings opt to go public on the IPSX to create a substantial enough marketplace, and sufficient portfolio choice, to meet investors’ needs?
According to IPSX, it is progressing discussions with a broad range of early potential issuers, including private equity real estate funds, sovereign wealth funds, major quoted real estate groups and owner-occupiers seeking a new way to unlock value from their real estate holdings.
“If the exchange succeeds, I see it likely becoming more of a niche market than a large player, but one that could still play an important role,” says Severino.
Click to read more about why real estate regulations are on the up, but are they enough?