IPSX exchange provides market for shares in single buildings

REFIRE met with Anthony Gahan, the founder of new real estate stock exchange IPSX last year at the Real Estate Finance Day at the Frankfurt Business School, and we were intrigued at the prospects for the fledgling business. Now the company has received a glowing recommendation from London-based research house Hardman & Co. before its launch later this year.

IPSX (International Property Securities Exchange) bills itself as the first stock exchange dedicated entirely to real estate. Hardman says the exchange is set to revolutionise the way commercial real estate is valued, securitized and owned. It will be the venue for investors to trade shares in single-asset-owning real estate companies, or SARCs. The benefits compared to investing in REITS, are increased transparency and cost efficiency, says IPSX.

The exchange is set to launch formally later this year, and has already gained its regulatory approval from the UK’s Financial Conduct Authority. Essentially, IPSX provides a regulated market for trading shares in management companies that own single buildings, or multi-asset real estate companies where there is commonality in the assets.

Hardman & Co analyst Mike Foster argues persuasively in his report that IPSX will bring numerous improvements to commercial property markets. By focusing on companies holding single assets or multiple assets with commonality, SARCs will have lower operating costs than Real Estate Investment Trusts (REITs). Meanwhile, the SARC itself will own and manage the asset, enabling investors to invest in property quicker than buying the underlying asset directly, as well as at a lower transaction cost. Commonality covers single estates with homogeneous planning use, such as an office park, or a single type of asset – for example hotels – across a broad geography.

Liquidity is likely to be high, Hardman expects, as SARCs should attract investors with diverse strategies and time horizons. For example, a typical IPSX SARC of €300m could trade €230,000 a day on average, says Hardman. The market for this fractional ownership of ‘quasi-direct property’ will be retailers accessing a new asset class, and family offices and institutional investors looking for direct property and additional liquidity, along with investors temporarily investing in SARCs while waiting for other direct investment to complete.

IPSX’s own head of capital markets says: “IPSX will usher in the democratisation of real assets. As a regulated exchange, investors will have the comfort of duly mandated processes for publication of information. This transparency around valuation and risk will provide more focused data than is the case for the wide range of assets in traditional REITs.

“IPSX encourages the broadest possible investor universe to participate in the real estate sector. IPSX companies are structured to provide a more direct connection between owners and assets, while providing liquidity and protections on a regulated exchange.”

It all sounds very exciting, and REFIRE will be following developments closely. We will report back again in a few months.