June 13, 2022
Taken from a Business Insider article, published on 12th June 2022 here: Real Estate Investing: How You Could Buy Shares in Local Buildings (businessinsider.com)
While the stock market attempts to find its feet following a dramatic fall, investors will be giving more thought than usual to other types of investment.
Real estate is often front of mind when it comes to diversifying away from equities. However, for individuals it typically takes the form of buying residential housing.
While this has its place of course, there's an entire other world of commercial real estate that offers the juicy returns that asset managers and institutional investors enjoy.
It has been hard to access commercial real estate investments for most people who are not investing other people's money on behalf of a company.
It is of course possible for retail investors to buy shares in a real estate investment trust (REIT) in the same way as any other company shares. This offers broad exposure to a big basket of different commercial properties chosen by the REIT's managers.
If you want to pick your commercial real estate investments yourself, it has been a non-starter for the average investor. This could be about to change.
IPSX is the world's first regulated stock exchange offering initial public offerings (IPOs) and secondary market trading of shares in companies owning single real estate assets.
In simple terms, it allows you to buy shares in a specific building or complex of buildings such as a shopping mall, office development or industrial site.
Chief executive Roger Clarke spoke to lnsider to explain how it works, and why investing via the exchange is worth considering.
"IPSX is an interesting coming together of two quite different parts of the markets. It's bringing real estate together with equities. It’s important to understand that we're a recognised stock exchange and what we're doing is new and unique. It's not being done anywhere else in the world yet." he said.
Clarke said the way it works essentially, is a company is formed which then acquires a specific piece of real estate. The value and ownership of that building, or group of buildings, is then broken down into shares. These shares are then floated as an IPO in the same way as other companies and can subsequently be traded. The rental income from the underlying building is paid out as a dividend to the shareholders
It is very early days and so far, only two commercial property shares are available to buy on IPSX. They are M7 Regional E-Warehouse - a group of warehouses in the UK-and The Mailbox, a 698,000 square feet office building in Birmingham, England.
This is set to change quickly though, with a well populated pipeline of new deals in place, Clarke said. As well as expanding in the UK, Clarke expects to bring properties from around the world to IPSX, including the US.
Clarke is familiar with the counterargument that investors who want real estate exposure can simply buy one of the many large, diversified REITs available to retail investors, but sees that as no substitute for what IPSX can offer.
He said that as an investor using IPSX, the key difference is that you are going to be able to put in place an investing strategy based on your own knowledge and preferences. You will be able to invest specifically in offices without touching any retail outlets for example, or just target logistics warehouses in a certain city.
In future, you could even invest in buildings in your city that you personally know first-hand or use regularly.
Buying a REIT is simply backing a management team to invest wisely for you and is not an active strategy, Clarke said.
In terms of why the average investor should add commercial real estate to their portfolio in this form, Clarke said there is decorrelation from the stock market, and therefore the diversification benefits.
"If you are looking for non-correlated yield and I can't find it anywhere, well that really in a nutshell is the point of IPSX," he said.
Clarke also explained that having freely traded shares in a commercial building that can go up and down in price allows the value to adjust with the cash flows coming from the rent on the building. This, he argues, brings greater transparency and flexibility than has traditionally been available in commercial real estate investing.
IPSX Wholesale is a market exclusively for institutional and professional investors.