Read our interview with Real Estate Finance and Investment

New property exchange gears up for launch

By Samantha Rowan

WWW.REALESTATEFINANCEINVESTMENT.COM

The International Property Securities Exchange, the first regulated securities exchange dedicated to the commercial property market, is gearing up to launch trading by the end of 2018. The London-based exchange is the first of its kind and will allow owners to complete initial public offerings on individual properties. “Our initiative is driven by the need to create a  dedicated  exchange  for commercial real estate. This is about day- to-day real  market  liquidity  and  being  able to trade real estate like  any  other  share  on  the New York Stock Exchange,” said Anthony Gahan, chairman.

IPSX, backed by a number of prominent commercial real estate investment managers and private equity funds, is applying for recognition from the U.K.’s Financial Conduct Authority, which regulates financial services companies. Gahan, a veteran investment banker with substantial experience in equity capital markets and mergers and acquisitions, said this step is key for the success of the exchange. “As a banker, I took the view that we had to build a fully regulated market, something that’s equivalent to the London Stock Exchange or the NASDAQ,” Gahan told REFI.

The exchange will allow owners to sell a minimum of 25% of an individual building in any market around the world to institutional, high- net-worth or retail investors via a traditional

IPO structure. Investors in the securities will buy equity shares in a special purpose vehicle that was set up with the aim of holding, developing and managing single commercial properties, with the owners of the properties submitting a traditional prospectus and related information to the UK Listing Authority and IPSX’s Marketing Regulation team, Gahan said.

“THERE WILL BE PEOPLE MAKING MARKETS IN THESE BUILDINGS IN EXACTLY THE SAME WAY YOU’RE ABLE TO TRADE SHARES IN A COMPANY

LIKE BRITISH TELECOM” ANTHONY GAHAN

“If you’re a fund manager in the current world, you can buy, own or sell different buildings,” Gahan said. “Imagine if you own a building and are thinking of selling it — with the exchange, you’ll be able to sell shares  in that building through an IPO, which will be offered and marketed through a conventional structure to institutional, high-net-worth investors, and retail investors.”

IPSX will also provide liquidity to the buyers of the securities, facilitating trading after the initial

sale — a major step for a traditionally illiquid market. “There will be people making markets in these buildings in exactly the same way you’re able to trade shares in a company like British Telecom,” Gahan said. “It might not always be at a price you will like but it will be there.” The owners of the asset will continue to manage the property, gaining asset management fees for the duration of their ownership.

The exchange’s investors, which include M7 Real Estate and British Land, have been key in rolling out the initiative. “This process started five years ago and we’re at the point where we are about to get the highest level of regulatory approval available. We believe that this will become one of the biggest stock exchanges, especially because we have had many investors supporting what we’re doing,” Gahan said.

The hope is that the exchange will allow fund managers and individual investors who want to add a commercial real estate mandate to their portfolios to buy securities back by sectors or markets where they’d like to broaden exposure. “It’s a new way of looking at things that will ultimately allow the big investment management firms to say, ‘I have a thesis to invest in CBD offices in Western Europe’ and be able to find securities to fit that criteria,” Gahan said.

As the investment world has become more sophisticated, the barriers to investing have fallen and the way investors interact with commercial real estate has also changed. “We think there will be real interest and real trading immediately,” Gahan said.