July 22, 2020
This article originally appeared in REFI US on 17 July 2020.
IPSX, a London-based global property exchange, believes that its newly minted IPSX Wholesale marketplace will help institutional investors in commercial real estate with two key issues – greater transparency and a push toward onshore structures from real estate private equity funds and other investment vehicles.
These secular themes were behind the company’s launch of IPSX Wholesale, which got the green light from regulators earlier this year. The new market aims to allow institutional, professional and global investors to buy and trade stakes in individual assets via the exchange.
More specifically, it is designed towards owners that hold commercial real estate in structures that may be too complex for its core product, IPSX Prime, according to Roger Clarke, managing director and head of capital markets. These more complex structures could encompass ownership structures, legal arrangements, leverage ratios, tenant covenants or properties that are in the development phase.
The company, the first to focus solely on trading shares in individual real estate assets globally, has been closely tracking the evolution of onshoring, Clarke said, noting that there was a recent development in the UK’s Spring 2020 Budget.
At the time the budget was released, an HM Treasury report said that it will look at issues that include taxation and the ongoing competitiveness of the UK as a regime for fund managers. The report found that although the UK corporate tax system is attractive for holding companies, there are barriers to entry to establish intermediate fund entities in the UK. The Treasury is open for consultation on these issues until August 20.
Additionally, the Organisation for Economic Co-operation and Development’s rules around base erosion and profit shifting last year have led to a push for more taxable investment activity be brought back onshore, something that’s seen as even more important due to the fallout around the Covid-19 pandemic.“There’s a huge amount of UK real estate that’s owned in offshore REITs, with other countries seeing similar ownership situations,” Clarke added.
The onshoring situation is a nuanced one that has seen significant activity, with the Investment Association and the Association of Real Estate Funds calling on the UK government to create a professional investor funds structure. This structure would be an onshore alternative for fund managers that might have otherwise set up in offshore jurisdictions, like the Channel Islands, Clarke noted.
“The thinking is that onshore structures allow for more transparency, which is a key corporate and governance issue for real estate investment companies. It’s also a way for institutional investors to access the commercial real estate market in a less complex way and also have the option to have the value of their investment quoted on a UK exchange,” Clarke added.
The marketplace comes at a point where institutional
investors are diversifying how they approach real estate investing, with
growing interest in platforms that will allow them to quickly diversify their portfolios.
“We have an industry that built itself up on who knows who and who knows what,” Clarke said. “We have got a long way to go toward transparency and believe that what we are doing will help provide transparency to investors.”
Companies like Yieldstreet and Finitive allow investors to access loans on institutional quality real estate in the US. Meanwhile, LEX, an online marketplace for commercial real estate securities, is seeing more interest from pension funds and other institutional investors that are using its platform to better manage their portfolios.