ohn EVANS, of reputation manager Hawthorn Advisors, spoke about the International Property Securities Exchange, or IPSX, back in May 2017. Having been three years in gestation, it was, he said, due to launch in the coming months.
It would allow people who own property, and particularly those who saw it as ancillary to their main business, to extract some of its value by floating its shares on the exchange.
The managed property commercial sector is worth over £400 billion, not much of it on the stock market, so it would give retail investors access to a huge asset class. What’s not to like?
But then all went quiet. And it stayed quiet until last month. But at last the regulator was satisfied and the IPSX was designated as a Recognised Investment Exchange, comparable from a regulatory standpoint with the London Stock Exchange, Euronext, the Intercontinental Exchange, the CME and the Hong Kong Exchange.
It is a pretty powerful designation to have, even if it has taken five years to get there.
Anthony Gahan, the founder, is clearly enthusiastic. “From now on every type of investor can access the returns from institutional investment grade real estate by buying and selling shares in issues through IPSX.
“Imagine the man in the street buying shares in the company owning the building he works in, or even the Premiership football stadium where he watches his favourite team play.”
Currently, companies can get finance by entering a sale and lease back transaction, or possibly a joint venture, but both have problems.
The sale is final, the value may not be the best, the owner may not want to give away all, or even half, the asset, the lease might subsequently be found to be too long, the rentals too high, and so on.
Investors also can buy shares in property companies now, but it is the company which decides on the mix of assets, and it is up to the manager what the company buys and sells.
Finally, it is only the biggest funds and institutions which can access the really big property. The smaller institutions, family offices and high net worth individuals can access the medium to small. Normal retail investors don’t get a look-in, but with IPSX that should change.
In essence any company with a single property asset can issue shares on the exchange provided they comply with the regulations.
So a company like pharmaceuticals giant GlaxoSmithKline, which has huge property assets to the west of London, could get some of the value by listing its shares and using the cash to help with its drug development.
Similarly, the Football Association might float Wembley rather than try to sell it, as it apparently wants to, and use the proceeds for grass-roots football.
It might also be a solution to open-ended property funds. Investors like these because the fund is in property but the investor can take his or her cash out at any time.
Normally there is enough liquidity to do this. But at the time of the Brexit vote, and possibly if there is a “no deal” outcome in the current negotiations, the flood of redemptions might be too much for the fund to cope with.
Then investors have to wait — possibly for months — while properties are sold. But in future funds might want to have some IPSX shares which could, if necessary, be sold to match a run by investors.
How big such a portfolio would have to be is a matter for conjecture, but the chances are that the fund would not have to sell actual property, and investors would not have to be gated.
Institutional investors focus on equities, bonds and real estate. But real estate has always been different because investors are in the hands of chartered surveyors who were the ones who ruled on value.
In good times that could be more than expected; in bad times it could be worse because liquidity often dwindles just when it is needed.
So property assets always have that degree of uncertainty.
That too should change. Shares in the IPSX will enhance liquidity, and property in time could emerge as an equal, rather than a nice-to-have, asset.
Gahan certainly hopes so and hopes also to have the first shares up and running, possibly even in the first quarter of this year, but if not certainly in the months thereafter. IPSX could well become a major market.