Rob Bould, past chairman of the Investment Property Forum and NED of IPSX, which will be the first fully regulated stock exchange globally to specialise in trading the securities of single commercial real estate (CRE) assets, sets out below the solutions and opportunities that its disruptive impact will provide in benefitting property owners as well as all investors seeking improved access and exposure to this important asset class.

IPSX’s arrival as the world’s first stock exchange dedicated to commercial real estate is imminent. But what does it mean in terms of revolution in the property industry, and major new opportunities for investors?

During my 40 year career in the real estate investment market, there have been a number of attempts to securitise commercial real estate to allow direct access for the wider investment world from the generic institution through to the retail investor and thereby democratise access to our ‘alternative’ asset class. From the work of the Barkshire Committee and NAPF in the late 80s the journey to the launch of REITs on the 1st January 2007 has been a long one but we are in rapidly changing times for the investment advisory market and the time is right for the next evolution.

At a point in time when proptech and fintech are ‘disrupting’ the real estate world more than ever before, a frequent observation shared with the IPSX team is that the launch of the world’s first fully regulated securities exchange dedicated to investment grade real estate couldn’t happen at a better time. After all, this ‘alternative’ asset class ranks alongside the largest and most aspirational in the world and deserves its own market.

For the IPSX team, who during the past four years of intensive preparations have trodden the long conceptual, regulatory, technical and practical path to the go live of IPSX in London, the relevance of IPSX impacts on a number of significant sector specific, investment and regulatory themes. These include a fundamental investor appetite for yield which has increased manifold in the exceptionally low interest rate environment of the last 10 years, the illiquidity mismatch of real estate within open ended funds, the increased use of data, the impact and cost of regulation, and how investment flows work in today’s highly connected world.

IPSX is going to provide solutions to these problems at a number of levels and so is disruptive in a positive way, particularly given the greater optionality it will offer to property owners and investors alike and, for market intermediaries, increased transaction volumes.

On offer for the original asset owner is the choice of a partial, minority, sale rather than a binary ownership decision; a market formed valuation; direct access to the full spectrum of investors never before accessible (on an international basis); and market makers offering ongoing liquidity and, by extension, more buy/sell choices.

On offer for investors who become the next ‘owners’ is the first chance to have a proxy for direct ownership of real estate on a regulated market with the inbuilt minority protections that this affords – and a predictable yield at a level which puts traditional savings accounts in context. Importantly, IPSX will strive to deliver the proposition with the immediacy of research and execution (be that online at home or on a smartphone) and a transaction cost which resonates with all – including the ‘millennial on the street’.

At the institutional and family office level the decision-making process will clearly extend further into how best to use the exchange for active portfolio management and the pursuit of active share. For others, tax efficiency including wealth tax and estate planning will have resonance.

As with other major securities exchanges around the world, IPSX will automatically collect and aggregate market data relating to the issuer and the trading/price data of the shares in the issuer.  Over time, this will allow the creation of relevant indices as to real estate performance which will offer the investment world further metrics with which to analyse and benchmark the asset class.

A corollary to this will be the need to consider market formed values as determined by a wider universe of investors with different return hurdles, hold periods and costs of capital versus historic valuation methodologies. This is highly likely to increase the debate in relation to the weighting of NAV calculations versus a market multiple approach.

Needless to say, creating a new public market requires a measured approach and will not be relevant for all real estate assets.  We expect that most issuers/IPOs will have a market capitalisation of well over £50 million which will assist with creating the optimum mix of longer term institutional money and shorter term retail and other short term holders.

Similarly, we expect that whilst the liquid market that will develop over time will be very attractive to institutional investors who are currently constrained from investing in the traditional private market, private investors are most likely to be the early adopters in seeking access via IPSX quoted securities to the sustainable yields that the underlying high-quality assets will provide.

Ultimately, the exchange will have a catalytical role in providing new options and opportunities to owners and investors alike, and in balancing these critical requirements on both sides of the equation.

What is clear from all of the feedback and research we have conducted amongst these communities is that there is an undeniable demand for change, for access, and for these new opportunities that the traditional marketplace cannot provide on its own.

And there will be plenty of choice and supply to meet that demand. Our pipeline currently has over 70 potential IPO candidates and, whilst these won’t necessarily all result in IPOs, there couldn’t be a clearer indicator of the huge potential for the new platform that is IPSX.

IPSX expects its first IPOs to be offered in Q2 2018.