How to buy shares in local buildings
- Commercial real estate is a possibility, but it has been difficult for retail investors to access.
- The CEO of a new real estate investment exchange told Insider how he hopes to change that.
As the stock market tries to regain its footing after a dramatic drop, investors will be thinking more than usual about other types of investments.
Real estate is often a priority when it comes to diversifying away from stocks. However, for individuals, this usually takes the form of purchasing residential accommodation.
While that has its place of course, there is a whole other world of commercial real estate that offers the juicy returns enjoyed by asset managers and institutional investors.
Accessing commercial real estate investments has been difficult for most people who are not investing other people’s money on behalf of a business.
It is of course possible for retail investors to buy shares in a REIT (
) in the same way as any other share of the company. This provides broad exposure to a broad basket of different commercial properties chosen by the REIT’s managers.
If you want to choose your commercial real estate investments on your own, it has been a failure for the average investor. That could be about to change.
IPSX is the first regulated exchange in the world to offer initial public offerings (IPOs) and secondary market trading of shares of companies holding unique real estate assets.
Simply put, it allows you to buy shares in a specific building or building complex such as a shopping mall, office development or industrial site.
Managing Director Roger Clarke spoke to Insider to explain how it works and why investing through the exchange is worth considering.
“IPSX is an interesting bringing together of two quite different parts of the markets. It combines real estate with stocks. It is important to understand that we are a recognized exchange and that what we do is new and unique. It is not n has yet been done anywhere else in the world,” he said.
Clarke said the way it basically works is that a corporation is formed which then acquires specific real estate. The value and ownership of this building, or group of buildings, is then broken down into shares. These shares are then launched as an IPO in the same way as other companies, and can then be traded. Rental income from the underlying building is paid out as a dividend to shareholders.
It is still in its infancy and so far only two commercial property shares are available for purchase on IPSX. These are M7 Regional E-Warehouse – a group of warehouses in the UK – and The Mailbox, a 698,000 square foot office building in Birmingham, England.
That should change quickly, however, with a full pipeline of new deals in place, Clarke said. As well as expanding into the UK, Clarke plans to bring properties from around the world to IPSX, including the US.
Clarke is aware of the counter-argument that investors who want exposure to real estate can simply buy one of the many large diversified REITs available to retail investors, but sees that as no substitute for what IPSX has to offer.
He said that as an investor using IPSX, the main difference is that you are going to be able to set up an investment strategy based on your own knowledge and preferences. You can invest specifically in offices without touching any point of sale, for example, or simply target logistics warehouses in a certain city.
In the future, you might even invest in buildings in your city that you personally know or use regularly.
Buying a REIT is simply supporting a management team to invest wisely for you and is not an active strategy, Clarke said.
As for why the average investor should add commercial real estate to their portfolio in this form, Clarke said the key is stock market decorrelation, and therefore the benefits of diversification.
“If you’re looking for uncorrelated performance and I can’t find it anywhere, well, in a nutshell, that’s what IPSX is all about,” 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 to cash flows from renting the building. This, he argues, brings greater transparency and flexibility than has traditionally been available in commercial real estate investing.