IPSX: Waiting to kick off £6.5bn of property IPOs

The IPSX property stock market is in talks with asset owners about £6.5bn worth of IPOs. Get the General Election out of the way, its top team says, and they should start to happen The new stock exchange hoping to shake up property investment is lining up 26 listings that could raise more than £6.5bn, transforming the ownership of assets including office blocks, sports stadiums and hospitals. But with the UK equity markets largely shut as political turmoil continues, investors are waiting longer for those deals to materialise than they once expected. Backed by British Land, Henley and M7, the International Property Securities Exchange will let real estate owners package their property into a shell company and then list shares on the market to be sold to retail and institutional investors. The exchange will operate across two markets – IPSX Prime, already launched, and a separate Wholesale market exclusively for professional investors, for which the group expects to gain authorisation from the Financial Conduct Authority later this year. [caption id="attachment_1005676" align="alignright" width="200"] David Delaney[/caption] For David Delaney, a one-time fixed-income boss who became group chief executive during the summer, the concept is revolutionary. “Commercial real estate has been an opaque, unregulated market, and yet it is [worth] £900bn in the UK,” he says. “The ability to take that and move it into the 21st century – into a regulated, transparent, liquid market open to a broad range of investors – is unbelievably exciting.” Since IPSX got the green light from the FCA back in January, the market has named valuers, started to appoint investment banks to run offerings and reshuffled its top team. The only thing it hasn’t done is welcome any listings. The three Bs The exchange was founded by a team including current chairman Anthony Gahan in 2014. Since then the group has brought on board individuals including Roger Clarke, former head of corporate finance at M7 who is now IPSX’s head of capital markets, and Alan Ramsay, former head of compliance at HSBC, who acts as chief executive of IPSX’s UK subsidiary. “A lot of the expertise within IPSX 12 months ago, both at the board level and at an executive level, was very property focused,” Delaney says. “But once we’d had FCA recognition, Anthony and others recognised that there was a need to bring in people with more markets expertise who understood how investors looked at buying assets.” Commercial real estate has been an opaque, unregulated market. The ability to take that and move it into the 21st century is unbelievably exciting David Delaney | IPSX If IPSX works as it should, the team says property owners will be able to access a broader base of investors than ever before when looking to free up value from their assets. “When I think about commercial real estate at the moment, it’s only institution-grade,” Delaney says. “I think of the ‘three Bs’ as buyers. You’ve got BlackRock, you’ve got Blackstone and you’ve got Bill Gates. The idea that I could put £10,000 in my SIPP [via IPSX] is fantastic. And hopefully we will be able to make that transfer by getting issuers, getting liquidity and bringing the asset class to the investor base.” [caption id="attachment_1005677" align="alignright" width="200"] Roger Clarke[/caption] Clarke says the “operational flexibility” that IPSX will give asset owners is opening up more and more conversations about potential listings. “At the moment, your choices around real estate [as an owner] are keep it and refinance it, sell it or maybe enter into the minefield of some sort of jv, sale-and-leaseback, club deal or syndicate – all of those things are quite difficult to set up, and even harder to unwind,” Clarke adds. “That ease of future flexibility [on IPSX] is incredibly attractive to owners of real estate in lots of different ways. We have a really interesting breadth of types of deals, from very large assets to more regular single-asset exits.” Full pipeline The IPSX team had once hoped that the exchange’s first IPOs could happen earlier this year. Clarke says listings are lined up but with dealmaking in the UK equity markets drying up as Brexit negotiations continue and now with the added complications of a looming General Election, it is likely to be next year before any are launched. “At the risk of sounding melodramatic, the equity capital markets are just shut at the moment,” Clarke says. Nonetheless, the pipeline is full – 26 potential deals are being discussed that, if they were all to launch, could be worth more than £6.5bn in issuance, Clarke says. “They won’t all happen in 2020,” he adds. “We’re beginning to look to the horizon of things which are being slated for [2021-22].” The first deals could happen early next year, he says. “I think the whole capital markets are almost like a cartoon image of a bulging drainpipe. As soon as that election is out of the way, as soon as the ingrained instability goes, I think we’re going to see all markets go bang.” At the risk of sounding melodramatic, the equity capital markets are just shut at the moment Roger Clarke | IPSX A sporting chance Gahan has spoken of a desire to bring iconic sports grounds such as Wembley Stadium to IPSX. Those kinds of sporting assets are among the IPOs now being discussed, Delaney and Clarke say – although Clarke adds that he was disappointed to see Tottenham Hotspur use a US private placement to refinance development loans for its stadium rather than opt for a more innovative move like an IPSX listing. Delaney points to other, varied sources of listings for the exchange, including a hospital that wants to raise money to help it build a cancer treatment wing. And once a track record of IPOs builds, the top team hopes that the exchange will be seen as a potential solution for property owners handling complex and perhaps controversial schemes. “I think of some of the issues going on at Earls Court and some of the concerns that Hammersmith & Fulham [council] has had over the estates and whether tenants really want to be subject to redevelopment,” Clarke says. “If a public market could be used to create a vehicle to own that, if the [section] 106 payment could actually be a way of giving shares to the local tenants so they feel they have a stake in their community, that could change that dynamic.” Delaney, Clarke and colleagues are already looking beyond the UK, and Delaney says launching IPSX in other countries is “absolutely” the goal. Japan is a contender, he adds, as well as continental countries closer to home. “Structurally, one of the biggest drivers for us is the negative interest rate story,” Delaney says. “And the negative interest rate story resonates no better than in Germany, with a negative yield curve from zero to 30 years, basically. Roger and I were in Germany [for the Expo Real property conference] and that is something we’re definitely kicking tyres on.” In the UK and elsewhere, Delaney and Clarke, like Gahan before them, are adamant that they are on to a game-changer with IPSX. The proof will be in the success of listings on the exchange – the group has built it, but will they come? Clarke says the effort will pay off: “It’s a long, hard slog – but it’s not a discouraging one to be on.” To send feedback, e-mail tim.burke@egi.co.uk or tweet @_tim_burke or @estatesgazette