IPSX: Out of money, out of time

EDITOR’S COMMENT The worst lesson to take from the potential demise of the International Property Securities Exchange would be that it isn’t worth trying – hard – to do something new. Launching a stock exchange, it seems superfluous to note, is not easy. Launching one with the admirable aim of overhauling the way a particular investment market works – allowing retail investors to buy shares in single-asset REITs – and selling that vision is tougher. Doing that in a period during which various economic and political problems led to a dearth of equity listings? Now it starts to look borderline impossible. But was it? As IPSX confirms it can no longer meet the financial requirements of the UK’s financial watchdog and will be wound down, chief executive Roger Clarke knows how easy it is to focus on the venture’s failure. But as he makes clear in this week’s feature, there is still much to be proud of – including the very act of getting the exchange off the ground with a dedicated team. And it’s hard to knock the ambition that the people and companies backing and driving IPSX showed. There were always arguments against the idea – one industry chief executive who says he declined to back the business described it to me as “a solution without a problem” – but it never seemed in doubt that the team believed in the venture and took its potential seriously. (OK, not too seriously – M7’s Richard Croft, a key backer of the exchange, gave me his blessing earlier this year to run an April Fool’s Day story suggesting he would list himself on the market.) However, reality just didn’t come close. When the exchange opened, it got column inches with a bold suggestion that Wembley Stadium could be listed, allowing the man in the street to own a piece of the football ground. But the man in the street remained unconvinced. Even when the first IPO launched, that of M7’s Mailbox in Birmingham via the Mailbox REIT, the issuer couldn’t drum up enough support from retail investors. “We were getting retail interest, but you need a lot of retail interest to get £70m away,” Croft told me months later, after finally getting the deal away by listing the REIT on a different section of IPSX that targeted only institutional investors. Croft and M7 were behind the only other two listings on the market. Others considered it – including Starwood Capital – but opted for other avenues (Starwood put its Capital Building in Liverpool up for sale this summer after mooting an IPSX float). Could time have changed the situation? Maybe. Probably. At another point in the property cycle and with an entirely different economic outlook, you can make the argument that IPSX should be just the jolt for UK equity markets. But IPSX was burning cash like no one’s business – except it was someone’s business, a lot of people’s business, and it seems none of them were willing to throw good money after bad. Ultimately, making IPSX work would take more time and money than anyone involved seems willing to spend. Perhaps the business still has a shot. Clarke says talks continue with parties that could have backed it with some form of recapitalisation or even a purchase. He stands by the concept of a real estate-only exchange. But you’d need deep pockets and a long-term outlook to think you could work with the current situation. In the meantime, issuers on the exchange – which hold in one case the Mailbox, in another Bridgewater Place in Leeds and in another a portfolio of warehouses – have 90 days in which to work out what they do next with their business and assets. All have said they are weighing the options. One might wonder if Croft’s new firm, Martley Capital Group, will be eyeing some acquisitions. In which case the best lesson from this week’s developments could be to always have a plan B. To send feedback, e-mail tim.burke@eg.co.uk or tweet @_tim_burke or @EGPropertyNews