Richard Croft, chairman of M7 Real Estate, describes last week’s float of the Mailbox office complex on the IPSX market as “the greatest achievement of my career”. He also offers a less formal description: “I feel like I’ve climbed Everest in my underpants.”
Both are understandable. The IPO of Mailbox REIT, set up by M7 to float the Birmingham building, is a landmark listing. It’s the long-awaited first offering on IPSX, which received the green light more than two years ago to operate as a stock exchange for individual real estate assets. But getting the deal done has been arduous. For Croft, who is also a shareholder in IPSX, there has been a lot riding on this.
He hadn’t wanted M7 to be the first company to float an asset. But too few others were willing to move to the front of the queue. “It’s a bit like a new roller-coaster,” he says. “It looks absolutely terrifying. Everybody says ‘this is going to be an absolute blast – but I just want somebody to test it to make sure we don’t fall off’.”
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Richard Croft, chairman of M7 Real Estate, describes last week’s float of the Mailbox office complex on the IPSX market as “the greatest achievement of my career”. He also offers a less formal description: “I feel like I’ve climbed Everest in my underpants.”
Both are understandable. The IPO of Mailbox REIT, set up by M7 to float the Birmingham building, is a landmark listing. It’s the long-awaited first offering on IPSX, which received the green light more than two years ago to operate as a stock exchange for individual real estate assets. But getting the deal done has been arduous. For Croft, who is also a shareholder in IPSX, there has been a lot riding on this.
He hadn’t wanted M7 to be the first company to float an asset. But too few others were willing to move to the front of the queue. “It’s a bit like a new roller-coaster,” he says. “It looks absolutely terrifying. Everybody says ‘this is going to be an absolute blast – but I just want somebody to test it to make sure we don’t fall off’.”
By the end of 2019, Croft was tired of waiting: “I thought ‘fuck it, I’ll buy a building’.” M7 acquired the Mailbox, home to tenants including the BBC, with the aim of it becoming the debut deal on IPSX. The coronavirus pandemic delayed plans, but by last October the team was ready to move and began marketing a listing on IPSX Prime, a segment of the exchange for retail investors.
Then, another obstacle. “I discovered that while everybody was very interested, there weren’t a lot of people who wanted to go first as investors,” Croft says. The engagement was there, he adds, but turning conversation into a concrete order book was tough. “We were getting retail interest, but you need a lot of retail interest to get £70m away.”
The delays kept coming. Some industry onlookers wondered if a listing would even happen, and when M7 entered takeover negotiations with Oxford Properties, the deal was put on pause. It was during this period that Croft rethought his strategy for the Mailbox, which he had grown increasingly attached to. A listing on IPSX Wholesale, targeting institutional rather than retail investors, would allow M7 to sell a smaller stake in the REIT and to have higher gearing.
Last week’s deal saw M7 keep a stake of roughly 70% in Mailbox REIT, which raised £25.8m in the listing. Warrington Borough Council, which already invests via M7, took a near-12% stake, with Saudi Arabia’s Agricultural Development Fund taking 4.7% via an existing M7 fund. Flexible workspace company IWG, which has signed up for space in the Mailbox, has taken a small stake, understood to be worth less than £1m.
Croft’s belief in IPSX hasn’t wavered during the drawn-out deal. He notes that the Mailbox listing completed the same week that M&G reopened its property fund, more than a year after closing it to redemptions. The old ways of investing in real estate just aren’t working, he argues: “These funds don’t work… The REIT market on the LSE has underperformed.”
But IPSX has shown another way, he says. “I am absolutely certain it is the future of real estate investment… The largest asset class in the world is real estate, and it has no liquid exchange. If ever a part of capital markets infrastructure needed updating and changing, it’s real estate, and IPSX has done it.”
The next challenge is to make sure there are more deals – for now the Mailbox share price scrolls as a solitary ticker symbol on the IPSX site. “It’s a win but it will be a pyrrhic victory if we don’t convince the industry that this is the future,” Croft says. “I’m under no illusions that we need to follow this up with another five or six listings quickly.”
The next could be another M7 asset – Croft and colleagues want to list Bridgewater Place House in Leeds, with marketing expected to start soon. Croft’s preference would be to make it the first IPO on IPSX Prime, but events of the past year have shown him the drawbacks to committing to one route too soon, and he doesn’t rule out another Wholesale listing.
In the meantime, last week’s deal could finally encourage more asset owners to come forward with their own floats. Based on the messages received from industry contacts over the weekend, Croft says, he’s confident. “We’ve now got enough people looking at us and going ‘they climbed Everest in their underpants – they’re probably due some respect.”
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