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Real estate exchange set for first retail IPO

Exclusive: Owners of iconic Liverpool office block seek listing on retail segment of IPSX
October 24, 2021

Ordinary retail investors could soon get to deal in an innovative exchange for property assets, after the private equity owners of the iconic Capital Building in Liverpool kicked off the process for listing the property as a single asset company.

Starwood Capital, a Miami-headquartered private investment firm, has appointed advisers to explore an IPO of the building on the International Property Securities Exchange (IPSX). The float, the first of several set to be announced in the coming weeks, will take place on the Prime segment of the exchange, making it open to retail investors.

Despite gaining consent from the Financial Conduct Authority (FCA) in 2019, IPSX struggled to get off the ground after the pandemic put a long pipeline of potential listings on ice. The exchange eventually completed its first listing in May when The Mailbox building in Birmingham was floated by M7 Real Estate, though rules around leverage and float size meant the offering was restricted to institutional investors.

IPSX was set up to give investors direct exposure to single, institutional-grade assets that typically only major asset managers, sovereign wealth funds and private equity firms can afford. Investors will be able to buy and sell shares in individual buildings as they would on equity exchanges, via a broker, while property owners are able to raise capital by selling part of a building.

“This is the most exciting development in real estate investment in the last 300 years,” said Richard Croft, who is both executive chairman of M7 and an IPSX shareholder and non-executive director. “This allows all investors to deal with the frictional cost of real estate, and it is all thanks to tokenisation, unitisation and securitisation.”

Croft said trading in The Mailbox has so far been encouraging, citing the company’s premium to book value and the fact that “every trade that needed to happen has happened”. M7 is exploring plans to switch The Mailbox from the Wholesale to the Prime segment of IPSX and is hopeful that retail investors will eventually be able to trade via popular investment platforms like AJ Bell and Hargreaves Lansdown.

A prospectus for the Capital Building is yet to be signed off by regulators, and its investment manager would not comment on valuation, float size or initial yields. But assuming the listing progresses, at least 25 per cent of the building will have to be sold at the point of admission, as per listing rules. Dividends will be distributed on a quarterly basis.

As with securities listed on the LSE, the company will also be required to disclose any material changes to the company’s prospects or value, such as new lease agreements.

The Capital Building was built in the 1970s and was solely occupied for several decades by the insurer Royal & SunAlliance (RSA). It was acquired for £55m in 2015 by Starwood and minority investor Trinity Investment Management, which manages the property.

Occupying a freehold site of almost 3.5 acres, the complex includes 425,000 square feet of office space, a 1,100-space car park and several retail units. In recent years, Starwood and Trinity have invested around £26m to refurbish the building, whose proximity to the waterfront and brutalist style architecture has earned it the nickname ‘The Sandcastle’ by Liverpudlians.

The rent roll has a weighted average unexpired lease term of 22 years spread across a five-strong tenant base that includes the Home Office and insurer RSA. Re-fit work means the building is currently just 82 per cent let, though Trinity said office vacancies across Liverpool are at their lowest level in a decade, following a slowdown in new construction activity and a rise in office-to-residential conversion.

At the end of 2019, chief executive David Delaney told us the costs associated with owning a share in one asset should be lower than those in a real estate investment trust (Reit), given the extra overheads involved in managing multi-property portfolios.

At the time, Delaney said there were 28 companies interested in listing across IPSX’s Prime and Wholesale segments. Croft told us he would hope 20 buildings are listed on the exchange by the end of 2022. “We expect there to be a raft of offerings next year,” he said. “The more assets there are, the greater the diversification and the bigger the interest.”