Family Office Real Estate

Family offices back real estate securitisation – but will it catch on?

An office block in the UK city of Birmingham has become the first building to be securitised on the International Property Securities Exchange, with the backing of family office investors.

Elsewhere, US-based Lex Markets has secured additional funding for a strategy that involves listing fractions of US buildings on its own exchange.  

The big question, in each case, is whether shares in individual buildings can attract enough liquidity to achieve an effective two-way trade

In cyberspace, promoters are marketing schemes that seek to sell tokens in individual buildings using blockchain. In the latest initiative, provider 360X has secured the backing of Deutsche Börse and Commerzbank to develop a platform to trade real assets, including property.

The big question, in each case, is whether shares in individual buildings can attract enough liquidity to achieve an effective two-way trade. 

If this can be achieved, however, landowners, including family offices, will have a fascinating way to raise equity finance on individual properties without needing to sell all of them.

IPSX was started in 2015 to provide property owners with an opportunity to raise finance by listing shares in specific buildings, as outlined by Family Capital on 7 July 2020.

M7 Real Estate was an early investor in IPSX and agreed to provide the Birmingham building known as the Mailbox, comprising 698,000 sq ft of space mainly let to office tenants like the BBC and Harvey Nichols. 

M7 has sold 30% of the shares to family offices, which it declines to name, Saudi Arabia’s Agricultural Development Fund and Warrington Borough Council. 

M7 retains 70% and hopes to list another building, Bridgewater Place House in Leeds, in due course. M7 has just been bought by Oxford Properties, the real estate arm of Omers, the Canadian pension scheme 

Mailbox wants to offer investors a yield of 7% in due course. The building has a market value of £181 million funded with debt totalling £110 million. It has raised £13 million to cover costs leading to a market value of £86 million.

IPSX has hired several trading firms to boost turnover in Mailbox shares, now standing at a slight premium to their issue price.

Lex Markets has also started trading buildings using Nasdaq technology but does not reveal details. It has raised venture capital for its initiative which now totals $12.5 million. Second Century Ventures and Subversive Capital invested an undisclosed sum in April.

The digital route to achieving the sale of fractional interests via tokenized contracts – and NFTs – has been attempted on a number of occasions. Several proposals are plausible. But promoters have often struggled to attract liquidity and recent volatility in crypto markets is unlikely to help.  

The 360X initiative is a step forward, given it has won the backing of heavyweight German institutions. 

Theodor Weimer, CEO of Deutsche Börse AG says: “I am convinced that Deutsche Börse has to venture into new asset classes. In the future, we will see a broad tokenization and digitisation of assets that are not tradable today.”

 

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