New York City-based LEX Markets Corp. recently introduced a new platform for investors in commercial real estate by making available equity shares of individual commercial real estate assets. Investors would be able to trade these shares, without fees or required holding periods, on LEX’s fully-licensed securities platform.
The first property made available on the LEX platform was an office and retail property at 286 Lenox Avenue in New York’s Harlem neighborhood. The property was listed in early November, with shares available on LEX’s platform at an opening price of $250 per share. The goal of the initial offering was to raise $2.15 million in equity.
Benzinga recently spoke with Drew Sterrett, LEX’s co-CEO and co-founder, about this distinctive approach to real estate investing.
Q: When did you begin LEX, and why did you begin it?
Drew Sterrett: The idea formed in 2017 – when I was working at a real estate private equity firm, structuring private institutional real estate deals with minimum investments of a million-plus. I didn't have the ability to write a million-dollar check or participate in the types of deals I was structuring in any way, and I realized that both me and people like me were excluded from these investment opportunities because of investment minimums.
I also realized that real estate is one of the oldest and largest asset classes in the world, and one of the largest wealth creators, but there was no public and liquid market – it was one of those things that should have existed 60 years ago. The solution that I created with my co-founders Dean Sterrett and Jesse Daugherty to fix this gap was to create the first commercial real estate securities market.
Q: How does an investor get involved with LEX?
Drew Sterrett: We created a retail brokerage platform, both web and mobile, where an investor can purchase a security that has a direct ownership share to an individual real estate asset. Each one of these securities is also accessible from any brokerage account, such as Schwab or TDAmeritrade, since the securities are registered with the DTCC, CUSIP’d, and settled CNS (Continuous Net Settlement).
Drew Sterrett
Q: How does the property owner get their property listed on LEX?
Drew Sterrett: We have a conversation and if we both decide listing with LEX can be helpful to them and their asset, they engage us. We fully underwrite the property, and do due diligence on the asset much like a lender or purchaser would do. LEX then takes a portion of the equity public via an IPO by filing a prospectus with the SEC. We usually recap up to 49.9% of the equity in the capital stack. It makes for good alignment for investors to know that the property Sponsor also has skin in the game. We effectively do a mini-IPO on the portion of the property’s existing equity that they're taking to the public market.
Q: What are the advantages of investing in a property on LEX?
Drew Sterrett: Of course, past performance is not indicative of future results. But, for example, if you go to LEX-Markets.com, there is a calculator where you can put in an expected hold period and, based on the pro forma contractual rent increases, and increases in operating expenditures and other expenses, the calculator shows a return profile of an IRR. It depends on the parameters the potential investor enters, since investors have the ability to buy, sell and trade at any point in time.
Q: How many people have already invested in the Lenox Avenue property?
Drew Sterrett: Roughly 1,500.
Q: What do you get for your $250 minimum entry price? And what do you get if you decide to invest more into the property?
Drew Sterrett: You’re buying an ownership share in the building. Same thing as when you’re buying stock in any other listed company. Specifically, the shares are structured as a publicly traded partnership, which is a qualified LLC, and that LLC is actually direct equity ownership in the asset itself. So, your share is pro rata, pari pasu for the total amount of proportional equity that you're purchasing. This means that you participate on the same basis as the Sponsor of the listing.
When the owner-operator takes distributions, investors receive the same distributions on a proportionate basis. It really is side by side ownership, which is also new for the market as well.
Q: What kinds of properties are you looking to list on LEX?
Drew Sterrett: We deal with all asset classes. The first property we listed was a parking garage in Portland, Maine. Our second asset, 286 Lenox Avenue, is a mixed-use office building in New York; and our third asset is a beautiful brand new ESG multifamily in Capitol Hill, Seattle. We expect the fourth property will be an industrial asset in New Hampshire.
LEX is online at http://www.lex-markets.com
Photo: 286 Lenox Avenue (center), the first property offered to investors on the Lex platform. Photo courtesy of the Lex Markets Corp.
