Bringing a New Market Structure to Trading Real Estate
Imagine having the opportunity to invest in commercial real estate assets as an “electronically traded property” on a national exchange? Last week, ETRE Financial launched a real-time platform for investing in the shares of commercial real estate assets and REIT portfolios listed on exchanges, a move that could bring the transparency of equities trading to the commercial real estate market.
“The purpose of the platform is that you have a bond market electronic, you have the equities electronic and the movement of FX and commodities to electronic, and the one major asset class that hasn’t made that generational leap is real estate,” says Paul Frischer, CEO of ETRE Financial, a New York-based real estate and financial services company.
The problem is no one has converted the metrics of equities into ‘price per square foot’ or tenant risk of individual properties which are the conventions of real estate.
“We believe that a lot of it has to do with the conversion of price per square foot or price per unit in multihousing. Investors want a technology platform in place that can do those conversion values,” explains Frischer. While equities is a transparent market that offers tons of information on corporate earnings per share and dividends, the same kind of insights are needed for real estate so that the investor can look at individual real estate properties with as much information, he says.
“You really don’t have access to a single platform that provides you with real estate related metrics where you could evaluate those properties the same way as if you were buying equities,” maintains Jesse Stein, ETRE Financial’s executive managing director.
The company has coined the term Electronic Traded Properties or ETP, defined as a series of publicly traded securities that enable investors to buy and sell ownership in single asset commercial real estate on national stock exchanges.
On each of the publicly traded REITs, ETRE Financial provides a data room that provides the real estate metrics. “We’ve converted all the equity information into real estate,” says Stein.
The new tool set offers data on real estate investment trust (REIT) holdings, tenants and real-time pricing in terms of price per square foot, price per unit, and price per key, according to the release. Portfolio REITs have underlying pools of real estate assets.
For example, the firm’s tenant risk ratings page, shows a list of public companies, ( i.e, Abercrombie & Fitch, JP Morgan Chase, Red Hat, Merck, Morgan Stanley, Starbucks, etc.), with their annual rental income, square footage and tenant risk ratings for each tenant in a single property, portfolio or REIT.
“We have the list of tenants, all of the property information on revenue and on operating expenses and then on different types of real estate per square foot values, cap rates, things that real estate investors would want to see,” says Stein. In real estate, when you look at the price of a building, it’s adjusted for market capitalization, an equities metric, but investors want to see how much debt is in the building, what are the minority interests in the building, amount of cash that’s on hand and other factors. “There‘s a table of factors that need to be coupled together in order to give proper pricing,” said Frischer.
Currently, 143 REITS are being traded via the platform, and individual data rooms are offered for each REIT. In addition, the platform is built to allow trading in individual equities, so an investor could trade Apple and Facebook too. “It actually speaks to both the equity community and real estate community,” says Frischer. “We are bringing in the real estate community who can participate in trading equities and REITS but in their language,” continues Frischer. Someone who trades a bushel of corn would have the same difficulty going to the equities markets, he relates.
If I’m trading Vornado, I can trade that in price per share on an exchange, in a regular way, but the investor or trader can also see their price in per square foot. It can compare Vornado’s to say SL Green’s building portfolio in the non-exchange environment. “Now there’ the potential to bring more commercial real estate to the exchange market because the metrics are there now,” says Frischer. Then the use could see Apple and Vornado trading as standard equities, but go into the native data rooms to compare Vornado to other non-public real estate assets.
Initially, the platform will allow for trading in portfolio REITs only, but as single asset REITs are brought to market (which hasn't yet happened), the ETRE platform will enable trading, and in fact listing of these assets, according to a company spokesman.
ETRE Financial is targeting the entire international community, according to Frischer who points out that commercial US real estate brings in every user around the world, including sovereign wealth funds and pension funds. Take an entity that has an allocation to the stock market, and may be looking at the REIT market as another equity allocation, but may not have real estate metrics, says Frischer. “You’re bringing in two sides, the commercial real estate side that may not be currently invested in the REIT market, and you’re bringing in other investors around the world,” insists Frischer.
Running in a cloud environment, the platform is available to institutional investors, traders, property owners, brokers, financial advisors and individual investors globally through a secure Internet-browser-based system.
The company plans to launch the trading side of the platform within a month’s time. ETRE is offering an order management system (OMS) connecting the user to their brokers, similar to the structure in equities. Connectivity exists but all the documentation and the paperwork has to be completed between the client and the broker. Ultimately, ETRE Financial will have two sites, one for institutional investors and the second one geared for retail trades. The goal is to broaden the appetite for the commercial real estate marketplace and to reach people who may not have invested in commercial real estate portfolios because the metrics did not exist.
Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio