Richard Croft, of Martley Group, is a trailblazer in transferring real estate resources into Proptech for industry evolution. Leaders like Croft are rare gems, challenging the traditional field with initiatives like his M7 spin off Coyote Software and the vision to explore global proptech interest via the Unissu platform. His recent commitment to fractionalisation in Commercial Real Estate (CRE) has been causing a stir in the landscape for over half a decade.
Looking forward, it’s vital to steer future resources towards the most impactful tech endeavors. Post the multi-million IPSX experiment, the big question remains: Is ‘fractionalisation’ still the future for CRE?
The IPSX Case Study: A Closer Look
Recap: IPSX, backed by industry giants like British Land and top brokers including Cushman & Wakefield, JLL and Avison Young, promised a revolution. But why didn’t it soar as expected? This raises concerns for smaller start-ups eyeing up success in fractionalisation. It’s also a critical point for graduates and RICS APC candidates exploring and studying this domain.
Let’s not just be armchair critics. It’s essential to learn from the past: was the buzz around NFTs and tokenisation, including real estate, just a fad?
The issue with IPSX was seemingly straightforward: a shortage of willing parties to launch properties on the exchange.
Last week’s report from REACT News highlights Richard Croft’s launch of the Martley Group, his unwavering belief in CRE fractionalization, and a playful challenge to potential competitors who stand to be billionaires when triumphant with his original ambition.
Croft sees the IPSX situation as a hiccup in execution, not a potential flaw in vision. Indeed, IPSX set up the first CRE exchange for single assets and gained FCA regulation, drawing support from prominent UK property establishment businesses. The execution was more successful than critics may suggest – better than even Croft’s self-styled assessment. So, why the reluctance from brokers and fund managers to embrace this innovative platform?
The Place of Property: A Deeper Insight
There are deeper reasons to approach CRE fractionalization cautiously. Here’s why:
- Active Management Needs: single CRE assets typically demand focused management for value generation. Quick decision-making is crucial, especially now with shorter lease terms and operational scenarios.
- Property and Power Dynamics: Cambridge University’s Professor Denman’s 1970s insights into Property and Power are even more relevant. These concepts continue to be overlooked in public and political discourse. In a ‘woke’ world, the contrast between seductive communal ideals and the realities of ownership is stark. If Denman were around today, he would be the first among Oxbridge dons to challenge wealthy elite advocates of a ‘rent-everything-own-nothing’ world.
- The Law of Proprietary Magnitudes: Denman’s theory highlights the inverse relation between the number of owners and degree of care bestowed on a property. More owners often mean less attention to maintaining and enhancing value.
- Supply and Demand for CRE capital: The dynamics of supply and demand don’t necessitate a fractionalisation solution in CRE. Institutional Sellers and Brokers seek credible, well-funded bidders, a challenge for fractional ‘owners.’ JLL’s recent Q4 report reveals $404 billion dry powder reserve for asset purchases, and emphasises the advantage for first movers with ways and means.
In Summary
Fractionalisation in CRE:
- Is not a pressing need from the market’s sell-side.
- Introduces undue ownership complexity and dilutes property rights.
- Makes proactive asset management for value less feasible.
While fractionalization adds an exciting dimension to CRE, it requires a balanced, careful approach considering the industry’s unique dynamics and needs.
For any student of commercial real estate, Professor Denman’s book comes highly recommended:
