LEX Markets Takes Partial Share of a Mixed-Use Building Public

LEX Markets LLC announced that it had launched an IPO for a single retail and office property— 286 Lenox Ave. in New York City—that was open to virtually any size investor who could afford $250 for a single share.

The building is fully leased and stabilized with three tenants, including a Wells Fargo Bank branch, occupying the 18,759 square feet with 13,560 square feet of office space and 5,200 square feet of retail space, according to filings with the Securities and Exchange Commission. 

The newly formed Delaware limited liability corporation 286 Lenox Partners is the legal entity that would acquire a membership interest in Regal 286 Lenox LLC, another Delaware limited liability company that owns and operates the property. Regal Capital Acquisitions is the manager of the building.

The IPO aims to raise between $1.5 million and $2.15 million, at a price of $250 a unit or share, meaning that a fully subscribed offering would involve 8,600 units. Baker Tilly US is listed as the auditor. 

“Our product, by offering an interest in only a single asset, not a pool of assets, is appealing to that do-it-yourself stock picker crowd,” Michael Friedman, CEO of the broker-dealer LEX Markets, a subsidiary of LEX Markets Corp., tells GlobeSt.com. “If you want to rely on others for investment decisions, there are already choices. There are already REITs out there where people can buy into pools in something like an ETF.”

The IPO must clear the minimum offering of 6,000 units by at least March 31, 2022, or it would be canceled. Otherwise, the subscription period runs until September 30, 2022, unless filled before then.

Unlike the more typical process in creating public entities, this offering is occurring under SEC Regulation A, which “allows companies to offer and sell securities to the public, but with more limited disclosure requirements than what is required for publicly reporting companies,” according to the SEC.  “In comparison to registered offerings, smaller companies in earlier stages of development may be able to use this rule to more cost-effectively raise money.”

This may be the first time a company might successfully launch an IPO for shares of a CRE property. There have been some unsuccessful attempts in the past, such as when ETRE Financial partnered with OMX to create single-property REITs in 2014, as noted by ETFTrends.com. But ETRE had at least three major property IPOs that the company withdrew according to the Philadelphia Inquirer.

“We’re deliberately targeting smaller sized buildings than those other guys,” says Friedman. “We think we will be able to and we’re not biting off more than we can chew. They’re too small to be listed on an exchange, so they fall into the category of over-the-counter equities. There is a very healthy market for that type of security.”

Under Regulation A, according to the SEC, there are limitations on how much non-accredited persons can invest: “no more than 10% of the greater of the person’s, alone or together with a spouse, annual income or net worth (excluding the value of the person’s primary residence and any loans secured by the residence (up to the value of the residence).”

Friedman says part of the attraction to DIY investors is a triple line of return: rent, land appreciation, and pay-down of the mortgage, which means shares are less burdened by debt and so see growing value. Once the offering is complete, investors are free to buy and sell existing shares through over-the-counter exchanges or through its own system. That offers ready liquidity that may be unavailable in traditional real estate investment.

Another approach used by MarketSpace Capital in October 2021 was to employ blockchain technology and tokenize shares. Original investors must hold for a year, but then can trade their shares with tokens on a blockchain exchange platform like tZERO.