Investors are accustomed to purchasing shares in publicly traded real estate investment trusts, but the REIT route means buying shares in multiple properties within an asset class, often diversified geographically. Investing in individual buildings usually requires lots of cash or access to credit.
Lex, a marketplace for trading real estate assets, was founded in 2017 by Drew Sterrett, a former private-equity analyst; his brother Dean; and former Google software engineer Jesse Daugherty, who has sought to democratize real estate investing.
“Real estate is the oldest and largest asset class, and one of the largest wealth creators,” Drew Sterrett said. “It didn’t make sense that most people couldn’t participate in an open and accessible commercial real estate securities market.”
Investors, especially inexperienced ones, should be careful about buying shares in an individual building, said David Eyzenberg, president of New York–based real estate investment bank Eyzenberg & Co.
“If I’m not a sophisticated investor, I have no way of knowing whether this is a good deal or a bad deal,” Eyzenberg said. “I can see a lot of pitfalls for investors. You better really understand what you’re doing.”
Investing in REITs is less risky, he said.
“There’s this whole backdrop of an ecosystem propping up the valuation of SL Green. And it’s also diversified,” he said. “Even if SL Green screws up on one property, there are 100 others to backstop it.”
But for the people raising money, Eyzenberg said, the possibilities are endless.
“Here, the world is your oyster,” he said. “Your access to investors is substantially wider.”
The owner of the Harlem building that’s going public, Regal Capital Acquisitions, hopes to raise $2.15 million by selling 49% of an equity stake it values at $4.39 million so that it can return some money to its private investors. There will be 8,600 shares up for grabs, which at a $250 apiece, plus debt, would value the property at $11.3 million.
This way, the money that’s raised doesn’t have to be paid back to more investors, Bren said.
“It’s permanent capital,” he said
Current tenants at the fully leased property include Wells Fargo, the Child Mind Institute and the Visiting Nurse Service of New York.
The building’s financial reports, which were prepared according to U.S. Securities and Exchange Commission accounting rules, show losses at the property. Between March and December of 2020, the property lost nearly $831,000, then recorded further losses of more than $276,000 despite the building being fully leased.
Sean Dainese, a director at Regal, said that’s because SEC accounting requirements call for the firm to report its 99-year ground lease in equal annual payments rather than with gradual rent increases called for in the agreement itself.
The building’s income statement shows that it spent $1 million on its ground lease last year, for example, when it actually spent $336,452, Dainese said.
“We’re actually cash flow–positive,” he said.
Before Wells Fargo became its anchor tenant, the address was home to the Lenox Lounge, an iconic Harlem jazz club where Miles Davis, Billie Holiday and other legends performed. In 2012 the site shuttered after more than 70 years of slinging cocktails to music fans.
In 2016 the building’s previous owner, Real Estate Equities, purchased the site, demolished it and built the current 4-story mixed-use office building.
Regal entered into a ground lease for the building in March 2020 for $10.2 million in the early days of the Covid-19 pandemic. But while most of the city was shut down and landlords began receiving fewer rent checks, 286 Lenox’s tenants never missed a payment, Dainese said.