LEX Markets is a commercial real estate investing and trading platform. LEX Markets serves as an intermediary between investors and real-estate firms looking to sell stakes in individual properties. The platform can arrange securities sales in increments of $100 for buying and selling.
Commercial real estate is a huge asset class that has received increased interest due to real estate syndication deals and real estate crowdfunding. Trading in individual pieces of commercial real estate properties on LEX’s platform for as little as $100 is a new offering.
How Does LEX Markets Work?
Lex issues securities non-accredited investors can buy under the Jumpstart Our Business Startups Act of 2012. The act’s Reg A+ provision lowered the accounting and disclosure standards for certain public offerings, allowing investors with less than $1 million in net worth to buy them. Under the provision, issuers can raise as much as $50 million.
Lex does the due diligence for you and offers details about the investment. Then it's up to you to buy or sell the property as you would a stock.
Drew Sterrett, co-founder said property owners will determine the amount of each asset they want to sell on LEX's platform.
Acting as an arranger, Lex will enlist third-party appraisers to determine how much equity each $100 unit buys, he said. Property owners pay to list their deals on the platform, and investors can place their initial order for those units and then trade them.
How Did Lex Markets Start?
Drew Sterrett said the idea behind LEX emerged one late night in 2017, when his brother Dean called him at the office seeking investment advice. Dean, 22 at the time, lamented to Drew, who was 24, that as unaccredited investors they couldn’t own real-estate properties directly, he said. The brothers founded Lex in July 2017.
Therefore, please note LEX Markets is a very early stage startup run by relatively young and inexperienced commercial real estate investors. The founders are Drew Sterrett, Dean Sterrett, and Jesse Daughter. It would be wise to wait several years to see how the platform develops before making any investments. After all, you don’t want to add unnecessary platform risk when you’re already taking risk in the securities.
When it comes to investing with new startups, platform risk is real. The last thing you wanna do is invest in a commercial real estate deal and then have the platform go under.
LEX Markets raised a Series A round of $15 million in January 2022, lead by PEAK6. The funding gives them breathing room in this extremely competitive private real estate syndication space. However, since mortgage rates have rocketed higher in 2022, real estate transaction volumes have slowed down tremendously. Many sellers are taking their homes off the market and many buyers are just taking a wait-and-see approach until inflation and mortgage rates start declining.
VP Of Marketing Hire
LEX Markets hired a guy named Adam Singer to be their VP of Marketing. However, Adam was the CMO at Think3 for only one year before joining. Before that, Adam was a Digital Marketing Director at Invitae for only 10 months. Therefore, there is not a lot of experience or stability with the team just yet.
But if you are on Twitter, Adam spends a lot of time on the platform and particularly likes to bash San Francisco, where he used to live as a Google employee. His obsession with San Francisco is pretty entertaining, especially since he no longer lives there.
Adam even publicly called me a troll once for publishing a post on CNBC about the rising cost of living a middle-class lifestyle. That was ironic because LEX Markets is based in New York City and invests in New York City real estate among other expensive markets.
I've never bad-mouthed Adam before, so I was disappointed in his words and lack of maturity.
You would think the VP of Marketing at LEX Markets would be more empathetic to families facing ever-rising costs in big cities like NYC. It’s one of the main reasons why Adam left San Francisco in the first place. He couldn’t afford a home there despite working at Google as a single guy.
Adam now lives in Austin and doesn't have children. Therefore, it’s hard for him understand the cost of raising children in a big city. But to be so vocally negative about real estate markets LEX Markets does business in is incongruent with the company’s mission. It should make you hesitant about investing with them as a result. Hiring Adam also shows a lack of judgement by LEX Markets management.
I'm bullish on big city real estate post pandemic. But if the VP of Marketing at LEX Markets isn't, then what does that say about the big city real estate investments LEX Market makes? The messaging is inconsistent, so I would beware investing anything with LEX Markets.
To no surprise, the VP of Marketing left under one year and is now looking for another gig.
LEX Market Partnered With NASDAQ
On June 25, 2020, LEX announced it had partnered with Nasdaq to power its trading platform. Nasdaq’s Marketplace Services Platform will serve as the underlying technology for LEX’s alternative trading system (ATS). With road-tested technology in place, LEX will unlock previously unavailable matching opportunities between property owners and retail and institutional investors at speed and scale. The company will also be able to demonstrate integrity and trust through transparent price formation mechanisms that inspire confidence for participants and investors.
“We are excited to forge this partnership with Nasdaq and create the most powerful platform for trading real estate securities,” said Drew Sterrett, co-founder and CEO of LEX. “Nasdaq’s market leading technology will allow LEX to scale with the sophistication of a global market and helps us achieve our mission of opening access to the asset class for both retail and institutional investors. Properties have historically traded hands over the course of years. Nasdaq is providing us with the technology to make it happen in under a second.”
I don't exactly how this business relationship will work. But partnering with NASDAQ is obviously a good move from a reputation and association standpoint. At least we know the trading should be stable.
LEX Market Alternatives
If you're interested in investing in commercial real estate, then invest for the long term. Buying and selling commercial real estate stakes is not a good use of time. Your Return On Investment and Return On Effort will be low. The data has consistently shown that active investors underperform passive investors.
Instead of trading commercial real estate through LEX Markets, invest in commercial real estate over a multi-year time horizon. Take a look at my two favorite real estate crowdfunding platforms.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the way to go. Fundrise manages over $3.2 billion and has over 300K investors.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio.
I've personally invested $810,000 in real estate crowdfunding in the heartland of America. I want to take advantage of lower valuations, higher cap rates, and strong demographic trends post pandemic. Real estate should hold up for years to come. Although, prices will be slowing, especially in the hottest cities.