- LEX Markets is a startup aiming to make commercial real estate investing more accessible.
- Users can buy and trade shares of individual properties through LEX’s trading system or app.
- See the pitch deck LEX Markets used to raise $15 million in Series A funding here.
Drew Sterrett was structuring real estate transactions while working in private equity when he realized the inefficiencies that existed in the market.
Only high net worth individuals or accredited investors could participate in commercial real estate transactions. If they ever wanted to leave a partnership or sell their stake in a property, it was difficult to find another investor to replace them. Owners also struggled to sell minority stakes in their properties and didn’t have many good options to recapitalize an asset if needed.
In short, the market had a high barrier to entry despite not always having enough participants to close trades quickly.
“Most investors don’t have access to high-quality commercial real estate investments. How can we have the world’s oldest and largest asset class and one of the biggest wealth creators without a public market and liquid? Sterrett told Insider. “It kind of seems like a no-brainer, and that it should have existed 50 or 60 years ago.”
Sterrett contacted Jesse Daugherty, a friend working as an engineer at Google, with his idea for a marketplace for commercial real estate securities.
The result was LEX Markets. Accredited and non-accredited investors can create and fund an account to buy shares in individual properties through LEX’s alternative trading system, which uses Nasdaq technology, or its mobile app.
Earlier this month, LEX Markets announced a $15 million Series A funding round led by Peak6 Strategic Capital. Khosla Ventures, Two Lanterns Venture Partners, and MUFG Innovation Partners also participated, bringing the total capital the startup raised to $27.5 million.
LEX launched its first real estate IPO on the platform in November 2021 for 286 Lenox Avenue, a retail and office space in New York’s Harlem neighborhood. Shares are priced at $250 at the time of a property’s IPO, and shareholders receive quarterly distributions of income generated from the property.
LEX makes money in two main ways: through sales and placement fees it assesses to place a property, and through an annual commission equal to 1% of asset distributions. LEX does not charge any account fees or additional commission on transactions.
The company says it currently has more than 12,000 users in its system and about 1,600 have set up brokerage accounts to invest.
While the concept may sound similar to real estate investment trusts or offerings from other startups in the space, LEX is unique in that it provides access to non-accredited investors and shares can be purchased and traded in an individual property as opposed to a collection, depending on his deck.
While smaller retail investors may not be as familiar with real estate, Sterrett says he hopes LEX can help users realize that real estate is more intuitive than other investments.
“The beautiful thing with real estate, and particularly individual assets, is that you’re dealing with a hard, physical, tangible object, right? And that’s actually a lot easier to understand that why shares of a certain public company trade at a certain price-to-earnings ratio, right? The fundamentals are simple,” Sterrett told Insider.
Sterrett and Daugherty say they plan to use the new Series A capital to continue to strengthen their marketing and sales teams as they aim to increase awareness of LEX Markets. They will also seek to develop engineering and real estate teams to increase deal volume.
The company also plans to invest in producing content for potential investors and established real estate professionals to better understand investing with LEX.
The co-founders plan to grow the company’s workforce from the current 30 employees to 55 before the end of 2022.
“We built a bridge. The bridge is finally open. Now people can cross it and become real estate investors,” Daugherty said.