The $300 Trillion Real Estate Market Is About to Be Upended: Can You Say ‘Tokenization’?
The $300 trillion global real estate market – whose massive transactions have been steered to investors with deep pockets – is about to undergo a transformation that will open it up to the every-day investor who wants a piece of the action.
The move toward democratizing the real estate market is already underway, says Yael Tamar, co-CEO and co-founder of SolidBlock, a Tel Aviv, Israel-based financial services firm specializing in blockchain, cryptocurrency and “tokenization.”
She says small investors have already been able to purchase pieces or “tokens” of major deals through the creation of a secondary market using blockchain technology.
“We are really striving to give everybody access,” said Tamar, who spoke from Tel Aviv to more than 30 executives who attended Think’s virtual Whiskey Wednesday in July.
As cryptocurrencies and blockchain edge into the mainstream the world of finance, banking, cyber security, insurance, government, real estate and even the art world are being transformed.
In finance, most transactions, she said, are governed by centralized banking system. When money is wired to an institution or individual the transaction is routed through a series of banks, even if a payment system like Venmo is used.
In the virtual world banking and finance will become decentralized and people will be the custodians of their assets. They will come together to transact business under a decentralized platform or exchange, Tamar said.
These changes are already taking place in real estate.
In 2018, Elevated Returns (ER), a New York-based asset management company servicing the hospitality, real estate and consumer brand industries, aimed to raise $18 million to recapitalize the St. Regis Aspen Colorado resort.
When traditional fundraising efforts didn’t pan out, ER turned to SolidBlock.
SolidBlock specializes in the “tokenization” of assets and moving transactions to the digital world with blockchain technology. “Tokenization helps asset or fund owners raise capital more efficiently, and gives investors unprecedented access to private real estate investments, transparency, and liquidity,” according to SolidBlock’s website.
In short, tokenization is a cryptocurrency fundraise in which investors exchange cryptocurrency for “tokens” in a project. The project, or asset, is divided into shares or securitized and sold to investors. Tokens represent a “predefined share of the underlying asset” and are called security tokens.
“These tokens are secured through the immutability of blockchain technology, and they’re tradeable via crypto exchanges or Alternative Trading Systems (ATS),” according to SolidBlock.
In ER’s case, it asked SolidBlock to tokenize the equity of the resort through a security token issuance on SolidBlock’s blockchain technology, Tamar told the executives. Some asset owners decided to sell their tokens via a crowdfunding campaign. SolidBlock worked with Indiegogo to launch the Aspen Coin, which represents fractional ownership in the St. Regis Aspen Resort.
The result: ER raised $18 million, and “for the first time in US history, SolidBlock produced a blueprint for future real estate tokenization that was effectively mainstreamed, provided global exposure, public access, liquidity, and transparency. Yet, most importantly, it was fully regulated and compliant, in accordance with SEC regulation,” according to SolidBlock.
Tamar believes tokenization is the bridge between traditional finance and Finance 2.0. She expects to see more real estate transactions tokenized as investors become more comfortable with cryptocurrencies, blockchain and tokenization.
“Things are definitely going to change,” Tamar said. “We all have to prepare ourselves for that world.”