Real estate is one of the biggest investable asset classes set for serious disruption as blockchain enabled tokens break down long-standing barriers to making entire asset classes liquid and tradable.
The tokenisation of real estate will entice traditional investors like hedge funds into the world of crypto, open the doors to first-time investors and millennials, and offer accredited investors from all corners of the world access to Western markets.
“Typical venture capitalists will realise the advantages of not being locked into their investments for up to a decade before realising any profit,” says Idan Miller CMO of the Elephant.
“At the same time, smaller qualified investors, individuals and/or crypto investors will enjoy being able to invest in a variety of asset classes typically accessible only to large investors (such as real estate, equity, and artwork), increasing their ROI and diversifying their portfolios.
“People who got into investing through the world of crypto will prefer tokenised equities over different investing methods involving fiat currency or even actually buying properties,” he says.
Prior to the token and blockchain revolution, real estate investment has worked through three main platforms: direct investments, REIT – Real Estate Investment Trust, or through a private equity fund which manages properties.
But direct investments in real estate are not liquid; you cannot sell your flat overnight and a further disadvantage is that it’s difficult to invest abroad.
REIT, a fund that manages properties for you and then lists the funds on the stock exchange, offers the benefit of the minimum investment being lower than having to directly purchase a property. It’s also liquid as you can buy and sell through the exchange.
The downside to REIT is that it’s highly correlated to equity markets, so if equity markets drop in value, so will your investment in a period of stress.
Private equity, a fund which manages different types of real estate, is also not without its limitations: the minimum ticket for investment is quite high, usually starting at £250,000 and funds aren’t liquid with lock up periods generally being anywhere from 4-10 years.
Now the tokenisation of real estate investment carries the promise of rewriting traditional modus operandi and eliminating most previous disadvantages and limitations of the asset class.
It’s difficult to understate just how much more attractive the tokenised real estate market will become for investors in terms of liquidity, customisability, security, transparency and market access.
Scott Hoch, an analyst at Apex Token Fund, explains; “a new level of liquidity is created when tokenizing traditional assets. This liquidity makes it faster and easier to rebalance a portfolio as the market changes.”
And investors and blockchain start-ups are moving in full force to align their products and strategies with this opportunity.
In February 2018, Goldman-backed Circle acquired U.S. cryptocurrency exchange Poloniex.
The company envisions opening up the exchange into a place for more than just crypto assets to offer “a robust multi-sided distributed marketplace that can host tokens which represent everything of value: physical goods, fundraising and equity, real estate, creative productions such as works of art, music and literature, service leases and time-based rentals, credit, futures, and more,” according to a statement.
ICOs listed with a real-estate component include:
- BitRent, a way to speed up financing construction projects by selling tokens that represent real estate.
- Etherty, real-estate management through equity access. The company lets users buy and sell property through smart contracts and tokenisation of real estate.
- Caviar, a fund that tempers the volatility of crypto investments with loans to real estate projects.
- Trust, a way to tokenise equity in real estate and other real-world assets.
- Brickblock, which lets users buy and trade tokenised real estate assets, ETFs, and coin funds.
Leaseum, which brings tokenisation of real estate, is marching into the market as one of the largest examples of how the token economy is looking to transform large sectors.
Jonathan Fry, Chief Executive Officer of TeamBlockchain, explains “using tokenisation they enable investors to receive all or some of the monthly income in a highly cost effective manner without incurring the normal FX and banking fees.
“Leaseum are also looking to actively manage the discount and premium on the tokens compared to the portfolio’s NAV and having an attractive fee structure of only 1/2% p.a. and 20% performance fee.
“A proposition worthy for institutional investors looking to get exposure to real estate and or looking to start getting exposure to Cryptocurrencies, a New Asset Class.”
Leaseum is raising $250 million to invest in prime commercial real estate in New York City, opening up the $1 trillion U.S. market to crypto investors and bringing an unprecedented level of exposure to the market.
The company operates like a private equity fund, but investors will buy tokens that offer both dividend rights and capital gain rights instead of a share of the fund.
“According to J.P. Morgan even a modest allocation to Bitcoin over the past several years would have improved portfolio efficiency on average for a hypothetical multi-asset portfolio, and therefore would have raised risk-adjusted returns over the medium-term,” says Leaseum.
The tokenisation of real estate through blockchain offers liquidity, enabling trading of the asset class 24/7 and 365 days a year.
Its also uncorrelated to global equity markets and offers optional exposure to cryptocurrency markets which have shown near-zero average correlation with other asset classes over the past five years.
But the benefits don’t stop there. Tokenisation of real estate also brings decentralised trading and fractional ownership.
Traditionally when people want to buy and sell stocks they have had to work through exchanges which manage buying and selling orders, now the use of blockchain eliminates dependence on exchanges.
Firms such as Leaseum will make decentralised peer to peer trading possible through blockchain – a key advantage for sophisticated investors.
Fractional ownership of real estate investment will open up the lucrative investment market to the general public and smaller scale investors.
Where in the past a minimum of £250,000 was often required to invest in private equity, this barrier will be lifted to enable very low minimum investment sums.
Removing these barriers to real estate investment will entice a flood of diversified investors into enter the sector: institutional and non-institutional, fiat and crypto investors.
This will boomerang back around: different investors buying at different moments and for different reasons will bring new and unrivalled global liquidity to the asset class, multiplying its potential.
For investors ready to capitalise on new opportunities in the tokenised real estate market, what’s certain is that the sky’s the limit.