THE REAL ESTATE TOKENIZATION INDUSTRY

Commercial real estate buildings tokenized with security token symbols connected in the air above them.

How Blockchain Will Change the Future of Real Estate Investing

Real estate tokenization is taking all the benefits of private real estate investments — tangible asset, income-producing cash flow, tax benefits and appreciation — and combines it with blockchain technology to provide new opportunities for both property owners and investors.

Ethereum data blocks linked by blockchain technology.
Ethereum data blocks linked by blockchain technology.

Tokenization is a way to digitally secure assets

Tokenizing real estate allows owners, syndicators and fund sponsors to tap into worldwide investment capital, streamline the process and automate administrative functions. Tokenization is a way to digitally secure real estate assets (or other assets like art, container ships, whisky funds and even sports star contracts) as a regulated securities offering.

Security Token Offerings are regulated securities

These tokenized offerings are known as Security Token Offerings (“STO”) and are regulated by the SEC in the US. An STO is not the same as cryptocurrency, which consist of unregulated Initial Coin Offerings (“ICO”). With an STO, a property, portfolio of properties or fund can be tokenized as a securities offering in which investors can buy fractionalized shares of the offering (i.e. the digital tokens).

Tokenizing assets creates extra benefits for investors

When tokenizing real estate assets, investors benefit from:

Security Token issuance platforms are the on-ramps for digital assets

The next step in the STO process is to engage with a token issuance platform. The Security Token issuance platforms are the on-ramps for connecting tokens to the blockchain and making them actual digital assets. Many platforms also provide investor portals and other valuable services, which improves the investor experience and keeps investors informed on their investments.

A few well known Security Token Issuance Platforms include:

· Blockstate — Switzerland

Security Token Offerings are similar to a normal syndication

A Security Token Offering is launched in the typical way: investment capital is raised through normal private placements. This can be through a crowd sale, broker-dealer offering, organic website traffic, existing investor lists or friends and family. Depending on the offering, Security Tokens allow investors worldwide to choose the best investments for themselves in other parts of the world. Private real estate investments have always been mostly local, but now investors can invest in the best or most advantageous places anywhere in the world.

Investors in Digital Assets have flexibility on how they hold assets

After the investors receive the PPM, complete the subscription agreements and any other necessary paperwork, they then invest their equity in the offering. All that information is programmed in a Smart Contract then “Minted” into a Token and issued on the blockchain.

Investors control and hold their Digital Assets

Unlike traditional public securities where the investor typically never sees a stock or bond certificate, investors can choose several different ways to hold digital assets (Security Tokens, Cryptocurrencies and Non-Fungible Tokens).

STOs have a Lock-Up period before trading can begin

Once tokens are created and issued to investors, there is a one-year “Lock-Up Period” in the US where the tokens cannot be resold or traded. The Lock-Up period in other countries may vary depending on the regulations.

STOs create options for investments and income in different currencies

Additionally, investors can potentially invest with dollars, euros, yen or other currencies and receive their income from the real estate investments in the same currency or in Stable Coin or Ethereum. You can see why we are so excited by the possibilities and options security tokens provide to investors.

Coin path from triple net businesses through Liberty token to investors.
Coin path from triple net businesses through Liberty token to investors.

New flexibility for investors to decide their holding period

Investors can also sell, trade or divide their tokens (depending on terms of smart contract) among family members for estate purposes, or even donate their tokens to charitable causes. Security tokens have the extra potential to provide never before seen liquidity for private real estate investments.

Digital Assets can be traded directly from person to person

Selling and trading security tokens can be peer to peer. For example, if I own $100,000 worth of the CVS mentioned earlier and each token is issued at $10,000, I can decide to sell five tokens to a friend. I put up the tokens for sale on the platform portal and my friend agrees to pay $50,000. As long as the tokens and money are placed in the trade, the exchange will automatically be executed by the smart contract. This can take place 24 hours per day, 7 days per week. The smart contracts don’t take vacations or time off for national holidays.

Security Tokens can be listed and issued on Digital Exchanges

Additional ways for investors to trade are dedicated security token exchanges where token holders can list their tokens as “for sale.” Additionally for issuers and investment sponsors, most of these exchanges listed below will also list your token issuance as a mini IPO and distribute your securities directly to qualified investors.

Below is a partial list of exchanges that specialize in Security Tokens:

· Archax — United Kingdom

Security Tokens can be traded on Alternative Trading Systems (ATS)

Alternative Trading Systems (ATSs) in Europe and Multilateral Trading Facilities (MTFs) are regulated entities that match buyers and sellers of securities. For lack of a better example, they are like the dating app Tinder, allowing for connections between buyers and sellers without being a full-on exchange. They are regulated trading platforms and typically operated by Broker-Dealers.

Several ATSs & MTFs have regulatory approval and will trade Digital Assets:

· Archax — United Kingdom

Broker-Dealers can sell your Security Tokens

Broker-Dealers are licensed securities professionals who are in the business of buying and selling securities. Special-Purpose Broker-Dealers assist investment sponsors with promoting and distributing their Security Token Offerings and assist investors looking to buy, sell and trade their Digital Assets and other securities.

What is Decentralized Finance or “DeFi”?

“DeFi” is an overarching term that is sometimes difficult to pin down but defines financial activities using Blockchain-based Distributed Ledger Technology (DLT). It is decentralized as opposed to centralized institutions like central banks, traditional banks, investment banks, credit card payment processors and even PayPal.

Decentralized Finance unlocks your real estate investments

Why are these developments important to real estate investing and real estate tokenization? Because, once you take your analog, locked-up real estate investment and convert it to a Digital Asset, you are now “beyond the banking system” and into Decentralize Finance — financial freedom achieved.

BlockFi company logo.
BlockFi company logo.

The Security Token Offering Ecosystem is Global

There are many more innovators, founders, consultants, industry trade organizations and writers in the Security Token Offering ecosystem. Adam Blumberg, the Whiteboard Wizard at InterAxis has produced some excellent YouTube videos on investing in Digital Assets; Kyle Sonlin and Herwig Konings producing excellent research and reporting at Security Token Market and the Security Token Show podcast; Baxter Hines for his excellent book “Digital Finance: Security Tokens and Unlocking the Real Potential of Blockchain”; Lara Abdul Malak covering Digital Assets at Unlock-BC; Omar Faridi for his fantastic tokenization articles at Crowdfund Insider; along with Alon Goren, Josef Holms and Adam Levy of Draper Goren Holm the creators of LA Blockchain Summit and the Security Token Summit and many more.

Combining technology and real estate investments to build the future of wealth creation.