Tokenization for Real Estate is Already a Reality - Part II
Real Estate and Tokenization: A Case Study
Let’s talk about a real life example to better understand how tokenization works in real estate. We mentioned the first sale earlier in this article (part I) — The St. Regis Aspen Resort.
The resort’s owner, Elevated Returns, originally intended to use an IPO to sell a portion of the resort as a single asset REIT on the NYSE. However, the plan looked taxing, hence the company decided to use tokenization and offered 18.9% ownership in the property through token sales.
It joined hands with Indiegogo and Templum Markets LLC, an SEC and FINRA-registered broker, to complete the process. They created Aspen Coins (tokens) that represent Aspen Digital’s share in the property. The coins were valued at $1 per token. Only accredited investors were allowed to take part in the deal with the minimum purchase set at 10,000 coins. Investors could purchase these coins in a number of currencies including digital coins.
How Does Tokenizing Impact the Real Estate Industry?
Tokenization makes the industry more liquid and secure by expanding the market and creating fractional ownership.
Real estate has always been a good investment but a large number of investors have stayed away from it due to real estate requiring huge amounts of money for an extended period of time.
While REITs and other such options did solve the problem to an extent, they came with their own cons. However, tokenization isn’t fool-proof yet, as we’re still not sure how lawmakers will look at the concept.
On the positive side, tokenized real estate appears to be spreading at a rapid pace and has reached international borders.
Elevated Returns was recently in the news for acquiring 21% ownership of Seamco Securities, Thai company. With this, Elevated Returns has obtained regulatory licenses and distribution capability in Thailand and some neighboring countries.
Here’s what one of the reps said about the development:
“This emphasis on building an effective ecosystem led us to acquire a South Asian broker-dealer with wide distribution capability, one that is able to operate in Thailand, a nation that has come forward with highly-developed crypto regulation guidelines.”
According to an announcement from the company, it intends to tokenize $1 billion of real estate in its pipeline.
The Challenges Going Ahead
We’re already using technology to make more sales, however, blockchain is new for a lot of investors and developers. Hence, the biggest challenge is getting everyone onboard.
Since it’s a new concept, investors do not have much knowledge. They need to be educated on the benefits of tokenization and blockchain. Plus, legal issues may also be there.
We also cannot neglect the uncertainty and volatility surrounding blockchain-based systems. The industry might be big but it’s not open for one and all since real estate tokens aren’t a democratized investment solution.
Most deals have difficult entry requirements. Unaccredited investors, for example, do not qualify. Wider adoption can be difficult unless it becomes available to non-accredited investors.
Disclosure is another challenge linked to real estate tokenization. Since a property may change ownership a number of times, developers may not be interested in taking on it.
The World Economic Forum expects blockchain to store about 10% of the world’s GDP. Countries are already making regulatory changes to make this a possibility.
Supporters believe that the introduction of a secure system can help solve these problems. However, we can’t deny the benefits of tokenization. The technology seems to have a bright future.