Real Estate tokenization feels and smells like old-fashioned Securitization

What is securitization or rather What was securitization? The practice of pooling different types of assets, repackaging their cash flows and rights and creating new securities out of the mashed and hashed[1] results.

Asset-backed securities in the conventional financial world are still a huge asset class. What is asset-backed tokenization or rather What will asset-backed tokenization look like? What more natural than to experiment with the tokenization of Real Estate, a huge asset class that remains fairly illiquid, local, and with tons of intermediaries and information asymmetries.

Indiegogo, the international crowdfunding giant, caught my attention with their launch of the Aspen token on their platform. Investors on the Indiegogo platform globally will be able to own tokenized fractional shares of the common stock in the St. Regis Aspen Resort. The luxury hotel is looking to raise $18mil. The tokens will be offered and traded on Templum Markets, broker-dealer and alternative trading system (“ATS”) registered with the SEC and FINRA.

I went back to check whether the early pioneer or securitizing assets, Securitize, had done anything in real estate. Realecoin is their real estate project but not live yet. RealCoin is focused on “taking over” Manhattan through tokenizing a Real Estate fund (a portfolio of prime real estate in NY). OpenFinance, a new early-stage venture building regulated securities token exchange out of the US, has agreed to list all Securitize equity tokens and they have also announced a focus on the tokenization of REITs.

Early stage blockchain ventures focused on tokenizing real estate are preparing for launch and dealing with all the regulatory complexities.

The SwissReal Coin, tokenizing Swiss commercial real estate, aims to overcome regulatory hurdles that have pushed their ICO offering for the end of the year. Their platform will provide an efficient way to manage a real estate portfolio.

Tokenstate.io is another Swiss venture, actually building a niche exchange trading platform for real estate crypto-securities (tokens).

Alt.Estate, is a British Virgin Islands venture, with a working prototype of a protocol to tokenize real estate and trade fractional ownership. They have already tokenized 3 apartment properties in 3 continents (Beach apart. In Europe, Brooklyn apartments in the USA, and apartments in Tokyo, Japan). They raised $1mil in their recent ICO.

All of these designs are no different than a digitized structuring process. I am not undermining the improved efficiencies – more access, fractional ownership, more security, and transparency – at all. However, the financial engineering behind all this is less innovative than what it appears. It is creating asset-backed with very traditional underlying assets.

securitization1.png

Even though admittedly, we are in the very early stages of tokenizing real estate, we need at the same time to keep experimenting and creating new value that is not a simple linear step from the current reality – as is the classic tokenization of real estate.

An example in this direction is building a new economy that is all-inclusive for the stakeholders in a real estate smart ecosystem. A unique such venture is being built through the recently announced partnership between MIRIS and Redsand Partners. MIRIS is a Norwegian Smart real estate company that develops, finances and executes real estate projects all over Norway, with a focus on: Edge Data Centers, Positive energy buildings and Smart Homes. Redsand Partners, is a UK-based boutique advisory company with labs, focused on designing and building new tokenized models and economies. Together, they are building the MIRIS Token Economy platform using the power of blockchain technology to design a holistic token economy model to serve the way in which MIRIS serve all Stakeholders

  • Investors
  • Residents
  • Property Owners
  • And all the supply chain (that will be optimized)

This is a case where blockchain is enabling to build a new business model that transforms they way real estate, energy and technology “work” together. In the end, it is using tokenization for a smarter and cleaner planet. Now that goes beyond securitization.

Image source here 

[1] Mashed and Hashed, is my own way of thinking of the financial engineering of cash flows and rights. It is obviously borrowed from cooking terms. Hash means chop and dice.

Efi Pylarinou is a Fintech thought-leader, consultant and investor. 

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One comment

  1. Hi Efi
    Very interesting post and analysis.
    As you know the Real Estate industry is risk averse and a techonology laggard industry. The Real Estate world will not change dramatically within the next 5 years, The players are in favor of a smooth but real transformation rather than in favor of a revolution. This is also linked to the underlying asset : all buiding will not be IOT and Smart compliant in 10 years !
    So, I fully agree that Real Estate tokenization feels and smells like old-fashioned Securitization. But it is already a major step forward and even this step will take time to be an industry standard in Real Estate Asset Management !

    Like

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