What if I were to tell you I’ve got an iconic and globally-recognized trophy real estate asset that you can buy now, and your equity stake is completely liquid, transparent and SEC-approved as a digital token? Off the bat it might sound like I’ve got the Brooklyn Bridge to sell you, but I assure you I don’t. It is, however, the future of real estate investment, and it’s called a securitized token offering (STO) — and it’s here now.
Let me step back and explain where the roots of this new investment vehicle originate. As you likely know by now, blockchain has been one of the most talked-about (and most invested-in) emerging technologies of late, and it is truly one of the biggest enterprise opportunities to come about since the advent and mass adoption of web 2.0.
Indeed, blockchain technology is quietly working its way into every facet of our lives, bringing about greater levels of efficiency, transparency and liquidity than ever seen before in some of the most foundational elements of modern society, such as financial services, health care and insurance, transport logistics and supply-chain management. And of course, it’s beginning to eke its way into all kinds of real estate transactions as well.
The very foundations of our global economy are evolving in front of our eyes. The impact that blockchain will have on the way we live and the way we do business in the near future cannot be understated. Blockchain has been likened to the most revolutionary technological advances in modern times. Advances that have dramatically changed human interaction, innovations that have been called “the five greatest inventions in human history,” include the printing press, electricity, radio, the internet and, you guessed it, blockchain.
Now back to that bridge that I’m not trying to sell you. When it comes to global finance, undoubtedly one of the largest global investment markets is that of real estate. At the end of 2017, the value of the world’s real estate reached $280.6 trillion (USD), and by any measure, real estate is far and away the most significant store of wealth, representing more than three and a half times the total global GDP.
Obviously, the global real estate markets are a great place for the implementation of new technologies to advance progress in a world of old investment strategies. Fintech and proptech enterprises are taking the traditional real estate industry by storm through the development and implementation of blockchain and cryptoasset innovations, advancing real estate investment in ways that can not be underestimated.
On this note, as a proptech entrepreneur, Certified Blockchain Expert and Certified Smart Contract Developer, I have a bold prediction: By 2025, the majority of global real estate investments will be issued as tokenized asset offerings (TAOs) and held as cryptoassets, specifically security tokens, just like traditional securities but traded peer-to-peer without financial intermediaries, banks or REITs.
Furthermore, real estate, loans, equities and anything currently considered by regulators and applicable laws as a security can and will be tokenized. While securities laws will clearly apply to this category of cryptoassets, the investor attraction is clear: the ability to tap a borderless and highly liquid decentralized market for property investment that is open to all.
This revolution of liquidity across global real estate markets will occur by democratizing asset classes through blockchain technology and peer-to-peer investment. I posit that commercial real estate will be owned solely through cryptoassets in the very near future, and I’m not the only one who believes that real estate will greatly benefit from tokenization.
On a single-asset scale, for example, the St. Regis Aspen Resort in Aspen, Colorado is one of the world’s most globally recognized and iconic real estate assets. The owners of the St. Regis Aspen recently announced that they will be issuing what looks like a “single-asset REIT” but in this new investment vernacular is actually a “tokenized asset offering” or more specifically a security token offering, through which investors can purchase Aspen Coins that represent ownership as an equity stake in the underlying asset. Now you can own the St. Regis Aspen Resort!
Another example on a much larger scale is the New York City Real Estate Coin (NYCREC), a tokenized property fund, will be launching its security token offering in Q4 2018. The NYCREC is set to be a managed portfolio of diversified real estate assets offering people around the world access to New York City real estate investments through a smart contract on the blockchain as an STO. What’s more, these blockchain-based smart contracts and asset issuances are already approved by the SEC.
Liquidity, transparency and peer-to-peer investment in major commercial assets without the need for expensive and time-consuming intermediaries: This is completely new territory in the real estate world. This industry transformation is already afoot as many of the world’s most desirable properties are being positioned through cryptoasset and security token investment opportunities, and this movement is only gaining traction as property asset liquidity becomes more available as a new investment opportunity.
Security tokens are the future of real estate development and will continue to advance the digitization of more illiquid assets including equities and bonds. Security tokens are also touted to have better legal clarity, compared to their other cryptoasset counterparts, cryptocurrencies and utility tokens. Security tokens also already provide regulatory protection for investors through the SEC’s and FINRA’s stringent rules and limitations on securities.
Traditional methods of raising investment funds such as venture capital, bond issuance and stock offerings will most certainly be shifting toward tokenized asset offerings moving forward, and I expect the commercial real estate sector to lead the way as first-movers into the STO market, proving that token sales will be the future of a new trillion-dollar capital funding marketplace.