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It is no secret that commercial real estate investing is commonly seen as one of the more stable paths to generating long-term wealth. The only (and very big) caveat being the large amount of upfront money needed to initially invest — a ticket cost so high that it eliminates many would-be investors right out of the gate. If this is a hurdle you’re facing — and as an investor you don’t have a large cash reserve on hand you can pull from to expand your investing portfolio to include commercial real estate — have no fear. Tokenization is here. And the days of CRE investing being exclusive to those with an extra $50,000 to $100,000 laying around are over.
What is Tokenization?
Tokenization takes an asset and converts its value into a digital token that is stored on the blockchain. This token can then be used to digitally transfer the partial ownership of an asset without the use of a third party or intermediary.
“Democratizing a CRE property breaks large and expensive investments into fractions, and creates security tokens for all the pieces,” says Gunner Davis, a top rated real estate broker from Tampa FL. “It allows more secure and liquid secondary trading of tokens, which fall below the minimum spending threshold for a higher number of investors.”
What are the Advantages to Tokenizing Real Estate?
The main benefit of tokenizing is the ability to fractionalize ownership of an illiquid asset such as real estate, says Mohsin Masud, founder and CEO of blockchain-based commercial real estate investing platform AKRU.
Tokenizing properties brings the potential for greater liquidity and lower costs to investors who want to begin investing in CRE.
Illiquid doesn’t necessarily mean “unable to trade,” but rather “slower to trade.” The typical holding period for real estate debt, for example, is four to seven years. The process of tokenization allows for more liquid and secure secondary trading of tokens that simultaneously fall well below the minimum spend thresholds for investors, speeding up this process. It also democratizes the real estate investment space by opening it up to allow more people access — specifically, with AKRU’s platform, individuals can invest for as little as $1,000.
Tokenization also removes a number of traditional barriers to investing, which allows a greater population of potential investors the ability to acquire wealth, says Isaiah Henry, the CEO of Seabreeze, a property management company.
“Smaller investors are able to diversify their portfolios and have more skin in the game,” he says. “When these CRE investments start to show a high ROI, they can then turn around and invest again. So, it can only help the market at large.”
Kate Diaz, a real estate expert, interior designer and co-founder of Swanky Den, agreed with Henry’s sentiment, noting that opening up CRE investing to more retail investors allows for a larger pool of capital to be invested into these types of deals, which can potentially lead to better returns.
“Furthermore, more available CRE investing also allows for greater transparency and liquidity, which are two important factors that many retail investors look for when investing in any type of asset,” she says.
Aside from giving smaller investors opportunities to own property that would otherwise be out of their range, these investments also afford individuals the ability to spread out risk by owning a smaller stake in a number of properties, says Tomas Satas, founder and CEO at Windy City HomeBuyer.
Although tokenization is opening doors for so many, there are still a few stumbling blocks businesses looking to tokenize properties do face.
Potential Hurdles for Tokenization
One of these hurdles is regulatory alignment — this due to varied security regulations that are based on jurisdiction, says Ricardo Mello, cofounder and managing partner of the luxury residential brokerage Manhattan Miami Real Estate.
“While some jurisdictions are moving faster than others, uncertainty around fundamental questions still exists, leaving many to wonder about things like security tokens and how they can be applied to financial regulations,” he says. “In theory, tokenization should be revolutionary in the world of real estate, but it still has to undergo many crucial tests before it can work at an industry level.”
Another hurdle for businesses tokenizing real estate is technology. Well made tech requires a lot of trial and error, and with a number of new CRE investing tools in their infancy, it may take time for many of the systems to run smoothly.
Despite these stumbling blocks, Mello says tokenization has the ability to transform the real estate industry and is most likely here to stay.
How AKRU Plans to Change the Game
AKRU was founded in 2018 with the objective of democratizing real estate through tokenization and allowing for investments for as little as $1,000. The company’s tokenization of properties breaks expensive investments into fractional slices, creating a security token for each piece.
The AKRU platform runs on established, proven technology that streamlines real estate investments, all in compliance with applicable law.
For anyone who’s ever thought about dipping their toes into CRE investing but felt intimidated by the large outlays of cash required — there’s good news. Blockchain technology has cracked wide open the old barriers to entry and is in effect ‘democratizing’, or widening the circle for more investors, everywhere.
This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.
