The year 2017 saw the first solid boom of token sales, also known as ICOs. The token sale market took off in earnest during that year, spiking from zero to investments above $4 billion.
As euphoria for new projects took off, it became clear that token creation was relatively easy and agile.
At that time, very few regulations existed around token sales. The US Securities and Exchange Commission was still not on the task of analyzing tokens to determine whether they were unregistered securities. At that time, there was little distinction between utility tokens, and asset-backed security tokens. This put the foundation for tokenizing real estate, which replicated so-called REITs on the Ethereum blockchain.
The idea of investing partially into real estate, without owning a whole property, is not new. But technology has allowed this approach to be more accessible. With a global real estate market estimated at above $228 trillion, token-based projects can turn into a significant store of value.
In 2019, most token projects attempted to switch to a Security Token model. This meant paying attention to stricter regulations, and being unable to freely trade the tokens. Still, some projects broke through and continued with various forms of tokenization.
As of 2020, there are only a few open token sales, though the last projects during the boom times of 2017-2018 sought to raise roughly between $5M and $25M. According to data gathered by KPMG, one of the largest tokenization deals in the world involved the partial tokenization of a London-based luxury hotel. The property was valued at $600M, and up to 49% would be available for small-scale tokenized ownership.
We picked three projects that exemplify some of the positive points of real estate tokenization:
Venn Home Suite
Venn Home Suite plans a security token offering for real estate in Malaysia. The building to be tokenized is a modern type of combined development, including a residential part and a managed luxury hotel part. This modern type of dwelling sprang out of the latest real estate boom of the past decade, trying to satisfy demand for high-end dwellings in dense urban areas.
The tourism expansion in the country was grounds for the decision to start with a hotel and entertainment building.
“The tourism industry in Malaysia is currently the second-largest foreign exchange earner for
Malaysia’s Gross Domestic Product (GDP) after manufacturing group.1 Although Malaysia is late in joining the tourism industry bandwagon, tourism in Malaysia has grown rapidly since the beginning of the 1990s,” wrote Venn Home in the prospectus to its STO.
The city of Penang is an important tourism hub, which also attracts high-value industries, raising demand for luxury real estate.
Venn Home Suite decided to use the STO model as a fully legal, though cheaper and more accessible tool to divide up a building in Penang. In the future, Venn Home plans to expand to the neighboring countries in the region, including Thailand, the Philippines, Vietnam, and Indonesia.
Aspen Coin
Aspen Coin was among the pioneering projects that created a proprietary coin to sell parts of a luxury ski resort. The idea to tokenize real estate created the mission of Elevated Returns, LLC. Its aim was to offer access to quality properties with much less restrictions on investment or ownership.
Aspen Coin is backed by partial ownership in the St. Regis resort in Aspen. Anyway, this asset is among the riskier crypto offerings, as the project warned of possible lack of liquidity or even restrictions on resale and transfers. Still, the achievement of a legally sound sale and the beginnings of a secondary market look encouraging. The ASPD token sale finished in late 2019, and the project is still in its early stages.
Aspen Coin (ASPD) is also showing a robust trading performance, standing at $1.30 after a few months of trading. The project managed to raise around $18 million’s worth of crypto assets in one of the industry’s most successful STOs. ASPD also found a secondary market among other security tokens. ASPD is still struggling to grow its trading volumes, but the appearance of a secondary market looks promising for early investors.
Elevated Returns and Tezos
Elevated Returns took up the task of tokenizing up to $1B worth of real estate, this time on the Tezos blockchain.
Elevated Returns announced its intentions back in 2019, claiming it had enough real estate in the pipeline for upcoming tokens.
“There is no better solution than working on a Tezos-based token implementation,” said Stephane de Baets, President of Elevated Returns.
“We have a number of very high-profile deals lined up and we could not afford to compromise the technological product.”
Tokenizing real estate is even more agile with tokenizing already existing REITs, instead of specific properties. But the sector is still awaiting its boom times, as crypto regulations need to become clearer. As of 2020, Securitize continues to expand its expertise in consulting token-based projects that combine blockchain technology with securities.
Securitize recently consulted a tokenization project in Tokyo, Japan, which will involve crowdfunding on behalf of a real estate agency. Tokens will be distributed to fund a renovation project for a retirement home in Hayama, Kanagawa Prefecture.
Securitize also partnered with Japanese company Lilful, and plans to offer tokenization consulting and management for land development projects. In addition to its partnerships, Securitize serves as a hub to start creating a secondary market for newly issued tokens. The consultant firm aims to achieve secure, legal transfers and changes in ownership between regions.
For now, one of the biggest limitations of securitized real estate can be the restricted transfer of assets. As secondary markets grow, it may be possible for these projects to overcome that gridlock and further add liquidity into tokenized real estate.