The Tokenization of a $30 Million Manhattan Real Estate Property

8 Decimal Capital
Nov 1, 2018 · 7 min read

8 Decimal Capital Overview:

  • This Fall marked the first major asset in Manhattan to be tokenized on the Ethereum blockchain.
  • The New York real estate property, appraised at $30+ million, represents one of the most publicly-reported bridges between the analogue and digital financial markets and the potential for how these worlds can work together in unison.
  • The tokenization of real estate for debt financing is emerging as a powerful use-case for blockchain technology.
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Earlier this month, a luxury condominium property was tokenized on the Ethereum blockchain in Manhattan, New York. As Rachel Wolfson reported in Forbes, this milestone represents the “first major asset in Manhattan to be tokenized on Ethereum. The property has recently been appraised at more than $30M.” The listing broker of the historic deal, Ryan Serhant, said he is excited about the potential for blockchain and security tokens to revolutionize modern finance.

“The market in New York is always strong, but it can take some time to sell for the right price in a new construction building. With blockchain tokenization, we can remove the unruly pressure of traditional bank financing, which is much healthier for the project and all of the stakeholders. Tokenization is paving the way for a new forefront in real estate development.” Ryan Serhant | Forbes

As we mentioned in our recent Medium article, Part 2: Security Tokens (STs), tokenized assets maintain the regulation of analogue securities while also providing the efficiency of a digital security. Serhant believes that the ability to tokenize assets will be a stronger alternative for investors conducting business deals. Debt financing in this situation is one of a growing number of use-cases for blockchain technologies and highlights the ongoing trend for digital assets across numerous industry verticals.

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A luxury condominium complex on 436 & 442 E 13th St. in the East Village of Manhattan is the first major asset in the city to be tokenized on the Ethereum Blockchain. (Source)

Amiran Group coordinated the New York real estate project to bridge both the fiat and the cryptocurrency worlds through blockchain. By tokenizing the property on the Ethereum blockchain, the project can both receive fiat and digital currencies as investments. However, investors can receive analog or digital interests in the investment, which should improve both liquidity and ownership transfer. The real estate group is partnering with Fluidity, the blockchain-based creators of AirSwap (AirSwap Team) which allows tokens to be traded on a decentralized platform. This partnership, along with propellr Securities LLC further coordinates communications between the fiat and crypto worlds:

“Propellr Securities LLC will do the job of finding buyers of security through their tech platform or rather take the interests and turn them into tokens. The partnership with Fluidity will allow the latter to accept fiat payments and solicit and sell securities under Reg D rule 506(c). Fluidity provides technology services to registered broker-dealers, issuers and financial institutions for tokenized securities. Using the AirSwap technology including in the “tokenizing” will allow emergence of a compliant secondary market. In other words, it will facilitate a peer-to-peer market for local assets online via blockchain.” | Crypto Tomorrow

Blockchain Expands to Tokenize Real Estate

The use-cases of blockchain implementation seem to know no bounds. As this technology is brought into mainstream use, the integration of smart contracts will allow for the tokenization of assets among other key advantages.

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Within the digital transformation of finance, three waves have emerged. The first with payments and transactions, the second with equity and financing, and the third wave is where tokenization and security token offerings offer a great amount of potential. Read more about these waves in our three-part research series here: First Wave, Second Wave, and Third Wave.

Anthony Pompliano in his article “The Official Guide to Tokenized Securities,” highlights several key advantages to these types of security token (ST) contracts:

  1. Lower fees from eliminating middlemen.
  2. Deals can be processed more quickly with the increased efficiency.
  3. Expansion to a worldwide network of potential investors.
  4. The software automates the function service providers (i.e. lawyers) typically serve.
  5. Low threshold for financial corruption and manipulation

Amiran Group, the firm that brokered the Manhattan real estate deal, described this feat as historic, not only for the firm, but also for the industry. What is especially interesting about this tokenization deal is the revolutionary idea of blockchain-based investing strategies for high-end properties. In Crypto Tomorrow, David Karliuki explains how the real estate deal was brokered: “Tokenizing is a method where the value of the real estate property is represented/valued in digital assets on a blockchain resulting into “smaller fractions” digital assets that can be bought separately by different investors. The owner offers the property for sale as tokens and raises the total amount of property value from different investors instead of having one buyer buy the property.”

He explains that time and capital can be two areas of concern for sellers of real estate. Either looking for enough partners to fund the venture or enough time for the venture to become profitable further limits the number of people able to engage in this type of high-end property selling.

“Tokenization thus unlocks potential for both worlds. Tokenization not only sees many people investing in a real estate project but that the tokens can also he held and increase in value as property appreciates, and even sold on exchanges,” says David Karliuki in Crypto Tomorrow

The Rapid Development of Real Estate Tokenization

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Propy, Inc., a California-based blockchain real estate marketplace, announced in January of 2018 that conducted the first test of their blockchain real estate documentation system with a Vermont property. (Source)

It seems as if it was only days ago when Propy, Inc. announced their test program of Ethereum blockchain technology-powered real estate documentation. As Molly Jane Zuckerman reported in cointelegraph on January of 2018, Vermont became known as the so-called ‘Blockchain-friendly’ state.

Natalia Karayaneva, CEO of Propy, Inc. is a pioneer of this new era of real-estate tokenization. In her first published Medium article, “The First Token Sale In Real Estate,” she explained how sourcing and closing with cross-border transactions led to numerous difficulties, including language and cultural complexities, payment issues, and the endless third-parties needed for the transactions which prolonged the process even further. After her widely-shared story of tokenizing the famed Vermont property, she has her sights set on a real estate world with no middlemen.

“We expect companies and individuals interested in cross border real estate transaction to be the primary buyers of our tokens. Cross border real estate transactions are a $340 billion annual market, growing at 13% a year. Propy intends to grow that market substantially.”Natalia Karayaneva | Hackernoon

In Fluidity, Todd M. Lippiatt, CEO of propellr, explains that while the JOBS Act has increased the accessibility of private securities, the process has not reached the extent of standardization public securities have come to know. One possible solution to this problem is known as the “Two Token Waterfall” which is explained in a whitepaper by Todd M. Lippiatt and Michael Oved. Private securities, such as real estate contracts, are generally referred to as held-to-maturity by investors with no expectation of early redemption. Secondary trading of interests do occur, but are infrequent, cumbersome, and typically trade at prices significantly below net asset value. The solution of tokenizing, as they suggest, allows for easy ownership transfer to remove the transactional friction and potentially enable liquid markets to emerge.

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In the “Two Token Waterfall” whitepaper, Lippiatt and Oved explain how private securities, such as the $30 million Manhattan real estate property, could become tokenized to allow improvements in both ownership transfer and market liquidity. (Source)

From the Vermont property to the Manhattan condominium, the use of blockchain technology for real estate ventures only continues to accelerate. By building protocol layers on top of these blockchain infrastructures, new dimensions will continue to emerge for the technology. 8 Decimal Capital is excited by this innovation, proving why blockchain technology and security tokens will power the future of finance, business and society.

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8 DECIMAL CAPITAL is a multi-strategy investment firm focusing on token and equity investments. 8 Decimal currently has more than 40 portfolio companies with an AUM of 60M USD. The investment team consists of more than 10 venture capital veterans, researchers, and trading professionals. The advisory board comprises Fan Zhang (Former Founding Partner of Sequoia Capital China), Karen Chen (Former CEO of UBS China) and Ben Bartlett (Vice Mayor of Berkeley). Based on the professional fund index ranking agency Token Metrics, 8 Decimal was ranked second out of the 51 active crypto funds. 8 Decimal is also well-received in China, named one of the top 10 funds in the blockchain industry by both 36氪(, Chain Capture , and Odaily, as well as named one of the top 20 funds by Tsinghua X-Lab and Youth Education Chain League.

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