Stop Selling your Upside: How Blockchain Can Unlock Value in Real Estate Through Fractional Ownership
The all-or-nothing principles of real estate are over.
It is a significant sacrifice of upside-potential to sell an entire building that an asset manager has invested over a period of time. If the value-add strategy is playing out well, why should the owner now have to sell the entire asset? Why not sell only 20% and refinance?
This transaction is now possible using blockchain.
Blockchain. Ethereum. Distributed ledgers. All the crypto-terms can be well… cryptic. Here are some good resources for both non-developers and developers. At ConsenSys, a venture production firm leading the Ethereum ecosystem, we use these technologies to create self sovereign applications to empower businesses and individuals. In the real estate space, our team brings substantial experience and thought leadership to tackle the industry’s biggest challenges. We’ve worked with government organizations on property rights ecosystems, and built one of the world’s first real estate blockchain platforms with a partner in Dubai. Our next endeavor at ConsenSys Real Estate — Project Pangea — seeks to address the industry challenges of liquidity, transparency, and inclusion by creating fractional ownership in real estate assets using a token.
Light intro aside, here’s how you can sell a piece of real estate using Pangea:
Put a property on the Ethereum blockchain so people can buy it.
- This is done by converting the shares representing common equity into transferrable and traceable shares on the blockchain.
Sell the shares to investors and/or renters.
- The current property owner receives funds in exchange for their equity sold allowing them to use those funds for new investments, distribute dividends, or return capital.
- The new investors get access to cash flow generated by the asset on a quarterly basis. Similar to a REIT (real estate investment trust).
Trade shares in the marketplace.
- The asset class is now liquid and has better pricing transparency. You can see what each asset is generating and can trade in and out of real estate faster than ever before.
So what are the benefits of putting property on the blockchain? Here are a few:
The property owner can get instant liquidity while benefiting in the long term upside of partial asset ownership because:
- He/she understands the nature of the asset class and wants to reallocate their portfolio.
- He/she wants to attract new capital to fund upgrades or renovations.
Align incentives with stakeholders to drive overall asset value by:
- Distributing shares to mall-goers to incentivize shareholders to shop at your mall and increase foot traffic.
- Paying property managers in shares to enhance performance metrics.
Increase residential occupancy and encourage better participation by:
- Provide concessions in the form of shares to office space renters to create a collaborative working environment.
- Selling shares to renters so they have clear incentive to rent in your building and maintain upkeep of the property.
- Provide real estate brokers shares for incentive-based compensation, encouraging long term participation.
This project is just the beginning. As we venture into new use cases and create new real estate business models for major property owners, service providers and budding real estate investors, check back here to get the lay of the land.
Welcome to the real estate blockchain revolution.