The 5 Most Important Points From Our Conference Call on Crypto’s Impact on Real Estate
On June 22nd, we held a conference call titled “Crypto’s Impact on the Real Estate Industry” with three executives leading important projects in the space:
Ari Shpanya — Co-founder, Slice, a global real-estate investing network.
Jess Davis — Founder & CEO, Überstate, a real estate cloud funding platform, which looks to revolutionize the way real estate investing is conducted.
Jonathan Handler — Founder & CEO, YINC, which has developed an innovative platform using blockchain technology to solve the myriad issues in the service-to-hire industry for both consumers and real estate management companies.
You can listen to the hour long call by clicking the link below:
If you want to save 55 minutes, and get the highlights, below are our five big takeaways from the call.
1. Real estate could be a huge catalyst for the security token market.
Ari gave some great stats framing the massive size of the opportunity for crypto in the global real estate market. The global real estate market is $270 trillion. This compares to the roughly $300 billion crypto market. Asset-based security tokens are going to be a new wave of investment in crypto, and real estate is a major global asset class.
The demand for U.S. real estate is likely to be a driver of real estate security tokens. In closed-end private market real estate, the North American market is larger than the rest of the world combined. “Dry powder” for investment in North America has doubled this decade. The combination of the high global demand for U.S. real estate and changes in the U.S. regulatory environment to favor security tokens should be a major catalyst for issuing and trading security tokens in real estate.
2. Key problems to address in commercial real estate are lack of liquidity and information.
Key problems in the U.S. commercial real estate market are 1) illiquidity, 2) limited access to deals for those without local market knowledge, as well as 3) high transaction costs, which particularly hurt returns for smaller investors.
Jonathan noted the need for better ways to manage real estate assets, which involves multiple parties including the owner, the property manager, and the tenants. While partnered with over 30 major real estate companies, YINC is focused not on transactions in real estate themselves, but rather on solving the problem of better managing the bidding for jobs, owner approvals, and tenant communications.
3. Tokens address problems of illiquidity, particularly cross-border, and trust.
Tokenization can address numerous problems with commercial real estate investment. These include: 1) proof of ownership, 2) transferability, and 3) smart contracts for regulatory compliance and thus improved liquidity. Tokens can facilitate distributions of income. Tokens can facilitate ownership transfers through listings on security token exchanges.
Tokens can address the lack of trust in existing sources of information on the many high-end service providers in the real estate market. Online sources are rife with false information like fake reviews. Trust issues are so great currently that property managers often do not even look online for someone to perform a high-cost job. By linking reviews to actual purchasers, YINC uses a token to address this lack of trust in real estate services. Tokens also incentivize those receiving the services to provide reviews.
4. When to expect accelerating traction of real estate crypto? 2019.
The speakers agreed that the real ramp in real estate crypto would be in 2019. This year has seen a lot of activity in the space, but a fair amount of trial and error as well. Security token markets are also taking more time to mature than many had expected. A key challenge for the scaling of real estate crypto is greater access to securities exchanges.
5. Outlook: expect crypto to tap real estate’s liquidity discount and enable derivatives markets.
One opportunity is to use crypto to improve liquidity and capture the associated return premium for real estate assets. Assets like private REITs offer higher returns than the stock market, partly because they are less liquid. Ari presented data that, over the last 15 years, return CAGRs have been 10.3% for real estate vs. 6.7% for the S&P 500. If tokenization improves liquidity of these real estate assets, their liquidity discount should shrink.
Jess said that he thinks derivatives will eventually emerge. As regulators become more comfortable with security tokens, institutions will want the ability to make both short-term and long-term investments in them. Real estate-related derivatives are likely to develop first in major markets with sufficient population and resulting data points on trends. This would allow a wide range of new investment opportunities, such as pairing a bullish view on Brooklyn real estate with a bearish view on Manhattan real estate.
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