Why Tokenize a Commercial Real Estate Fund? Part 1 — Liquidity
The emergence of blockchain technology has given us the ability to explore the tokenization of different asset classes. Tokenization, or the digital representation of physical assets on a blockchain through cryptographic “tokens”, can offer many added benefits to traditional methods throughout various industries.
Here at Leaseum, we are tokenizing a private commercial real estate fund to take advantage of all the added benefits a security token can bring to this asset class. Our team is experienced in this space and we are far too ambitious to pass up on this unique opportunity.
Describing our full tokenization ideology would be far too much information for one post, so we have elected to distribute this information through a multi-part series “Why Tokenize a Commercial Real Estate Fund?”
This article, Part 1 of the series, identifies the liquidity problem present in real estate investing today. It goes on to explain how a tokenized structure can offer a level of liquidity that was previously inaccessible.
Investing in commercial real estate has widely been regarded as a favorable endeavor, often rewarding investors with double-digit returns. However, the invested capital is usually stuck in lockup for 5+ years, making it illiquid until the project is sold or complete. This has generally been viewed a major challenge when it comes to investing in real estate, because portfolios cannot be modified to adjust to fluctuating market conditions, which can be unpredictable.
Understandably, because real estate is the world’s largest asset class, there are many different intermediaries involved in this space including brokers, lawyers and government officials. As a result, this sector has been slow-moving in the realm of technological advancements; however, there have been some notable steps taken in recent years to securitize real estate.
According to Harvard Business School, “there are over $5.5 trillion of securitized home mortgages, $500 billion of commercial mortgage-backed securities (CMBS) and $200 billion of real estate investment trusts (REITs), much of which did not exist prior to the early 1990s.”
Publicly listed Real Estate Investment Trusts (REITs) were the first to introduce liquidity to the real estate market in 1960. Although they have successfully brought liquidity to this market, they have proven to be expensive to set up and cumbersome to manage.
Our tokenized model offers many advantages over REITs in terms of liquidity:
- Tokens can be traded on a centralized or decentralized exchange 24/7/365, while REITs are only tradable during hours of market operation;
- Tokens are easily transferable for a negligible network fee while transferring ownership of REIT shares involves intermediaries who charge high fees;
- Investors can trade in and out of their holdings like never before with no required lockup period;
- According to Coindesk, assets can be securitized on the blockchain for 1/100th the cost;
- Unlike REITs, tokens should trade at NAV and will not be correlated to the traditional equity markets. REITs typically trade at a discount due to their illiquidity; and
- As we are a closed-end fund, at the end of our fund’s 10 year life span, investors will be able to receive their capital gains from the potential real estate appreciation.
Our vision is to develop a private core-plus and value-add commercial real estate fund that offers public market liquidity with private market returns.
A level of public market liquidity can be achieved through our crowd sale, which is open to all accredited investors of their respective countries, considering they are able to complete our KYC/AML process.
Opening up the fund to accredited investors is essentially opening up a traditional private investment class to the masses, an action that will result in increased trading volumes and liquidity similar to that of the public market.
About Leaseum Partners
Leaseum Partners is utilizing blockchain technology to disrupt traditional processes associated with investing in commercial real estate by providing token holders with dividends, voting rights and capital gains rights.
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