Why Tokenize a Commercial Real Estate Fund? Part 2 — Technological Advantages
Technological advancements present industries with opportunities to revitalize outdated processes and accomplish tasks more efficiently. Such technologies have changed the way we communicate, learn, travel, live and purchase goods. Today, technology has grown to play a major role within the financial services industry as well.
Many financial firms have shifted their recruiting strategies to focus more on acquiring more technologically capable talent, creating a huge demand for developers and software engineers, who build solutions to automate different financial strategies. The two realms of finance and technology are continuing to edge closer towards one another — with blockchain technology serving as a prime example.
Blockchain technology provides us with new methods of securitizing assets through security tokens. A tokenized system is not only a technologically superior alternative of private equity representation , but it also can enhance the investors’ overall experience.
Part 2 of our series Why Tokenize a Commercial Real Estate Fund documents how the technological attributes of security tokens can enhance an investors experience.
By tokenizing our Real Estate fund, Leaseum tokens can serve primarily as representations of fractional shares of the properties acquired through the fund. Leaseum token holders will benefit from enhanced liquidity (discussed in Part 1) and quarterly dividend payments from rental income paid in either traditional currencies or cryptocurrencies (Leaseum Tokens or Ethereum).
However, these are not the only advantages of our security tokens.
Leaseum tokens add an additional layer of financial engineering to the existing system, providing some viable opportunities for increased ROI.
Intermediaries & Smart Contracts
Generally, the more parties that are involved in a transaction, the longer it takes to complete. Real estate transactions require more intermediaries than that of any other asset class, with middle and back officers that include bankers, lawyers, brokers, government officials, etc. who facilitate the property or security’s life-cycle events.
With a smart contract, many of these intermediaries are eliminated from the process — along with their associated fees — lowering the overall cost and allowing for a more efficient transaction process with fewer entities involved.
Leaseum Partners will be utilizing a smart contract solely to complete transactions between shareholders and the fund, such as in the case of distributing dividends to token holders. We will not be utilizing blockchain technology within our workflow operations or implement it into our real estate strategy. Properties will be acquired conventionally through the necessary intermediaries.
Transparency & Compliance
By design, transactions involving security tokens are recorded on a distributed ledger, eliminating the need for conventional clearing houses by replacing them with a decentralized network that can perform most of their functionalities. This is made possible through the heightened level of transparency that a distributed ledger provides.
Smart contracts can also be embedded with code to enforce regulatory compliance measures such as Know Your Customer (KYC) and Anti-Money Laundering (AML). Regular auditing processes can also be automated, at a fraction of the cost and effort.
Net Asset Value (NAV)
We expect Leaseum tokens to be traded at a price that reflects the Net Asset Value (NAV) of the fund. According to Investopedia, the NAV “is value per share of a mutual fund or an exchange-traded fund (ETF) on a specific date or time. With both security types, the per-share dollar amount of the fund is based on the total value of all the securities in its portfolio, any liabilities the fund has and the number of fund shares outstanding.”
However, because tokens are traded in the secondary cryptocurrency market, their price may be subject to a high level of volatility. They will also trade on multiple centralized and decentralized exchanges that are registered with the SEC “as a national securities exchange or be exempt from registration.”
Due to these two factors, the token’s price may fluctuate to levels that are not in accordance with the true NAV of the fund. Volatility is usually an unappealing market characteristic for some, but where there is volatility, there is often opportunity.
Smart-NAV Tracker Mechanism
The underlying blockchain technology of a security token enables us to implement our Smart-NAV tracker mechanism — allowing us to capture value on behalf of token holders, supporting the token price and taking advantage of market inefficiencies.
We are able implementing this type of mechanism because the token is backed by physical real estate assets and the price must reflect this. Furthermore, the token’s rental income yield is a function of its price — the lower the token’s price the higher its rental income yield will become.
In our next article, we will be describing exactly how our Smart-NAV tracking mechanism functions from a technical standpoint — stay tuned!
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.
If you are interested in learning more about Leaseum Partners, our light paper is available to subscribers on our website.
In the meantime, stay updated on our progress:
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