Blockchain technology creates a wealth of new opportunities for investing in real estate
There is a lot of hype around anything crypto these days. Most of that hype is filled with hot air, packaged nicely and presented for sale to the highest online bidder. But what if, instead of buying nothing, you could buy something? What if a cryptocurrency were to be directly tied to the complete opposite — tangible, income-generating real estate assets?
When we hear the word “blockchain”, we usually think of trendy new fads — ICOs, Bitcoins and other crypto projects promising high, quick returns in exchange for diving into rather unknown territory. We, however, see blockchain rather differently. We believe that this new technology presents an opportunity to invest in a traditional sector — real estate — in a new way. Investing in bricks and mortar is not revolutionary in itself, but with the help of blockchain technology, opportunities will become available for ordinary investors to invest in specific real estate assets which in the past would have been inaccessible due to high barriers to entry (minimum investment size, legal frameworks for investing, etc.).
When we hear the word “crypto”, we immediately think of all the hype which has emerged around instruments with funny names, many of which have grown in value like crazy. But most of these instruments aren’t tied to anything which gives them inherent value. Value is truly in the eye of the beholder. We, however, think that technology can change this. We see an opportunity to apply blockchain technology to issue a blockchain payment instrument which is actually tied to something — to real income-generating properties. At the moment, in the world of crypto currencies, it is as if everyone is trading shares, but these shares, unlike those on the stock market, aren’t actually tied to any companies or businesses with assets. It is as if everyone is simply trading pieces of paper which don’t carry ownership rights to anything. This is where blockchain technology becomes really interesting. Let’s have a look at what happens when we apply it to the real estate market.
Investing in real estate with the help of blockchain technology offers major opportunities for individual investors. Real estate has, over centuries, proven to be a stable asset class with solid historical returns. Real estate investing bypasses some of the volatility we often associate with the securities markets, while preserving steady growth and tapping into stable income streams generated by the assets themselves. In the past, one needed rather deep pockets or access to leverage to tap into many real estate investment opportunities. Now, blockchain technology opens the door for individual investors to invest in real estate assets which once would have only been accessible to corporate investors or high net worth individuals.
So how does blockchain help us? In the past, if you wanted to issue shares in a company, you had to go through an entire IPO process, with bankers and lawyers and months if not years of preparation. Now, with the help of blockchain technology, you can issue new digital shares in a matter of hours. In this way, you can now quickly launch mini digital IPOs of even the smallest assets. The rights to real properties, from a technical point of view, can now be divided into a million pieces and sold just like shares.
In order to understand how this will all work, we have to take a look at three areas which Thaler.One will bring together to create a unique market niche and a project with strong potential for growth. Let’s have a look at how big the sector really is which we are going to disrupt, and see how it compares to today’s valuations in the crypto market.
To date, there are already 1,500 cryptocurrencies in existence. The total market capitalization of all cryptocurrencies in circulation today is estimated at a whopping $275 billion (as of July 3, 2018). Crypto investors include over 300 newly emerged crypto funds and some of the largest well-established names in finance: Goldman Sachs, Sequoia Capital, and Soros, to name just a few. The largest of these currencies is, of course, Bitcoin, which has c. 40% market share. The top 10 currencies presently account for 79% of the market, or $217 billion in market cap. The vast majority of these cryptocurrencies, or coins, are not backed by real assets, and as such, are extremely volatile. The crypto market craves stable coins backed by real assets. We expect this to be an important source of capital for Thaler.One, as the project will be one of the very few to offer a cryptocurrency which is directly linked to tangible real estate assets.
It’s also important to point out that valuing this market on the basis of market capitalization isn’t realistic. For example, let’s say founders issue a new cryptocurrency but set aside 80% of the coins for themselves. The remaining 20% of coins which are out there trading freely increased in value. In reality, investors only bought 20% of the total coins outstanding, but the entire market gets to claim 100% of the valuation. It’s important to look at valuations on the basis of what percentage of total coins outstanding are actually trading freely, which would represent new money inflow. There are various estimates given by some investment banks earlier this year ranging from US$7 to 20 billion. This is a more realistic figure as it represents the actual valuations that investors have given to all cryptocurrency which is freely trading.
Now, let’s correlate cryptocurrencies with our second area of focus — the real estate investment fund sector. The top 100 professional real estate investment funds globally have an impressive $2.8 trillion of assets under management. Each of the top 50 funds manages on average $47 billion on its own, with the top 10 funds accounting for 29% of all assets under management in the sector. The top three real estate investment funds are well known names in finance: Blackstone Group, Brookfield and PGIM. Even the smallest of these top 100 funds has $5 billion of real estate assets under management. The primary source of revenue for real estate funds is income generated by the actual real estate assets.
In real estate, there is a totally different situation. Real estate doesn’t appear out of thin air — the entire market is built on the back of real money which was invested into the sector. The total value of all assets in the real estate market globally is estimated at an incredible US$220 trillion. Annual transaction volumes in the sector reach US$750 billion, and this figure represents only deals for existing properties, because the volume of new projects built is likely not even included in this figure. What does all of this tell us? Real estate is a truly gigantic, global market.
At the moment, the total market capitalization of the entire crypto universe is only roughly 0.1% of that of the real estate sector. Accessing reliable, predictable real estate income via crowdfunding revenues has the potential to attract significant investor interest. That is the point where these seemingly distinct areas come together. Just think for a second — if the actual money invested in crypto is on average $10 billion per year , that is really just a drop in the bucket compared to the real estate market’s annual global transaction turnover of US$750 billion, which doesn’t even include new construction volumes. The figures tell us that the crypto sector is at the moment turning just nearly 1% of the entire annual global real estate market’s annual deal flow. That’s not the impression you get from reading financial tabloid headlines, but the figures speak for themselves.
Now let’s have a look — does something already exist which we plan to execute with the help of blockchain? The third area to look at is real estate crowdfunding. There are currently over 200 of such platforms globally, and the sector has grown five-fold over just the past three years. Real estate crowdfunding is forecast to grow by 300% per year by 2025, with the market estimated to reach US$100 billion. Existing crowdfunding projects in the real estate sector include RealtyShares, RealtyMogul, and Cadre. Together, these companies have already invested over US$3 billion into over 1,500 specific real estate projects. Major investors in these projects include Goldman Sachs, Jack Ma, and the Ford Foundation.. We should also note that the first of these companies was only founded in 2012, a mere six years ago!
So, if the product which we plan to create already exists, in some form, on the market, what will we do that’s really different? And even if the product, as it is currently presented, isn’t perfect, there is no doubt that it is a booming market, so what would we offer that could be better than what is already out there?
Thaler.One will combine the three areas of real estate investment funds, cryptocurrencies, and real estate crowdfunding to create a unique market niche. Stable real estate income combined with the vast potential of proceeds from crowdfunding can lead to scalable projects with the potential to accommodate billions of assets under management.
On its own, crowdfunding offers low fees but can’t provide liquidity or global access to real estate. Real estate funds offer investment experience but have excessively high minimum barriers to entry for individual investors. Thaler.One offers investment experience, liquidity, low fees, and global access for all. Blockchain technology will allow our project to invest in tangible, income-generating real estate assets while funding itself through the issuance of asset-backed coins which the crypto market is clearly hungry for. This is not simply crowdfunding — it is also the creation of a coin which will have its own intrinsic value. The crypto market is still only a tiny fraction of the size of the established real estate sector. We see great potential in the combination of these universes by Thaler.One to create new means of raising capital and investing in a traditional sector.
The real estate market is gigantic and a timeless classic — it always has been and always will be an interesting sector for investors. Real estate offers steady returns and tangible assets. The crypto market, despite all the noise surrounding the trend of the hour, is still in its infancy and has a long way to grow until it becomes an established market with clear rules of the game, particularly in terms of technology. Crowdfunding is technologically unsophisticated and imperfect, but it’s growing rapidly because there is clearly a need for this niche. Investors crave the opportunity to buy into “mini IPOs” of specific assets. However, crowdfunding is about to face its biggest competitor yet: Thaler.One.
