Here's why new investors are waiting for you to tokenize your commercial real estate

To tokenize or not to tokenize, that’s the question.

New investors are waiting for you to tokenize your commercial real estate. Here's why.

To tokenize or not to tokenize, that’s the question. Consider the current situation: times are tough, and capital is no longer cheap. People are looking for solutions, for technology to somehow make their lives easier. And they’re looking for places to park their money. 

Enter the commercial real estate business, one of the most recession-proof around. The price of entry, however, has traditionally been extremely high, leaving access exclusively to the wealthy few.

At least, that was the grim reality before asset tokenization.  Fortunately, blockchain technology can be a better solution. To inject the commercial real estate market with fresh capital from an investor class that hasn't had access to these kinds of markets. By tokenizing an asset (any asset, really, but let's focus on commercial real estate), one can fractionalize it and issue tokens that represent a specific portion of it. That way, we distribute risk and offer a lower entry point for would-be investors.

Moreover, a token gains many qualities once deployed on a blockchain. It inherits an extremely efficient market that’s accessible 24/7 from anywhere in the world. It cuts ties with third parties and/or governmental institutions that would otherwise slow transactions with their bureaucratic processes. The rules are set from the beginning and engraved on the blockchain, and so is every token transaction. This kind of radical transparency does lead to a more honest system, but it also comes with some risks, which I discuss in this post.

Why tokenize in the first place?

The benefits of the tokenization of real estate assets are undeniable, and here’s a how-to guide for those interested. One of the real estate market’s main problems is liquidity, second only to its hefty price tag. You have to generate mountains of legal paperwork and jump through all kinds of hoops to get a contract signed. The ability to streamline the process using blockchain technology is a game changer. Because of the low barrier to entry and the liquidity of global markets, it will bring a new wave of investors and 10x the liquidity of the traditional real estate approach.

The investor audience will increase, but there’s a generational component as well. Tokenization will give the youth their first real opportunity to own real estate. Millennials and GenZ are extremely comfortable with blockchain technology and tokens (NFTs, Ethereum, Bitcoin, etc.). They won’t be able to use the property, but their money will be parked in the kind of assets that the wealthy use to protect theirs. Plus, in this new and improved version of real estate, young investors will be able to trade the tokens at will in the open market, limited only by the restrictions specified in the code. 

A recent article on the subject quotes the Society Of Industrial And Office Realtors’ Geoffrey Kasselman saying, “Tokenization creates a liquidity and/or a monetization opportunity for a property owner. If they can’t raise money in a more traditional way or in lieu of raising money in a more traditional way, this could be a new way to raise capital.” That’s a clear advantage of the tokenization of real estate. A new way to raise capital from an untapped pool of investors. 

Let’s also take into account that a token doesn’t necessarily mean partial ownership. It can also represent equity in the asset, or even simply a share of the revenue that the asset generates. The possibilities are endless. The use of smart contracts means that issuers can literally program whatever they want into the token. And the rules are crystal clear from the beginning.

The marriage is too perfect. The real estate market needs liquidity and practicality, and the crypto market needs backing from properties IRL. The tokenization of real estate assets might seem to be ahead of its time, but it’s definitely happening. Sooner than later, everyone will have to tokenize their assets to stay in the game. And the real estate business stands to gain the most from this technological change. 

If you believe that and see this outcome as the inevitable conclusion, there are innumerable advantages to getting in early on the business. Here are some of them:

Advantages, reasons to tokenize your commercial real estate

  • You’ll be able to split ownership in ways never conceived of  before. 
  • Your illiquid asset or project will be flooded with new-found liquidity.
  • Investors get a much lower point of entry. You get a new pool of investors.
  • It’s a new way to raise capital. Tokenization opens up the space to new sources of investment.
  • A wave of small-time investors can become a tsunami if the conditions are right.
  • Owners can tokenize a portion of the real estate asset to raise funds and keep ownership more or less intact. 
  • The managing of the asset is pretty much automated. The smart contract and the immutable characteristics of blockchain technology take care of most of the administration duties. 
  • All processes will be faster and the fees will be ridiculously lower compared to the traditional real estate market.
  • The immutable characteristics of blockchain technology also improve privacy and transparency. Whatever happens, it will all be registered in the blockchain.
  • From the previously quoted SIOR article, tokenization “also allows investors large and small to diversify their portfolio, investing across the asset spectrum instead of a single property to reduce risk.”
  • You’ll be at the cutting edge of the real estate business, miles ahead of your competition.

There are many other advantages that no one has thought of yet, we’re sure. The game is still in the early innings and there are many surprises ahead. Can you afford to stay out of real estate tokenization?

About SmartBlocks

Mark Fidelman

Here at SmartBlocks, we believe it’s time to democratize currency and make it available to anyone, anywhere, anytime.