The Business Case for CRE Tokenization: Bigger Markets, More Money

Frankly, it sounds a little desperate when the owner of a mostly empty office building opens itself to Bitcoin bids. After all, when the cryptocurrency can drop more than a third of its value in two months, just how much can you count on getting/?

But focusing on a single would-be set of crypto transactions—or being entranced using a so-called non-fungible token, or NFT, to get a 75-year transferable lease on a co-living space in San Francisco—is missing the really big picture.

Tokenization, or splitting apart the value of some asset and then transferring the parts into crypto tech tokens, is where the real money will be made.

“In my opinion, eventually nearly all commercial real estate assets will be tokenized,” John Sarson, CEO of digital asset advisory Sarson Funds, tells GlobeSt.com. “It just makes so much sense if you’re going to have more than one owner it creates a very easy mechanism for bookkeeping.”

The basis of Sarson’s view, and that of many others, is due to the nature of blockchain technology—the distributed ledgers that let people follow transactions and take part in them. “The blockchain doesn’t mind how many members you have, that communications are sent via the blockchain as are dividends, rents received, and royalty payments.” It’s a form of automation that can, in theory, simplify things that could be done on paper, except that would require heavy effort.

“Imagine if you wanted to sell a large rental commercial property building, and instead of trying to find one investor who can pay $10,000,000 for that building, you could sell it to a number of smaller investors in the amount of $10,000 each? Or $1,000 each?” Craig Kirsner, president of Stuart Estate Planning Wealth Advisors, tells GlobeSt.com.

“Right now, maybe only 500 buyers could bid on the Empire State Building if it were to go for sale because of the need to probably buy a piece of several hundred million dollars even if you’re part of a syndicate,” Sarson says. “Let’s say it’s worth $1 billion in that environment.” Divide the value of the Empire State Building into 2 million tokens, each piece would run $500.

“The increased buying appetite and increased demand created by the tokenization process should unlock value and maybe a tokenized Empire State Building is [now] worth $2 billion,” says Sarson.

People investing small sums face less risk, and so might be satisfied with lower returns, making a deal easier to construct. Tokenization would also allow investors to sell their stake, making value more liquid.