Real Estate Tokenization Promises to Democratize CRE Investing

A new global market for tokenized real estate assets is taking shape, fueled by the growing adoption of cryptocurrencies and the emergence of digital asset trading platforms that are offering young investors micro-shares of properties that have been tokenized on blockchain. 

While wary institutional investors await clarification of regulatory rules of the road for tokenized real estate, millennials driving the growth of cryptocurrencies are welcoming the opportunity to participate in deals that now permit fractional investing.

Tokenized real estate on blockchain is part of a trend toward “crowdfunded ownership” that is expected to open access to the largest asset classes, including residential and REITs, to anyone who wants to invest in real estate without having the funds for an entire property transaction.

Tokenization of real estate is promising to inject new liquidity into real estate properties while making transactions more transparent and trackable, giving auditors a higher degree of confidence in data accuracy than conventional property deals. Tokenization also has the potential to drive down transaction costs, with digital “smart contracts” replacing piles of paperwork.

“Tokenization may be at a relatively early stage, but it is absolutely going to be a disrupter in global property markets,” said Dan Natale, leader of Moore Global’s real estate group, in a recent white paper entitled Democratizing Property Investment.

Digital asset trading platforms have been launched in more than 15 countries, with the US, Hong Kong, Singapore, Thailand, Germany and Dubai among early adopters. One of the top three real estate developers in Germany, Bauwens, is partnering with Fundament’s digital asset platform to tokenize $7 billion worth of real estate on Ethereum, an open-source blockchain that supports Ether, a cryptocurrency second only to Bitcoin in market capitalization.

RedSwan, a Houston, TX-based digital asset platform, has tokenized $2 billion worth of property and plans to tokenize an additional $4 billion, including residential developments in Texas, California and New York.

Fraction, a subsidiary of Hong Kong fintech firm Fraction Group, recently received approval from Thailand’s Securities and Exchange Commission to trade real estate tokens. Fraction reportedly plans to introduce an “initial fraction offering (IFO)” that will market tokens representing fractional ownership of luxury real estate listings for as low as $150/token.

According to Moore’s white paper, tokenization already accounts for digital property assets worth billions of dollars being traded annually. The white paper says institutional investors “are still on the sidelines” in the emerging tokenized real estate market, waiting to see what, if any, regulatory framework will govern new digital trading platforms.

Real estate tokenization began with a single luxury property, the St. Regis Hotel in Aspen, CO, which raised $18 million through the sale of digital “Aspen coins” to individual investors in 2018.

In its early days, tokenization has mainly involved single assets like luxury hotels, but tokenization is spreading to residential developments and experts believe it is only a matter of time before groups of assets including REITs are offered on digital platforms.

Private investment is pouring into the proptech sector as startups begin to move into established CRE markets. Proptech attracted an estimated $32 billion worth of venture capital in 2021, according to a report from the Center for Real Estate Technology & Innovation.

The World Economic Forum has forecast that 10 percent of global GDP will be stored on blockchain by 2025. Fidelity’s 2021 Institutional Investors Digital Asset Survey of more than 1,800 global investors found that 70 percent of respondents planned to invest in digital assets in the near future.