CRE Trading Platform Realto Closes $4.5M Funding Round

Realto, which has a platform for illiquid commercial real estate securities trading, announced that it closed a new $4.5 million funding round.

With a previous $3.5 million round that closed in December 2020, total investment in the company is $8 million. 

“The round was led by Firebrand Ventures with investments from KCRise Fund and other key contributors,” the company noted. “The previous $3.5 million round, which closed in December 2020, was led by Gary Fish and JE Dunn.”

Firebrand managing partner John Fein will join the Realto board.

Startup database site Crunchbase reports that the $4.5 million round was actually announced on March 1 through an SEC Form D filing. In that document, Realto reported that the date of first sale was March 4, and the offering was $5 million of which only $4.5 million had sold, leaving $500,000 which apparently hasn’t sold.

The company had its first transactions on its platform last December in trades of Class B restricted shares of grocery-anchored shopping center owner and operator Phillips Edison & Company. 

“Most of these REITs are public,” Realto CEO Brian King told GlobeSt.com at the time. “They file their [10-Ks and 10-Qs] with the SEC, so there is transparency into the funds themselves, but it does not mean they are listed or have liquidity.”

Liquidity is an old issue in CRE given regulatory issues and the practicalities of selling partial interests in assets that lacked strong national secondary markets.

“When these are originally sold, the idea is they’re going to have some kind of liquidity event in five to seven years,” King said. “They’re either going to list on an exchange, or they’ll be acquired by some public REIT and give [investors] an opportunity for an exit.”

But some funds don’t get to a liquidity event in that timeframe, meaning investors get locked in beyond their expected horizon.

The concept Realto has explored is similar to secondary marketplaces that enable the trade of non-listed shares in high tech companies. Investors, as well as employees who get equity as part of their compensation, can go to platforms that enable sales of their holdings to others.

Other companies have looked to provide some form of secondary market. Last year MarketSpace Capital, a real estate private equity firm headquartered in Houston, Texas, used blockchain and tokenization to offer partial ownership of a Dallas multifamily adjacent to a medical center. A year after putting their money in, investors could, if they wished, list their shares for sale on a crypto exchange platform called tZERO.