SteelWave's $500M CRE Fund Offers Tokenized Stakes

Trading in commercial real estate with digital tokens looked like it was going to blossom into a significant sector a couple of years ago until the crypto collapse gave blockchain a bad reputation.

Now, a San Mateo-based developer is putting blockchain front and center in a new $500M CRE fund.

SteelWave has launched SteelWave Digital, a fund that allows investors to convert limited-partner cash stakes into digital tokens they can invest in commercial real estate acquisitions, the San Francisco Business Times reported.

Tokenized funds issue tokens on blockchain, the same data-processing technology used to generate bitcoin, creating fractional ownership stakes that make investment in high-value assets more accessible to a wider range of investors. Tokens offer lower buy-in requirements for investors and provide them with more liquidity.

SteelWave CEO Barry DiRaimondo told the Business Times that the company is planning to purchase more than a dozen office properties with the SteelWave Digital fund, offering investors the option to convert a limited partnership stake into a digital security.

DiRaimondo said the fund aims to create a portfolio of buildings that have in place long-term leases, the report said.

SteelWave aims to be on the leading edge of tokenized real estate, positioning itself to “mine that [digital securities] ecosystem for capital for years to come,” he told the Business Times.

When it emerged in early 2022, tokenized real estate promised to “democratize” CRE as part of a trend toward crowdfunded ownership that was expected to open access to the largest asset classes to anyone who wants to invest in real estate without having the funds for an entire property transaction.

Tokenization offered the possibility of injecting new liquidity into real estate assets 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.

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.

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 mainly involved single assets like luxury hotels.