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Tokenization refers to the process of digitizing securities and representing them as tokens on the block chain. The most common types of securities to be tokenized are company equity and debt instruments such as bonds. Once the security has been digitized and rendered in the form of a block chain token, the security can be managed in a fashion that is quite similar to bitcoin and other crypto currencies (tokenized securities are also called security tokens, digital shares and digital assets).
Real estate properties can be tokenized and it is typically done in two ways. Either the equity of the company owning the property is tokenized, or loans provided by investors to finance the property are tokenized. In the first case, each token refers to one share with regular dividend payouts. In the second case, each token refers to a loan note held by the investor that provided a fraction of the loan. The loan note entitles the investor to regular interest payouts. The digital share further entitles the investor to a share in a potential profit when the property is sold; a loan note often does not give that right.
Real estate represents the biggest single asset class that may be tokenized. Global real estate is around $228 trillion and only 7% of this is available to retail investors. Only 3% of the global population has invested in real estate, but more than 80% views real estate as a good investment.
The real estate industry is plagued by slow, expensive, cumbersome, and paper-based processes relating to the financing and management of projects. Financing is often done by a bank and a few trusted investors able to meet the EUR / USD 100,000 minimum ticket size. Investors are locked in for several years and there is no easy or inexpensive way to sell shares beforehand.
Tokenization of real estate assets solves all of the above problems. Most processes related to financing and ongoing management can be digitized and even automated. Due to the 100x more efficient processes, it becomes possible to manage thousands of investors in a single project and hence to reduce the minimum ticket size down to $1,000 or even $100. This gives the real estate developer access to new types of investors and new sources of capital. With the growth of the total amount of capital, the financing of real estate projects should become easier and less expensive.
Having real estate assets in a tokenized form allows for peer-to-peer trading with instant settlements. Real estate investors will be able to trade their digital shares or loan notes directly with each other in a safe and secure manner using block chain technology.
Tokenization of real estate enables developers to reduce the cost of financing and ongoing management, to target new types of investors, to more easily finance new projects, and to increase the liquidity of assets.
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Before founding Newdeal, David worked at the international commercial law firm Bryan Cave Leighton Paisner (then Berwin Leighton Paisner) for several years. David studied Law at the Rheinischen-Friedrich-Wilhelms-University of Bonn and is a fully qualified lawyer.
