You heard it here first. Well, actually we have been “preaching” tokenization of assets since late 2016 when the CME Group attempted to digitize gold with the UK’s Royal Mint. Didn’t happen (lots of reasons……think the SEC), but we can sure claim to be at least one of the first to be right on top of what’s “new and hot.” So fast forward to now (8/2/22) and the digitization (or tokenization) of hard assets is “where it’s at.” Specifically? Real estate.
Certainly by now, many folks are aware that almost anything can be tokenized using blockchain technology. I mean wine, classic cars, art, collectables, gold (all precious metals), etc. can all be broken down into “fragments” and offered to “everyday” investors. But, the BIG kahuna is real estate. Why? Well for one, everybody owns, has an interest in, has an opinion on or wants to invest in real property. Also, for some reason, all the other digital assets seem to be associated with crypto (and we all know what’s happened recently) whereas real estate is……..well, real estate. Even if it’s tokenized. Its all perception.
So what’s holding real estate tokenization back? As noted above, its not the “crypto effect” since real estate is thought of as a “special” digital asset category. Surprisingly it’s also not regulation, but rather fragmentation.
There are already several local platforms scattered around the country that let investors invest in real estate projects via digital tokens, but certainly not on a mass scale, at least not YET. There is no way a financial advisor in Fargo, North Dakota is going to seek out a platform in Akron, Ohio to invest in, maybe three, properties outside Cleveland. Same story for a family office in Seattle locating a couple houses in Florida to invest a few hundred thousand dollars in. Not worth the time and effort.
The ability for “average” investors to diversify their portfolios via tokenized “slices” of real estate exists, but to this point, has not been scaled en masse. Not yet anyway. In the not to distant future a very large national, or regional, fintech firm will launch a platform that will offer multiple real estate investment opportunities via tokenization. Perhaps standardized with each opportunity offering “slices” of, say, 10%, 25% or 50% ownership thus making it easier to scale and attract institutional investors. Fragmentation will become either consolidation, or new large ‘players’ will dominate.
An important note, when an investor buys a tokenized “slice” of a property they own the property directly. Not like owning a REIT or trust company in which an investor indirectly owns a part of a portfolio of real estate. Customized portfolios with direct ownership will become the next “hot” sector. And here’s an important thought to ponder. If you buy a REIT, or trust company, you buy a security. If you buy a tokenized “slice” of real estate you buy property. Is that a token, or a security or property?
So who might be some possible big players in this new “hot” sector? Certainly national real estate firms like RE/MAX, Keller Williams, Coldwell Banker and even huge real estate investors like Blackrock, plus untold new entrants we have not heard of yet. Will exchanges like the CME Group or the NYSE create or buy platforms? Time will tell and the clock is ticking. The next great “hot” sector is warming up.
Bill Taylor is a longtime financial market veteran and thought leader, and CEO of Digital Wealth News. He also sits on the advisory board of institutional-grade tokenization platform Yoonify, launching in late 2022.