Tokenization of Commercial Real Estate Asset
Tokenization of assets will revolutionize the status quo due to the transparency and immutable nature of the blockchain, especially the low liquid markets. The global real estate market is estimated at $217 trillion with a 25% contribution from commercial real-estate. The tokenization of real estate will increase liquidity and can be traded with ease.
The tokenization of real-world assets can unlock the most unresolved issues i.e. the liquidity issue. The popularity of security tokens is majorly driven by the need to tokenize illiquid assets. Every asset from house to equities can be securitized, however, the confusion between different regulatory arms across the world has created a frenzy for creating a tokenized platform. Issuance and trading of security tokens have been a hurdle due to the different compliances across countries.
As predicted, the commercial real estate is the first to enter the 🛡️security token industry.
If the tokenization occurs on a blockchain network the following things will happen.
- The method of payments occurs in both directions.
- The concept of ownership of the assets will evolve
- Increased demand for Governance Protocol
- Reduced barriers to entry to the investors
- Security & Transparency
In addition to the features, there are a few factors we need to keep in mind while tokenizing.
- Type of real estate (income-generating, development space, investment properties, etc.)
- Type of Structure (Fund/Special Purpose Vehicle (SPC) or a hybrid)
- Ratio of Tokenization
- Liabilities on the Property
- Appropriate Smart Contract for automation
- Federal & State Regulatory and Tax requirements
- Keeping Track of the records of token holders
- Reporting Obligations including Re-sales
- AML/KYC & Investor Accreditation requirements
The tokenization of real estate asset is highly complicated and requires cutting-edge technology such as blockchain and smart contracts. Currently, Real Estate Investment Trusts (REITs) are publicly listed and provide liquidity to the fund, but they are expensive for retail investors. Some REITs have a minimum entry for investors at $25,000 or higher. However, tokenizing might give retail investors to hold $10 worth of tokens of top buildings like the Empire State Building.
In addition to real estate, we could see many other illiquid assets that are too costly to trade become liquid through tokenization. Blockchain App Factory is at the forefront of Security Token Development, equity token offering, Tokenized asset offering, STO Marketing and Tokenization of any illiquid asset.