A Month Ago

On the back of the recent announcement from the High Chancellor in November 2019 regarding Smart Contracts and Digital Assets, it is likely the Law Commission for England and Wales will now introduce new laws, or we will see courts making a ruling based on the High Chancellor’s statement.

This will then give absolute legal certainty as to the status of Smart Contracts and Digital Assets. It is very significant as, until the Chancellor’s guidance, Digital Assets were not recognised. It could have been argued that, as one was unable to take physical possession of a Digital Asset e.g. a Cryptocurrency, thieves could not be prosecuted as they had potentially stolen something that was not legally recognised - similarly banks could not lend against such assets. However, now that we have greater legal certainty, it is likely to lead to greater institutional interest creating digital assets, in turn offering exposure to a wide range of assets including property funds, real estate portfolios, or even exposure to individual buildings.
This interest has already begun since the first property in the UK to be tokenised was a student accommodation block in Nottingham University this summer, using the Stella Blockchain. The company behind this deal is called Smartlands, and it raised £12+million by selling 30% of the building to investors by offering exposure to the property for as little as £5,000. It was estimated that the yield will be 5.74%, with a target return of 15.74% p.a. on the student accommodation property. Smartlands is looking at similar digital offerings for up to £500million of residential accommodation in the UK, vineyards in the USA and a smart city in Brazil. There are a variety of companies such as Smartlands offering tokenisation services including:
Securitize: a registered transfer agent, based in the USA and with offices in Europe
Token market: the FCA-regulated firm which has raised over £230 million of Initial Coin Offerings (ICO) and currently promoting three offers
Digi shares: a Nordic-based firm looking raise capital to build a platform
Leaseum services: a team with institutional experience offering a range of services to digitise real estate, PE, Infrastructure and VC funds, as well as specific assets such as equities, bonds, property etc
Tokeny: a Luxemburg-based firm looking to issue, transfer and manage tokenized securities.
Archax: an exchange for trading asset-backed tokens (digital securities, security tokens, etc), based in London
TPX Exchange: a regulated platform that will allow one to sell as little as £250 of one’s property and which are looking to potentially digitise the $20 trillion global residential property market.
However, offering digital ownership of the property has not been plain sailing recently. In a joint venture between Fluidity (backed by Consensys and Galaxy Digital) and digital asset-focused broker-dealer Propeller, it was decided to not proceed with the $20 million tokenised Real Estate deal. This was despite getting a ‘green light’ from the Security Exchange Commission (SEC) in the USA, as Fluidity found there was simply not the institutional support to invest. Also, Blockchain ‘start-up’ Harbor and the real estate arm of Chicago-based trading firm, DRW Holdings, did not proceed with their proposed $20 million of student Real Estate project.
Interestingly Emaar, the owner of the Burj Kalifa (which at 2.722 feet is the tallest building in the world,) has issued a press release as it is looking to launch the EMR...

Real Estate

5 Months Ago

University College of London (UCL), which was one of the beneficiaries of Ripple’s $50 million University Blockchain Research Initiative scheme last year, recently held a conference looking at how Blockchain technology is likely to impact the construction industry.

At the event, a leading barrister Jeremy Barnett spoke about how he believed Blockchain technology can add tremendous value for the owners of Real Estate.” Take as an example a new shopping centre. If all the critical information about the project was held on a Blockchain, the landlord would know at every stage during the construction of the building who had done what and why. This would create a time-stamped and immutable record which could be used for a variety of requirements -insurance, bank financing, paying contractors and even potential litigation if this were to occur at a future date. This data could even be used to help in the fractionalization/tokenization of outlets within the shopping centre, to identify who is to receive an ongoing rental income. Therefore, having “Structured data”, one can add value to an asset such as a property”.
The suitability and safety of a building is an important issue, especially in the UK, where there are potentially corporate manslaughter charges that could be bought against company directors. Company directors are potentially personally liable in the event of an accident and are at even greater risk if an employee’s life is lost while at work e.g. shop or office workers, or potentially tenants (in the case of a property company).
If data on a building is held in a structured and digitised manner, it would be possible for Smart Contracts to be used to identify when maintenance checks need to be carried out -automatically notifying when health and safety checks are required i.e. inspections on lifts, fire extinguishers, etc.

On a more sober note, the barrister Barnett said that “If such a system had been used in Grenfell Tower, we would not only know who had made critical decisions about design and materials but also it would be possible to automate many of the processes that take place, such as monitoring of fire alarms and sprinklers, to make the buildings safer. Using such a system, all those who design, build, operate and own new buildings will be able to comply with the onerous rules that will be introduced by the new Fire Safety Regulator.”

In a recent report from Harvard Business Review, which looked at How Blockchain Will Change Construction, it cited several examples of how the technology is being applied in the property sector. According to Propulsion Consulting founder Marc Minnee, who is advising on a large project in Amsterdam, “Blockchain provides a platform for clearly cascading work products down the chain and holding everyone accountable for completing key tasks,”. Meanwhile, the risk consultants at Aon, believe that 95% of building construction data currently gets lost on handover to the first owner.

Briq, a California-based Blockchain firm, is using a Blockchain-powered platform to create a “living ledger” of everything about a building - from the initial sod of earth being dug to the latest safety inspections and those potentially minimising risks for those who own and insure the property.
It is possible, in conjunction with Artificial Intelligence (AI) and Internet of Things...

Data Warehousing
Real Estate
There has been considerable interest in the potential that Blockchain technology offers the property sector, in being able to tokenise Real Estate and so enable smaller investors to get access to an asset class that has typically been the preserve of institutions and only the very wealthy. 

Instead of offering exposure to the rise and fall of property valuations, a German company called Fundament has received permission from BaFin (the German Financial Market Supervisory Authority) to issue €250 million of bonds, run on the Ethereum Blockchain. The Fundament bonds will be issued in digital form as a token backed by property. This could lead to more property-backed bonds being issued by other firms.

Meanwhile, in Luxemburg, one can now get access to Real Estate from as little as €1,000, via Property Token SA. This is a digital token which uses Smart Contracts whereby rental income from the property will be automatically distributed to investors.

One of the challenges for institutions owning tokens, whether it be giving exposure to direct property or bonds backed by property, is custody. It was therefore intriguing to see that The Royal Mint (the UK Government-owned organisation which is responsible for making coins) was reported to be going to offer custody services for a new type of Blockchain, called Temtum. Although this may be “fake news”, as the source for this is Coin Telegraph whose website states it has removed this story “due to its lack of compliance with our standards of journalistic quality and integrity”

Financial Services
Real Estate

6 Months Ago

There has been considerable hype about how tokenising property will boost liquidity, as it will allow smaller investors access to this asset class which historically has been the preserve of institutions and the very wealthy.

Whether this is true or not, we will have to wait and see, but we are beginning to see different parts of the world tokenise property and slowly we are seeing more and more acceptance of the idea.

In France, a €6.5 million property in Boulogne (according to Forbes) is the first piece of Real Estate to be tokenised. The property was transferred to a joint stock company and held by 100 tokens, following which each token is then capable of being divided into 100,000 tokens. This means that, for as little as €6.50, one can own a fraction of the building. In the USA last year, a property in New York, valued at over $30 million, was tokenised and was touted, at the time, as being a way to finance property instead of relying on traditional banking arrangements.

Meanwhile, a company called ASA, based in Dubai, is looking to tokenise property in the UAE and Portugal. Also in Dubai, a company called Darico, has recently launched a service to help organisations tokenise assets, such as property, into tokens. 

So, one can see that a number of jurisdictions are looking at how property can be held in a different way and, while the promise of additional liquidity that tokenisation promises is yet to be seen, there are a number of other interesting benefits that tokenisation of assets offers. In essence, we are increasingly finding that economies are becoming more and more digital as this can offer greater transparency, stronger compliance monitoring and regulation, thus enabling engagement with people who are, themselves, more digitally savvy and reliant than previous generations.


Real Estate

7 Months Ago

There are a number of organisations trying to convince investors of the merits of Tokenising different assets classes, on the basis that once it is possible to buy a fraction/share in a property or piece of art or a car, etc, it will enable smaller investors to participate and create a pool of liquidity.

While this sounds very plausible in practice, illiquid assets such as art, property, and classic cars tend to be the preserve of the very wealthy or institutional investors. These asset classes usually have little day to day liquidity, as these more sophisticated investors tend to buy and hold for the longer term. However, the jury is still out since by tokenising these illiquid assets, it will instead lead to other people actively buying and selling on a daily basis!

The Real Estate Investment Trusts (REITs) market started in the USA in September 1960, as a way of encouraging investors to participate in buying property in the USA. This REITs model has been subsequently copied by many other countries around the world.

The statistics below show it is estimated that 80 million people are exposed to USA REITs, which is valued to be over $3 trillion in size, with the majority REITs being quoted on a regulated stock exchange.

It is possible to buy a USA REIT at a discount of its asset value and, indeed, at the end of 2018, the discount of the median RIET was as large as 18%. Therefore, one has to question if there are potentially 80 million investors exposed to over $3 trillion of assets, which one can buy at a potential discount of 18% - how will tokenisation help?

The other popular misnomer has been how Initial Coin Offerings (ICOs) and the tokens they created will democratise capital. To put this a different way, ICOs offered the promise to enable smaller investors to have access to smaller exciting tech start-ups. These have historically been the preserve of wealthy-sophisticated investors and institutions, like Venture Capital and Private Equity Funds. In 2017, Naga, a German publicly quoted company, epitomised this by raising over $50 million from 63,000 people. Unfortunately, apart from a handful of tokens, there is relatively little liquidity in the secondary markets and exchanges for many of the organisations that have issued a token.

According to Coinmarketcap.com, there are less than 100 tokens that had a volume of more than $1million, after which the volumes fall dramatically to a few thousand over most 24-hour periods. But this really ought not to be a surprise, as there are relatively few investors who buy even quoted smaller companies. In the UK, there are 481 companies on the Alternative Investment Market (AiM), that have a capitalisation of between £2+ million, but less than £100 million, and another 272 companies listed on the main London market valued under £100 million. So, just in the UK, we can see there is plenty of choice for investors but, unfortunately, it is almost impossible for even these publicly-quoted companies to raise fresh capital. There are multiple reasons for this - lack of information about these smaller companies, difficulty in valuing the company, few tangible assets being owned and lack of institutional interest, etc. Often there is no liquidity to buy and sell these quoted smaller company shares. How familiar are these reasons cited as to why...

Real Estate
Digital Assets

9 Months Ago

A new UK start-up, International Property Network (IPN), have completed what they believe to be the first blockchain based property transaction, involving banks, conveyancers, agents, legal teams, buyers and sellers using Blockchain technology.

U.S-based law firm Squire Patton Boggs, U.K-based law firms Ashurst and Clifford Chance, Barclays, Commerz Real, SBI Nihon SSI, BBVA, Swiss Re and Royal Bank of Scotland are among 40 companies on IPN’s platform as they all seek to reduce the costs of real estate transactions while significantly speeding them up.

IPN has also been working with HM Land Registry’s Digital Street project to explore how they are able to use Blockchain technology to improve how it interacts with different parties.

IPN claims that cost-savings could be as high as $160 Billion p.a. as the current system is very reliant on analogue, predominantly paper-based, systems. The ability for many independent parties to work together on a property transaction in the same online environment progressing it in real time is revolutionary and could reduce the time to complete property transactions from months to weeks.

IPN, which harnesses R3’s Corda Blockchain, say recent trials have illustrated that businesses can use the platform within a few days without the need for complex changes to their back-office systems. This is because rather than creating yet another information storage, it provides a secure means of transacting with users’ existing technology - with each party retaining control over their own data.

This not only removes some of the GDPR challenges and other compliance issues, but also allows the various players to retain control, and their independence, while removing the cost of continuous re-checking and reconciliation of facts and information by each party at its ‘border’ - which adds much delay, cost and friction.

The platform could prove to be significant internationally too. It has the potential to greatly assist many projects globally which are looking to tokenise real estate portfolios in an effort to have greater transparency and liquidity, whilst also making property investments available to smaller investors via fractionalisation.

Real Estate
It typically takes six months to buy a house according to Acre, a UK Fintech firm, that has just received a capital injection from one of Europe’s biggest insurance companies, Aviva.

Acre has announced a partnership with Sesame Bankhall Group, one of the UK’s leading firms of financial advisory networks, with over 11,000 advisors. Last year Sesame Bankhall Group placed £42 Billion worth of mortgages, so clearly has distribution capabilities.

Blockchain technology can create one record that the relevant parties can share in a highly secure environment, so the lender, borrower, lawyers and financial advisors have access to real-time information on the progress of mortgage applications.

Given that predominantly, lawyers and financial advisors remunerated by charging fees on a time basis, any technology that improves efficiency should be welcome.

Real Estate
There are a number of companies that are working on projects to tokenise Real Estate as it is believed that using a Digital Asset, they can offer fractional ownership (a share/a unit) of a property or a property fund.

The ability to trade tokenised property 24/7 on an exchange is touted as a way to improve liquidity for the property sector. Investing in property tends to be for the very wealthy or for institutional investors, given property values and the illiquid nature of buying and selling buildings and the fact that investors tend to buy and hold real estate for a number of years. 
Asset managers have for years offered ‘funds’ to encourage investors to gain exposure to the property sector, but often these funds have restrictions when you come to sell and this can result in some of them trading at a discount to their actual value of the properties they hold. 
Swiss firm Blockimmo now claim to be the first in Europe to launch tokenised real estate. If Real Estate tokenisation does create greater liquidity and allow 24/7 trading so attracting new investors, we will likely soon see tokenisation of existing real estate portfolios, raising new funds to invest in this asset class.

Real Estate