Why Digitalize?
- Automatesdocument retrieval and data entry.
- Trusted Data improves asset values and liquidity.
- Deliver current pricing and performance data at greater speed, lower cost, and more frequency.
- Dramatically reduce cost and friction of asset valuations and due diligence time.
- Eliminate duplication of efforts to value and audit assets.
Data is stored in one trusted database automatically (as authorized) providing information to investors, lenders, service providers such as accountants, and third-party valuators who can provide updated opinions of value (optional).
Why Tokenize?
- Management – tokens are electronic versions of documents combined with smart contracts to define and automate an offering and associated workflow. The smart contract defines what happens upon the occurrence of an event. For example, the digitalization component reports share sales and distribution. The smart contract transfers ownership of the shares, calculates and makes the distribution, updates the capital table, and stores the information on an auditable, unalterable blockchain with all information available via a secure online portal.
- Flexibility – smart contracts allow for complex structures. Cash flows can be allocated in various configurations: to senior lenders, to mezzanine, to preferred equity, to general partners and limited partners – with automatic, instantaneous waterfall calculations and capital account adjustments. Actions dictated by the smart contracts embedded in the token could also be non-financial, for example management of timeshare units or club memberships.
- Liquidity – Currently real estate is an illiquid asset, localized, with high due diligence and transactional costs – especially on the trading of limited interests. Digitalization provides the necessary information and Tokenization opens the investment to the world as a tradeable instrument – in conformance with SEC and other legal regulation.
The sponsor could stop here with a cost and operationally efficient investor relations platform or continue to a listing on an Alternative Trading System to raise capital and allow the investors to actively trade a previously illiquid asset.
Benefits of Digitalization + Tokenization + Alternative Trading Systems:
- Fractionalization – smaller investment amounts accessing more investors.
- Globalization – cross-border real estate finance is complicated and requires significant investment in understanding local law and practices – security tokens regulation is handled by the issuer and the tokens can be listed on multiple markets or sold to investors outside of the listing market (subject to legal requirements) thus opening investments to any investor with internet access.
- Ease of Information – due diligence/investment information is available online.
- Ease of Investment – investors trade tokens similar to trading stocks & bonds.
- Institutional Trading – institutional trading desks accept lower yields/higher prices in return for easy access to reliable due diligence information and the ability to trade electronically on a regulated market.