Blockchain is set to disrupt commercial real estate in 2019.
Jointer's CEO & Founder, Jude Regev offers insight on blockchain solutions for commercial real estate property owners and investors and what the future holds for tokenization solutions.
As an international digital currency expert, Jude Regev tells Digital Journal about how the tokenization of real estate assets will reshape the future of property investing. However, in addition, he explains about the top risks U.S. property owners need to consider before using security tokens.
Jointer provides a secure platform which enables the public to minimize risks as a real estate lender and to seek returns like an owner.
Digital Journal: What are the main trends affecting real estate?
Jude Regev: The real estate industry is shifting from generations of secrecy and behind the scenes industry deals that were only available to knowledgeable and professional experienced investors to a democratized industry available to main street investors. The knowledge and the time for due diligence that was needed will be reduced or even become in some cases unnecessary.
The high barriers of entry that would typically surpass hundreds of thousands or even millions of dollars will be reduced to a minimum of $1, allowing more people to participate.
Additionally, the time to close a transaction will be reduced from 60-90 days to instantly. Secondary market based securities will increase liquidity and will allow property owners to unlock equity faster and eventually will expend the industry to higher cap valuations. With that being said, all these benefits can carry new risks and challenges in the form of scams that will be created and trigger stricter regulation.
DJ: How important is blockchain set to be for businesses?
Regev: Investment properties are considered stand alone businesses and value is determined on demand by buyers and lenders.Tokenization can lower the barrier to entry towards accessing investment properties, allowing more buyers to participate while increasing liquidity for lenders.
DJ: How can blockchain help real estate?
Regev: Blockchain can digitize the real estate industry and create a vehicle that mirrors the stock market. A blockchain-powered real estate vehicle is open to all, transparent, diversified, provides liquidity, as well as being instant trades and efficient results. A real estate stock market can be more consistent and provides less risk than the stock market itself, presenting better options to main street investors.
DJ: Who are the main providers of tokenization?
Regev: The main providers in the industry are Jointer, Polymath, Securitize, Harbor, Swarm and Securrency. All of those providers offer to property owners a solution to tokenize the property and unlock their equity. But the big concern for property owners when they choose a provider is not only the cost, but mostly the legal liability exposure and the limitations that are involved in it.
DJ: How will the tokenization of real estate assets reshape the future of property investing?
Regev: Everyone talks about liquidity as the main way tokenization will reshape the future of property investing. That is true, but it depends on the type of tokenization the property owner uses.
A private tokenization is limited to accredited investors, carries a “locked” or untradable period and is limited to 100 investors, which produces high barriers to entry and limited tradability between only accredited investors.
However, a public tokenization that complies with the SEC under Reg S1, is more similar to a public company that can be traded between everyone, at any time, and at a minimum of $1. That kind of advantage can reshape the future of property investing, allowing it to function similarly to a company that offers stocks.
Jointer offers property owners a public tokenization solution and also acts as a market maker with a buyback program. The buyback program solves liquidity by making all tokens instantly tradeable and redeemable within the system.
DJ: Are there risks associated with buying tokens from property owners?
Regev: Ironically, exactly 100 years ago there was a man called George C. Parker, who is considered the most successful con-man in the history of the USA. George Parker is who sold the Brooklyn Bridge twice a week for 30 years. The story of George C. Parker can repeat itself today with the ease of investments. This presents a major risk to those investing in a fraction of a property through tokenization.
Naturally, property owners have a conflict of interest with buyers and may benefit from misleading them. Owners may scam investors by offering tokens for properties they do not own, issuing false claims about the property, and a trust based dividend distribution. Further, with limited real estate knowledge, investors may not have knowledge of risks associated with distressed or vacant properties.
On the property owner side there is a risk as well since the law limits tokenization to 100 investors (in case of LLC entity) leaving property owners vulnerable to legal liability while the final number of participants can increase by 3rd party tradeability. Jointer believes that the future of the real estate industry will be led by a scalable tokenization solution that can provide liquidity and the democratization needed while minimizing lending risks for all.
DJ: How will blockchain and the tokenized securities market impacted commercial real estate in 2019?
Regev: There are two types of tokenization: Owners have their choice between Private and Public options.
Private tokenization is an upgrade from the traditional syndication format that is usually limited to 100 accredited investors. During 2019, we’ll see more traditional syndications adopting the private tokenization solution taking advantage of increasing liquidity and reducing process time.
Public tokenization solutions aim to disrupt the commercial real estate lending and investing industry by opening the door to main street and the public. These solutions aim to replace institutional lenders and big investors such as RIETs. During 2019, we’ll start to see big players such as banks and RIETs exploring investments with tech companies to keep pace with the industry evolution.
Jointer is proud to provide public tokenization of Commercial Real Estate to encourage mass adoption and increase the entire blockchain marketcap.
From the writings of Tim Sandle