Despite the crash in value of many cryptocurrencies, developers and business leaders who have embraced the use of crypto, the blockchain, tokenization and other Web3 technology haven’t lost their enthusiasm.
The processes of buying real estate with cryptocurrency and turning commercial properties into digital tokens have allowed foreign investors to invest directly into U.S. real estate faster than ever, a powerful advantage for developers in gateway markets like Miami.
The meltdown in the market has boosters advocating for the practical benefits of the new technologies for the future, rather than crypto’s get-rich-quick ethos of the past few years.
“To me, the biggest advantage of crypto as it’s related to real estate was getting money out of South American countries,” Property Markets Group Managing Partner Ryan Shear said at Bisnow’s Blockchain and Tokenization in Commercial Real Estate event at the InterContinental Miami last week.
PMG’s Ryan Shear and FTX US’ Avinash Dabir speak at Bisnow’s Blockchain and Tokenization event in Miami in August 2022.
PMG has sold 60 units to buyers with cryptocurrency by listing properties on crypto exchange FTX US, which Shear said has allowed his firm to take large deposits from buyers in Chile, Colombia and Argentina who typically have trouble moving large sums of money quickly out of their home countries.
“Crypto is the first legal conduit to get money out of a country without violating the country’s laws, but I don’t think everyone has processed this from the buyer’s sense or the broker’s sense,” Shear said. “To me, it’s a total game-changer. So, whatever country you are in, I don’t know why you wouldn’t convert [to crypto].”
But skepticism around cryptocurrency has reached a fever pitch this year, as the crash in prices across multiple coins led to a $1T valuation wipeout, The New York Times reported. Speakers at the event, which included panels on tokenization, the metaverse and blockchain, said the market volatility is unrelated to the disruptive potential of the underlying technology.
“We don’t gamble with crypto,” Shear said. When PMG sells units on the FTX exchange, the transaction is converted to U.S. dollars immediately, he said.
“When we invoice the buyer, we show them the exact amount needed to convert to U.S. dollars,” FTX US Vice President of Business Development Avinash Dabir said. “If you are buying a million-dollar condo, then we will show the appropriate amount of bitcoin it takes to convert to a million-dollar condo. The seller does not have to deal with any volatility, does not have to deal with any risk.”
HeightZero Real Estate’s Laura Pamatian, PINKTADA’s Mark Gordon, BalconyDAO’s John Belitsky, Propy’s Kelly Dolyniuk and Crypto Estate’s Madison Roberts speak at Bisnow’s Blockchain and Tokenization event August 2022.
There is a growing movement of not just buying and selling real estate with crypto, but also taking physical assets, creating digital versions — or tokens — of them, dividing those tokens into fractional shares and selling them instantly via online marketplaces.
This process, called tokenization, is pitched as being a far more secure transaction process than traditional deed transfers, and it unlocks liquidity in a traditionally illiquid asset class. This week, Deloitte published a research paper that argued more CRE transactions should take place on the blockchain because of its increased transparency and heightened security.
“Transparency is the mother of liquidity,” said John Belitsky, the president and CEO of real estate advisory firm Abraham + Martin and the co-founder of Web3 investment bank BalconyDAO.
“How do you take a real estate built world and digitize it? What does that look like?” Belitsky added. “Your building is the NFT. Your rent, your income, your expenses, your encumbrances … your easements, your liens, everything lives inside of this NFT.”
He said having all that data presented in the tokenized version of a building gives confidence to traditional real estate players to invest.
For Sam Grossman, the managing director of real estate services at Inveniam — a data operating platform that tracks performance of private market assets — the process of tokenization is the missing link needed to maximize blockchain technology and eliminate market volatility.
“The most important thing to make this marketplace work is knowing what needs to happen in order to tokenize,” Grossman said during the event. “The volatility is what is going to make tokenization fail. So in an ideal world, you create better data [and] better value across the marketplace … which provides that pathway to liquidity.”
A large hurdle still in the industry is the lack of marketwide data. New York-based AKRU sells fractional ownership of real estate assets, but CEO and founder Mohsin Masud said he can’t give an accurate answer for how big the current market is.
“That is what has led to today’s keen problem of lack of liquidity, a lack of true adoption, the lack of compliance and confusion that there is,” Masud said. “That is a big problem.”
The Vicar Group’s Venesulia Carr, Digital Innovation Group’s Jason Bennick, TruMint’s William Barlow and Power of Chain’s John Dean Markunas speak at Bisnow’s Blockchain and Tokenization event in August of 2022.
Another source of confusion is the government scrutiny being paid to cryptocurrencies and the uncertain regulatory environment surrounding Web3 investing. There are multiple bills being introduced in Congress that seek to categorize cryptocurrencies as either a security or commodity, which would give different agencies regulatory and enforcement power and lock investors into different rules, depending on the outcome.
“I don’t think we will see a big impact in real estate right now from the regulatory efforts that are happening because it is in such a state of flux,” Digital Innovation Group President Jason Bennick said. “This stuff is going to drag out.”
Many tokenization processes currently require U.S. investors to keep their holdings for a 12-month lockup period but allow foreign investors to transact almost instantly, panelists said. The regulatory conversation around that issue is also considered in flux.
Uncertainty and volatility have the potential to scare off traditional real estate investors — even more so after the ongoing crypto meltdown — so companies using the blockchain for tokenization are quick to distance themselves from the digital currencies that have lost billions for investors in recent months.
“You brought up the word crypto, [Masud] and I won’t use that word,” Grossman said. “There is a very particular reason why we wouldn’t and that is because it provides confusion in the marketplace. There is enough confusion, and when you hear crypto, you think bitcoin, the volatile market. That is not what tokenization is.”