SPR Seminar on Tokenising Real Estate Assets: the challenge, the opportunity and the path ahead, 21 April 2022 
 
A new platform for fractionalising and tokenising real estate seems to be announced every few days, suggested Andrew Baum, the main speaker at this seminar.  In his presentation, he focused on digital real estate using tokens – that is, holding property in digital form so that it can be divided into relatively small units. This kind of tokenisation is often promoted as a way of democratising investment in real estate and opening it up to all.  Platforms developed for this purpose are usually based on the kind of blockchain technologies that also lie behind cryptocurrencies, but it should be remembered that fractionalisation in the broadest sense is an idea that has been around much longer. 

Baum referred to a 2020 Oxford University report on real tokenisation in Europe that he had authored, which identified 17 separate instances of its use up to that date.   However, relatively few of these were for tokenising individual assets, and he was sceptical about tokenisation taking off in this area – property owners want to keep control of their buildings, while crowdfunding hasn’t really made much headway in real estate investment.  Any property that is tokenised will in any case need to be held within some kind of trust structure, which means there is always an intermediary involved.  And for this to succeed, real estate investors will have to gain confidence in platforms and their promoters, not to mention the blockchain technology itself. 

Real estate tokenisation is far more likely to prove successful for funds, noted Baum. Here, investors can benefit from the ‘free lunch’ of diversification and regulatory and holding structures are already in place. 

An area of real estate activity where tokenisation looks to have strong potential – and one that does not involve fractionalisation – is that of residential conveyancing and registration.  In the panel discussion at the seminar, Eddie Davies explained that the UK Land Registry, his organisation, has been pursuing the use of digital tokenisation as a way of accelerating this process in its ‘Digital Street’ project, which seeks to employ blockchain technology for exchanging rather than for holding property.  In one simulation shown on the Land Registry’s website, the time taken for transacting a basic apartment was reduced from three months to ten minutes.  But Davies stressed that these are very early days for the concept, with ‘cultural resistance’ in the market likely to be a much bigger hurdle than technological feasibility. 

Emmanuel Lumineau of Arkkticc Technologies is an entrepreneur who has played a significant role in introducing tokenisation to real estate, particularly through his involvement with the Brickvest platform, which has syndicated both single assets and funds.  During the panel discussion he explained that one of the main challenges in the fund space has been marrying the technology with the regulatory framework of AIMFD, two areas where few practitioners have combined expertise.  And even if you have crossed that bridge, there is still the hurdle of getting your platform to be accepted among fund managers, who often think they should be able to structure everything themselves. Lenders are also often reluctant to take the step forward.  

The third panellist at the seminar, Luke Graham of real estate venture capital firm Pi Labs, said that they find a lot of tokenisation platform start-ups coming to them.  Among those likely to be perceived as at the riskier end of the investment spectrum, these have included platforms targeted at tokenisation in the Metaverse.  Coming closer to the real world, Graham suggested that products with a short potential term, such as many in the real estate debt space, could be better suited to crowdfunding approaches than more traditional long-term equity holdings. 

In the Q&A that wrapped up the meeting, which was led by Yi Wu of Reading University, SPR Chair Hamish Smith asked what would need to happen for tokenised real estate to be accepted by institutional investors.  Baum thought that it would take a big player like a Blackrock or a Blackstone to tokenise a fund in order to establish the level of confidence that is now needed in the marketplace. Large single asset tokenisation might follow as others take advantage of the clear efficiency and cost benefits of transacting and holding property in this way.  

Tim Horsey