A Stamford company believes it has seen the future of real estate investment ”” and its name is tokenization.
“We believe we”™re right on the cutting edge” of tokenization, Barry Moniês, co-founder of REINNO, said at the firm”™s office at the Stamford Technology Center (STC) at 970 Summer St. “This is an alternative to traditional real estate financing, which is very restrictive and expensive to get into ”” and it”™s been approved by the SEC (Securities and Exchange Commission).”
REINNO (pronounced “Reno,” “like the town in Nevada, where there”™s lots of money,” Moniês quipped) tokenized a $105 million commercial real estate (CRE) fund last month, and on Feb. 18 tokenized its own building, which also houses Moniês”™ IT firm Computronix. It is the first such deal in Connecticut, and one of the first commercial properties to undergo tokenization in the U.S.
Real estate tokenization creates a digital representation of equity and/or debt in the form of securitized digital tokens. As Moniês explained, it is a tool that promises to make financing and capital raising easier, faster, more efficient and secure.
While most tokenized properties are offered to investors in the form of security token offerings, in the case of the STC, the owners are not planning to sell. Instead, Moniês said, they will use tokens as loan collateral.
REINNO has a proprietary risk assessment model that allows it to almost instantly lend money against CRE tokens ”” an approach Moniês said breaks from the traditional, “inefficient” CRE model, which involves working with banks, lawyers and title companies when borrowing against real estate.
That approach, he said, can be complicated, time-consuming and “closed to all but the big boys.”
With tokenization, owners can choose how much of their property they would like to put forth as collateral. Investors can then take an a la carte approach to investing in a property. Tokenizing real estate allows for “fractional” sales whereby both parties agree to a transaction of a certain portion of the property ”” $30 per square foot, for example ”” rather than the entire building, much as a Wall Street investor buys shares in a company rather than the entire company itself.
Powered by blockchain, tokenized real estate limits transaction costs by excluding third parties like banks, agents and notaries and increases real estate liquidity.
Moniês stressed that, despite the name, the “tokens” involved are not physical specimens like coins or the old subway token. They are completely digital entities that live on a public blockchain, which he defined as “a glorified database.
“The world at large is not ready for blockchain for small business yet in large part because there haven”™t been enough case studies. But there are certain industries where it applies itself pretty easily, and CRE is one of them.”
Under SEC guidance, real estate tokenization is expected to grow in the coming years. On Feb. 18, digital asset trust company BitGo acquired security token platform Harbor, whose subsidiaries include a broker-dealer regulated by the Financial Industry Regulatory Authority and a transfer agent supervised by the SEC. BitGo leadership indicated that expanding its presence in the tokenized CRE market was a significant factor in the deal whose financial details were not disclosed.
But not all the news in the sector has been good. Last year, a deal involving Harbor and the real estate division of Chicago-based trading firm DRW Holdings to tokenize $20 million worth of student housing fell apart due to what was described as the inadvertent ignorance of a no-transfer clause written into the mortgage on the property.
In addition, a joint venture formed in late 2018 between technology provider Fluidity and digital asset-focused broker-dealer Propellr sought to tokenize a $30 million luxury condo development in Manhattan. That project never came to fruition with the companies walking away last November.
“The market was just too young at the time,” said Fluidity Co-founder Sam Tabar. “It didn”™t have sufficient institutional appetite.”
But REINNO is different, Moniês said, because of its status as a lender, whereby investors can buy back their tokens at cost plus interest in a much smaller window of time than is otherwise possible.
“Most of our competitors just do the tokenization,” Moniês said. “But we do that, plus we”™re a lender” ”” REINNO offers instant loans up to $50 million backed by tokenized real estate with no paperwork ”” “plus we”™re going to be launching our own marketplace, a Craigslist for tokenized properties if you will.”
Moniês said that should go live within a few weeks.
The company began when Moniês began researching Bitcoin as a way to pay Computronix”™s clients who had fallen victim to ransomware. That led him to learning more about blockchain, and eventually forming REINNO ”” which stands for “real estate innovation” ”” with Viktor Viktorov, a one-time e-commerce entrepreneur.
“We hit it off and here we are a year later, tokenizing the world,” Moniês laughed.
REINNO has several other properties whose tokenization will soon be announced, he said, including a $50 million residential apartment building in Middletown and a $16 million property in Las Vegas, as well as two other deals totaling $150 million.
“We are expecting to tokenize over $1 billion worth of commercial real estate this year,” Moniês declared.
He anticipates real estate tokenization to evolve much in the way that website creation did: from a specialized service costing hundreds of dollars to “paying two bucks a month for something like GoDaddy.
“I believe that we”™ll be seeing DIY tokens in the near future,” he said.
