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Business Solutions

BLOCKCHAIN FOR CRE:

FUTURE PROMISE VS. CURRENT REALITY

HENRY ELDER
Director of Origination & Investment
Slice

BLOCKCHAIN TECHNOLOGY IS LARGELY shrouded in
hype and obscured by hyperbole. Like many ground-
breaking innovations, the promise of blockchain has far
outpaced the practical development. It is important to
understand how blockchain is being applied to the real
estate market today, and how those applications are
expected to mature in the future. To help cut through
the haze, we offer this overview of the current state and
future promise of one of the most impactful blockchain
real estate applications, real estate tokenization. Current Reality: There have only been one or two
tokenized real estate offerings, which have not yet
Tokenization is a catch-all term that can be applied to generated the same demand as the VC offerings. The
nearly any aspect of the blockchain industry. In this return profile of real estate is radically different than the
article, we will use the term “tokenization” to refer to returns offered by blockchain companies or the VC funds
tokenized securities. Tokenization can be simply thought that invest in them. Entreaties about the risk-adjusted
of as a form of securitization, selling fractional interests returns and long-term stability of real estate vs. crypto
using blockchain-based capital markets for liquidity have fallen on deaf ears. This is partly because blockchain
instead of traditional markets such as the NYSE. This was capital markets mainly provide access to global liquidity
pioneered by a trio of venture capital firms: Blockchain from retail investors, who generally do not understand
Capital, Science Blockchain and SPiCE VC. Each company the benefits of diversification or risk-adjusted returns as
raised capital by tokenizing their funds: either entire LP well as institutional investors. Retail liquidity also pales
equity positions or future cash flows from investments. in comparison to that offered by institutional investors,
This process revealed benefits in liquidity, investor who so far have been barred from the market by a lack of
management and transactional efficiency that can be custody, insurance, and sophisticated products.
applied to real estate.
There are many companies working on these solutions,
LIQUIDITY and institutional interest from the sidelines has been
Future Promise: By tokenizing an asset, the issuer gains extensive. Tokenization platforms like Slice RE have
access to an expanded pool of liquidity. Instead of being further prepared for the entrance of institutional
limited to the regional investors and the 9:30 AM–4 PM investors, by tokenizing popular institutional investments
trading hours of a traditional exchange, tokens trade like LP equity positions in commercial real estate.
freely across borders and at all hours of the day. This
global pool of investors and round-the-clock order book INVESTOR MANAGEMENT
will unlock additional liquidity premiums and pricing Future Promise: Blockchains are basically just ledgers,
efficiency. Each of the VC fund pioneers were able to keeping track of who holds what token at any time.
raise over $10 million for their funds, indicating positive By layering on security token protocols (aka smart
investor demand in a nascent market. contracts), an issuer can automate compliance with

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