Security Token

2019 could be the year security tokens get real (estate, that is)

November 9, 2018, 4:00PM EDT

With the bloom off the initial-coin offering rose, it's easy to think any kind of digital token would be a tough sell in the near future. But the folks at Breaker see things differently, suggesting 2019 could be the year security tokens really take off -- especially as a way to carve up ownership of real estate. It is likely to be possible to buy a "share" of certain property, with the token representing ownership in much the same way a share of Apple or Amazon makes you a part owner in the company. Owners could share in profits, dividends, and the like of all sorts of commercial and residential property.

A recent deal to sell fractional ownership of the St. Regis Aspen was the first public deal of its kind, with the sale running on the crowdfunding site Indiegogo. But bulls in the space believe the $18M offering was just the beginning. "All property is a potential target,” Josh Stein, CEO of Harbor, told Breaker. Harbor is backed in part by David Sacks, the legendary entrepreneur who is part of the PayPal mafia and incubated Harbor.

Harbor says there are deals to come, including more in real estate as well as fractional ownership of museum-owned art and sports franchises. But whether those come to fruition or not, there is a number of players working the real-estate angle, suggesting that a new way to own large properties is on the horizon. Real estate has been carved up into real-estate investment trusts, or REITs, for decades as well as older style partnership arrangements. REITs, however, typically involve buying a basket of properties, whether they're office buildings, residential apartment complexes, or shopping malls. Partnerships allow a deal to be conducted around a single property but come with a significant caveat: buying and selling are often challenging, requiring legal work, and a limited possible universe of buyers and sellers.

If tokenized real estate becomes the norm, it might be possible to buy one-millionth of the Empire State Building or "Jerry's World," home of the Dallas Cowboys. These kinds of security tokens will then trade on new exchanges -- think next-gen Nasdaq or NYSE -- and exist in a familiar world of SEC rules and regulations. While the volatility of the Empire State Building is expected to be much lower than, say, Netflix, regulated trading will almost certainly create more liquidity and could even lift prices across the sector. (Large real estate is traditionally illiquid and investors will typically require a discount, even if just implied, to tie up their money.)

Investment is expected to be led by all sorts of players, including the family offices that manage money for the well-heeled, institutional funds, and even individuals -- depending on exactly how those SEC rules are written. "The 800-ton gorilla in the room is the SEC,” Stan Pearson, a blockchain consultant, said to Breaker. "Once the SEC makes a ruling and issues some regulations around this new asset class, people will feel like we’ve taken out the wild, wild west. That’s when the market will grow -- and grow quickly.” (Source: Breaker)

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