STRATEGY
CRYPTO- CURRENCY
properties are limited and commit- ting the kind of funds necessary to trade such large investments mandates a detailed due diligence process. In addition to the necessi- ty to commit time to verifying and validating the property quality, larger sales require substantial legal and technical work. Larger properties are usually purchased with leverage, which involves lenders with their own conservatism and (sometimes interminable) timeframes.
portunity for smaller investors to participate in quality real estate offerings, democratizing the ability to invest in commercial real estate. An STO is much like a current private placement offering, but with the ownership of the offering repre- sented as a cryptocurrency that may be traded on an exchange. STOs are an even newer concept than crypto- currency in general and, therefore, less understood. Most STOs have been used to raise money for com-
panies but several have been used to tokenize real estate. The process is well defined and legal, but there are few securities attorneys who know how to do them and a small but growing number of cryptocurrency plat- forms that can assist with issuing them. How would an STO
Learning about cryptocurrency and how to use it appropriately in real estate transactions can be a huge benefit to any real estate investor.
SECURITY TOKEN OFFERINGS Cryptocurrency can improve the liquidity of real estate in a couple of significant ways. The first is by tokenizing the real estate. Using a security token offering (STO) breaks a large real estate property into much smaller pieces that can be individually sold and traded on exchanges (provided all SEC reg- ulations are observed). Tokenizing properties allows you to sell part of a property rather than having to sell the entire thing. The time to sell may be greatly reduced and the amount sold can be reduced as well. You can continue to own part of the property (which may better support your goals) while moving part of your equity elsewhere. This approach provides diversification and increases the velocity of your money. It also may provide op-
work for real estate? Suppose you have an apartment building worth $15M. You might issue APTCoin as a cryptocurrency. You first create a private placement memorandum just as in doing a syndication. The PPM would include a discussion about ownership being held as a cryptocurrency and would describe all the risks of holding cryptocur- rency in addition to the usual doom and gloom of the average PPM. You collaborate with an appropriate company to issue the cryptocur- rency. Perhaps you issue $15M APTCoins so that each coin is ini- tially worth $1. The APTCoin would be created as a smart contract embedded with all the SEC (and perhaps EU and other country) reg- ulations and would enforce these regulations on any subsequent sales. The APTCoin might include a
Cryptocurrency: ANewAsset
chasing power. Having cash for any length of time is a losing investment. Enter cryptocurrency. Yes, it’s a new type of asset and it’s poorly understood — not least because it is evolving so quickly. But cryptocurrency provides potential to solve problems with real estate. Learning about cryptocurrency and how to use it appropriately in real estate transactions can be a huge benefit to any real estate investor. First, how can cryptocurrency improve the liquidity of real estate? One reason real estate is illiquid is the size of the sale. Even the small- est properties cost tens of thousands of dollars and the best properties are tens of millions. The number of investors who can purchase larger
HOW THIS NEW WAY OF MOVING MONEY CAN SMOOTH YOUR REAL ESTATE INVESTING.
by Steve Streetman
R
eal estate investing can be the best approach to build and preserve wealth. The value of real estate assets typically in- creases over time, yet regular and predictable currency devaluation can exacerbate increases. Plus,
real estate is notorious for a lack of liquidity and a slow pace for buying and selling. It can be hard to move out of one property and into another. Sometimes increasing the veloc- ity of money may be necessary to preserve assets or take advantage
of opportunities. The ultimate in liquidity is cash, but cash doesn’t help you move out of real estate. And cash has its own issues. You can rely on the fact that next year any cash you have will be worth less and have reduced pur-
52 | think realty magazine :: september / october 2019
thinkrealty . com | 53
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