WSO,
I'm sure everyone has heard of the recent Bitcoin craze or made a few bucks dabbling in it. Outside of Bitcoin, blockchain technology does create some disruptive opportunities. Specifically in real estate it could create a quasi-crowdfunding market.
Check out the article below. There are definitely some holes in the theory, but it actually seems like it could be possible.
Blockchain Technology Disrupting Real Estate
I'm assuming properties would have long-term property managers that remain in place regardless of exchange of coins/tokens. I think the main issue would be that the tokens could create a divergence in intrinsic price vs. token price(but then again if ppl overpay for tokens its similar to compressing the cap).
Whats everyone's take on this?
The devil is in the details. We trade fractional pieces of a company (stock) in a well-regulated marketplace among companies with formal boards of director and management. How exactly does one do that with real estate? I suppose I could imagine companies emerging that operate as custodians for hundreds of properties where they hire the property manager and make Asset Management decisions. But investment properties can be incredibly difficult to operate in the long-run because the asset management decisions (holding money back in reserves, lender decisions, dispositions, renovation, leasing to quality tenants, redevelopment) can be super complicated with no clear right-and-wrong answers. It is hard for me to imagine a, I don't know, custodian operating with the same kind of care in asset management that a direct owner operates with. For example, we are presently looking at a $23M renovation and cash-out refinance of one of our apartment buildings. The process for bidding out the deal included 42 lenders looking at the deal and receiving 11 hard quotes, as well as countless meetings with owners and attorneys discussing loan terms. Another example--we take great care in what tenants we lease our office buildings to. I just can't see an arms-length custodian treating the real estate investment with the same kind of care that direct owners do.
In other words, knowing what I know, I would never invest in a fractional piece of commercial real estate with some random custodian (with no ownership interest) making all the decisions. We do have third-party asset managers today, but they generally consult with the owner(s) about how to proceed with certain major decisions; however, I cannot conceive of a way to consult with dozens, hundreds or thousands of fractional owners on major decisions. Decisions would all have to be delegated to a disinterested third party.
Well take Fundrise or Rich Uncles for example. They're micro-funding $500 investments from most definitely unaccredited investors. Apologies for my ignorance but if they can do that with a traditional REIT I don't understand why one couldn't do something similar by setting up a cryptocurrency built on the ETH blockchain and having an ICO.
I'm also thinking that this would be regulated differently that a typical fund structure/REIT because, at least in the states, there are no regulations, to my knowledge, regarding coin offerings. With most coins tied to nothing more than speculative ideas, having tokens that backed by actual real estate and actual CF seems like an interesting & potentially lucrative opportunity.
This is an incredibly niche market, and I'm not convinced it's even a profitable model. Fundrise, for example, went from crowdfunding individual RE investments to crowdfunding RE funds. So they aren't really crowdfunding for individual deals anymore. Further, if it's a viable model, why would you need blockchain and/or cryptocurrency to engage in this model?
Of course, someone might try to argue this, and in the stroke of a (literal) pen, the SEC can author a letter clarifying that cryptocurrencies aren't exempt from securities laws. And I see no way in the world the SEC would exempt U.S. real estate investments backed my cryptocurrencies from securities laws. It would be such an obvious hole in the law that it would undermine the entire basis of the regulations themselves.