The democratization of commercial real estate investment through blockchain opens up opportunities for investors with smaller budgets

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It’s no secret that commercial real estate investing is widely regarded as one of the more stable ways to create long-term wealth. The only (and very big) limitation is the large amount of upfront payment required for the initial investment — a ticket so high that it shuts out many potential investors in the first place. If that’s a hurdle you’re facing — and you, as an investor, don’t have a large cash reserve from which to add commercial real estate to your investment portfolio — fear not. Tokenization is here. And gone are the days when CRE investments were exclusive to those with an extra $50,000 to $100,000 lying around.

What is tokenization?

Tokenization takes an asset and converts its value into a digital token that is stored on the blockchain. This token can then be used to digitally transfer fractional ownership of an asset without the use of a third party or intermediary.

“Democratizing a CRE property breaks down large and expensive investments into fractions and creates security brands for all parts,” says Gunner Davis, a premier real estate agent from Tampa FL. “It allows for safer and more liquid secondary trading in tokens falling below the minimum issuance threshold for a larger number of investors.”

What are the benefits of real estate tokenization?

The main benefit of tokenization is the ability to fractionate ownership of an illiquid asset like real estate, says Mohsin Masud, founder and CEO of blockchain-based commercial real estate investment platform AKRU.

Real estate tokenization offers the potential for greater liquidity and lower costs for investors looking to start investing in CRE.

Illiquid does not necessarily mean “not tradable”, but rather “slower tradable”. For example, the typical holding period for real estate debt is four to seven years. The process of tokenization allows for more liquid and secure secondary trading with tokens that at the same time fall well below the minimum issuance thresholds for investors, thereby accelerating this process. It’s also democratizing the space for real estate investing by allowing more people to access it – specifically, individuals can invest for as little as $1,000 using AKRU’s platform.

Tokenization also removes a number of traditional barriers to investment, opening up opportunities for a larger population of potential investors to acquire wealth, says Isaiah Henry, CEO of Seabreeze, a real estate management company.

“Smaller investors can diversify their portfolios and have more leverage in the game,” he says. “When these CRE investments start showing a high ROI, they can turn around and invest again. So it can only help the market overall.”

Kate Diaz, a real estate expert, interior designer and co-founder of Swanky Den, agreed with Henry’s point of view, noting that opening up CRE investments to more retail investors allows a larger pool of capital to be invested in these types of deals, which can potentially lead to better ones lead to returns.

“Furthermore, more available CRE investments also allow for more transparency and liquidity, two key factors that many retail investors look for when investing in any type of asset,” she says.

Aside from giving smaller investors the opportunity to own properties that would otherwise be out of their reach, these investments also offer individuals the opportunity to spread risk by owning a smaller stake in a range of properties, says Tomas Satas , Founder and CEO of Windy City Homebuyers.

Although tokenization opens doors for so many, there are still a few stumbling blocks that companies looking to tokenize real estate face.

Possible hurdles for tokenization

One of those hurdles is regulatory alignment — due to differing safety rules based on case law, says Ricardo Mello, co-founder and managing partner of luxury real estate brokerage Manhattan Miami Real Estate.

“While some jurisdictions are moving faster than others, there is still some uncertainty surrounding fundamental issues, leaving many concerned about things like security tokens and their application to financial regulations,” he says. “In theory, tokenization should be revolutionary in the real estate world, but it still has to pass many crucial tests before it can work at the industry level.”

Another hurdle for companies tokenizing real estate is technology. Well-crafted technology requires a lot of trial and error, and with a number of new CRE investing tools still in their infancy, it can take time for many of the systems to function smoothly.

Despite these stumbling blocks, Mello says tokenization can transform the real estate industry and is likely to stay here.

How AKRU plans to change the game

AKRU was founded in 2018 with the goal of democratizing real estate through tokenization and enabling investments for as little as $1,000. The company’s tokenization of real estate breaks expensive investments into chunks and creates a security token for each chunk.

The AKRU platform runs on established, proven technology that streamlines real estate investments, all in compliance with applicable law.

For anyone who’s ever considered diving into CRE investing but felt intimidated by the large cash outlay required, there’s good news. Blockchain technology has torn down the old barriers to entry and “democratized” or widened the circle for more investors everywhere.

This post contains sponsored advertising content. This content is for informational purposes only and is not intended as investment advice.

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