Blockchain is the technology disruptor that provides liquidity for real estate syndication deals.
Yael Tamar, Chief Marketing Officer with Solidblock, explains what blockchain is and how it can be used beyond Bitcoin and applied for real estate syndication.
Blockchain technology was introduced in a 2009 white paper written by the founders of Bitcoin. Since that time, Bitcoin and blockchain have become synonymous. However, the truth is that Bitcoin is one of many digital currencies that utilize blockchain technology.
By definition, blockchain is a decentralized ledger that provides transparency to all its token users. All transactions are viewable to the token holders. The ledger is immutable, meaning you cannot edit past transactions without certain permissions.
You are able to trade amongst token holders. Transfers between members are instant! Computers in the network approve transactions and adjust the participants balance.
The applications for blockchain are numerous beyond digital currencies. Food suppliers are implementing blockchain to trace food from the raw product through processing to consumer. The ability to trace every step allows you to pinpoint where contamination occurs. Banks are utilizing the technology for inter bank transfers.
The stock exchange is similar to blockchain. In the marketplace, every day, multiple buyers and sellers are able to acquire and dispose of stocks for a market set price. This is not the case in real estate. For this reason, real estate has always been considered illiquid.
Blockchain can change that.
Liquidity for Real Estate Syndication
Real Estate syndication has characteristics that make it ideal for blockchain. You have multiple owners who are tied to a single investment. In a traditional syndication, all investors must buy and sell at the same time. This lack of mobility could be solved by the use of blockchain.
Blockchain gives all investors the ability to instantly sell their interest, or buy additional shares from willing sellers. Sponsors can sell shares to raise additional funds for renovation, or limited partners can sell some of their shares to raise cash, or get out of the investment.
An example of Blockchain in Real Estate Syndication is the St Regis Hotel in Aspen, CO, which utilized Solidblock to provide the blockchain platform for its offering.
There is a cost to implement blockchain, and ideally, a syndication should raise over $3 million before considering the use of blockchain.
Digital representation of the asset provided at the issuance of the property.
Blockchain has more security than traditional banking. This is because there is no personally identifiable information stored on the network. Your personal information is stored in your digital wallet.
A digital wallet is a sequence of numbers. For any trades you make, there will be a record of your transactions attached to your digital wallet.
Smart contract is imbedded in the blockchain. This governs who can invest in your offering and who can join the offer and who can trade. Once you are invested, no one can take this away from you. If you find someone that is on the system, you are able to sell your interest direct without the involvement of any additional intermediaries nor cost. You can sell a part of or your whole investment. This has never been available to real estate investors before.
Traditional vs Digital Currency
Unlike traditional currency markets, digital can trace any action on the platform. This includes actions from bad actors. If someone were to hack the system, and steal another members tokens, it would be easy to trace who received the money, and correct.
Digital currencies are not country specific, and are independent from the currency of your country. This allows investors from anywhere in the world to participate in the offering.
Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”
BIGGEST RISK: There are many risks in real estate. I guess the top ones are market risk, then picking the wrong asset. And I would say liquidity risk because of the impending crisis or recession that’s going to happen. Now, on the asset level and the market level, you can mitigate these risks with information.
Number one is your due diligence. How much do you know about the asset owners, asset managers, developers and so on?
Number two is basically if they’re doing the right. If there is a right fit from the asset to the market.
The third type of risk is liquidity risk. This is much more problematic because you have forces that are beyond your control.
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