Tokenised Property Portfolios and Development Financing

One of the core promises of blockchain technology was the democratisation of opportunity, alongside the disintermediation of financial and other markets.

To this end, there has been a lot of focus on the tokenisation of real estate assets over the preceding five years. With a few notable exceptions, however, no platform has achieved what could reasonably be called a critical mass regarding user adoption, and therefore the expectant implications for the real estate industry have remained unrealised.

The B4Real platform is being developed with a strong focus on achieving this outcome, through a mix of judicious technology applications and significant industrial authority and networks.

The platform will have a permissioned marketplace focused exclusively on tokenised real estate opportunities via STOs (security token offerings), with an ethos of lowering barriers to entry and providing heretofore inaccessible leverage opportunities directly to a wide range of investor classes.

DLT solutions are currently being investigated for efficiency, security, compliance and appropriateness with regard to digitally securing ownership records for securitised equities.

The tokenised RE marketplace (and the associated security tokens) will have a paramount focus on:

• Security of customer funds and assets (including via traditional and/or novel mechanisms such as self-regulating blockchains incorporating anti-forking measures, as well as diverse and/or permissioned validator networks) with a strong emphasis on self-custody;

• Compliance with governmental and regulatory requirements (including via forced KYC protocols, dual-sided transaction signatures, permissioned transaction rulesets etc);

• Interoperability with both extant and emergent DeFi protocols and Web3 standards (to as great a degree possible while still maintaining principal focus on the previous outcomes).

Two major barriers have been identified as preventing large-scale market adoption of tokenised real estate to date. These are:

• A lack of attractive investment opportunities for all investor classes without significant knowledge of (or experience in) particular real estate markets.

  • As an example, the vast majority of tokenised fractional real estate opportunities available to retail investors in the current market offer an investment into single dwellings, often with uncertain yields and located in areas of geographic unfamiliarity.

  • This has resulted in a lack of investor confidence, prohibiting uptake.

• A high barrier to entry for retail investors looking to acquire interests in property portfolios, with many options only being open to investment by wholesale or sophisticated investors, and others requiring minimum investments of ~$10,000 AUD or above.

B4Real seeks to solve these issues through a variety of mechanisms.

Firstly, the fractional marketplace will be targeted towards providing offerings of two particular formats of real estate investment – new development funding, and high-value diversified portfolios.

Access to a diversified pool of potential investors has become increasingly attractive to property developers and builders looking to fund new developments, due to the recent (late 2022) increases in interest rates and associated reduction in available capital from traditional financiers.

By opening these opportunities to investor classes who would traditionally be excluded through lack of awareness, ability or funding volume, a mutually beneficial outcome is envisaged by which smaller investors have access to unprecedented capital growth potential, while development operators enjoy access to a wider range of funding sources at attractive rates.

This potential is compounded when taken in the context of the additional development funding options which B4Real is able to negotiate with our private capital providers via the B4Finance platform, the backing of whom can ensure funding requirement fulfilment for both investor and developer certainty.

Secondly, existing property is also able to be tokenised for resale – however, the B4Real platform will have a strong focus on the tokenisation of property funds and portfolios, rather than individual properties, with a preference for offerings that hold a diversified selection of assets.

This allows significant potential downside mitigation for investors by hedging against negative price action across any particular geographic region or asset class, similar to the mechanisms by which index funds ameliorate risk by allowing investors to ‘buy the market’.

B4Real will also endeavour, where appropriate, to structure tokenised offerings at a price point that allows ongoing/repeated acquisition by qualified retail investors.

The exact nature of the legal structures required to implement this strategy is yet to be finalised and may likely vary dependent upon appropriateness for each individual STO.

The ongoing evolution of the Australian regulatory space will also necessitate dynamic responsiveness for maximal efficiency – for example, the recently announced CCIV (combined corporate investment vehicle) structure is in many cases projected to be a more attractive and versatile option than a traditional MIS (managed investment scheme).

Therefore, further details will be forthcoming upon platform deployment and the release to the market of individual offerings.

Outside of the increased market size, a lowered entry point also provides several attractive ongoing strategies when integrated with the capabilities of both decentralised finance and on-chain non-custodial trading automations.

Of particular note is the ability to create ‘drip-feed’ investment strategies, whereby a percentage of yield from external DeFi investments is automatically allocated into tokenised real estate – a strategy which is anticipated to be considerably more attractive when directed towards investment opportunities with both attractive growth and yield characteristics and diversity -associated lowered risk profiles, such as those described previously.

Further, DeFi also offers increased yield potential for investors by potentially allowing for the collateralisation of property tokens to access the underlying liquidity in order to generate further yields, while still retaining the property-associated dividends.

This may be facilitated by depositing security tokens into smart contracts that mint liquid staking tokens in response, with the security tokens able to be retrieved by the holder of the associated liquid staking tokens.

In this manner, custody and regulatory compliance may be maintained by the authorised holder.

Similarly, it is anticipated that (subject to legal advice) dividends associated with security tokens will be distributed on-chain via stablecoins to security token holders, as opposed to fiat disbursals.

It is a Black Tie ethos that maximal integration with the DLT economy will provide for the greatest ongoing benefit and opportunity, and the leverage opportunities and increased efficiency provided by on-chain dividend payments far exceed those afforded by traditional measures.

Investigation into these integrations and capabilities is ongoing.

However, it is of tantamount importance to note that B4Real will not enact any capabilities or mechanisms which could lead to security or compliance breaches.

Additionally, all token offerings will be entirely compliant with all Australian and international regulations, including due diligence checks, risk disclosures and other requirements.

Lastly, the negotiations towards the acquisition of the requisite licensing (primarily security/MIS authorisation under an AFSL) have progressed to late stages with our private capital and financial services partners and are expected to be finalised by early 2023 at the latest.