Real Estate Tokenization

About Atlas One

Atlas One is a Canadian-based digital securities firm. We enable access to private capital markets through blockchain technology, tokenizing some of Canada’s most interesting opportunities and making them easily available to investors. Atlas One aids in further increasing managed real estate through digital means. Fully online investor onboarding, user friendly subscription processes and seamless distributions are core advantages of our services.

Market Insights

The traditional real estate market is valued at $326 trillion, making it one of the largest markets in the world. The private equity market stands at $9.8 trillion and cryptocurrencies stand at $1.9 trillion. Digital securities, which includes real estate tokenization, has a market capitalization of $1.3 billion. It is evident that there is far more scope for growth in this industry, relative to its counterparts.

Traditional real estate is seen as a market with many inefficiencies and high transaction costs. As a result, the time has come for real estate tokenization to grow its presence in the industry.

Comparison

Low transparency and inefficient transaction processes are among the downsides of the traditional real estate market. It has high investment costs accompanied with multiple intermediaries, which reduces efficiency. It also tends to take longer to transfer assets from one party to another.

Tokenization potentially addresses the issues felt with traditional real estate. It has lower barriers to entry, higher liquidity and elevates transparency while delivering a more efficient overall process to both issuers and investors.

It is also worthy of noting that only $10 trillion of the $317 trillion real estate market is actually managed by investment managers. Tokenization of real estate will allow for a far higher portion of the market to be managed and available to a broader investor base.

A recent study by the international advisory and accountancy network Moore Global has stated the following:

“. . . even if just 0.5% of the total global property market were to be tokenized in the next five years, it would be on track to become a $1.4 trillion market.”

The potential for the tokenization of real estate is high. At 37%, real estate comprises a large proportion of the digital securities market. It is also clear there has been growth in this industry over the last year. In 2021 alone, the monthly market capitalization of real estate tokenization increased from $25 million in January to nearly $100 million by the end of the year. It has increased by 45% to currently stand at $145 million, just 3 months later. You can have a browse of our research terminal for more information on digital securities.

Recent projects

The most recent and major tokenization project was by Alterra Worldwide. It is one of the largest and most ambitious tokenized commercial real estate developments to take place since the beginning of real estate tokenization 2019. It is a 24-storey, 374-unit Class A residential highrise. The project costs a whopping $237 million which will be completed in 2024.

RealT has tokenized around 75 properties since 2019 and worth an estimated $39.33 million. RealT also boasts funds as well as individual properties for you or I to invest in. This means a diverse group of investors are interested due to various projects being tokenized across America.

Another successful platform is RedSwan. They currently have 144 properties for investors with a minimum investment of just $1000. They have also just recently raised $5 million through a crowdfunding campaign.

Harbour is a digital investment platform for alternative assets that is backed by blockchain. Harbour has raised $40 million and is backed by a variety of key investors including Kindred Ventures, Valor Equity Partners and Founders Fund among others to name a few.

Why tokenize real estate?

Tokenizing real estate achieves liquidity to an extent that traditional real estate never could.

The first feature of tokenizing real estate that drives liquidity is fractionalization. Fractionalization, or creating fractional ownership stakes in a real estate property, increases access for investors by reducing investment thresholds. Investors are able to enter markets for small amounts ($1000 as mentioned before for example). Those who wish to buy tokens can have an ownership stake in a property that is worth many millions of dollars, while only paying a fraction of its price. Fractionality can also reduce portfolio because investments can be spread throughout many projects rather than just a single project. Different projects means real estate used for different commercial purposes, including shopping malls or offices. In traditional real estate, an investor would have to spend the accumulated total on just one property as that is all they could afford if given the same amount of money.

Fractionalization also creates opportunities to globalize investors’ portfolios. Real estate tokenization enables investors to diversify their portfolio by investing across the globe. Investment can be tailored towards markets that are performing well — rather than being obliged to only invest in their own country where performance may be subpar. Through traditional means, investors typically only invest in their home country, whereas tokenizing allows for global diversification through tokenized property across the globe.

The second feature of tokenization that supports liquidity is increased tradability of tokens. In traditional real estate, there is a lengthy process through various intermediaries in order for assets to be transferred from one party to another. This can take a few weeks or months. Comparatively, tokenization of real estate means trading is done instantaneously — thanks to smart contracts standardizing ownership stakes and transfers, and a blockchain which creates an immutable record of transactions. Tokenization effectively introduces a trading mechanism for an asset class that is traditionally bought and sold in person with plenty of intermediaries adding costs and inefficiency. This quicker trading incentivizes parties to trade more thus improving liquidity in the industry.

The combination of fractionalized ownership and increased tradability reduces the liquidity premium associated with lumpy traditional real estate investing. In years to come, traction for tokenized real estate will pick up and investors will gain the opportunity to benefit from more managed real estate. As a result, we would be on track to making real estate tokenization a trillion dollar industry.