$100 Million Fund
In an announcement made at Consensus 2019, it was divulged that a new $100 million deal has been struck between Rhodium Capital and Harbor.
This deal will see the tokenization of a $100 million real estate investment fund. While the fund itself is a product of Rhodium Capital, the tokenization process is being facilitated by Harbor. This endeavour marks the first STO to take place on Harbors revamped 2.0 platform.
A third company is also in the mix, as Primary Capital will act as a placement agent throughout the process. Above all, this means that they will act accordingly to ensure that this opportunity is provided to only appropriate investors, benefiting, both, participants and the issuing company. Most placement agents will have a pre-existing catalog of qualified investors, which a new opportunity can be marketed towards. Simply put, Primary Capital is the bouncer & promoter, to the party that Rhodium Capital is throwing, in a hall rented from Harbor.
In making their announcement at Consensus 2019, representatives from each of the three companies involved in this deal, took the time to state their thoughts.
John Leo, Chairman of Primary Capital LLC, stated,
“We believe the digital securities model is the future of private capital markets. Our goal as placement agent is to provide global access to capital for our clients.”
Mark Silber, managing partner of Rhodium Capital Advisors, stated,
“There is a shortage of affordable housing in the U.S. and our fund addresses this market need. By offering a tokenized feeder fund as part of our $100M Rhodium Multi-Family II fund, we can better service global investors and provide the growing number of cryptocurrency investors with an alternative asset class for investment into the U.S. real estate market.”
Josh Stein, CEO of Harbor, stated,
“We are excited to work with the Rhodium and Primary Capital teams, our first clients on the new Harbor 2.0 platform, designed to empower traditional financial institutions and create efficient, delightful, digital processes for sponsors, broker-dealers, and investors. Rhodium and Primary Capital are at the forefront of a major shift from the inefficient and analog world of private securities today to a world of digital processes and securities that are more efficient, accessible and liquid.”
Rhodium Capital is an investment company, specializing in New York based real estate. Since their launch in 2012, Rhodium has gone on to accrue over $1 billion worth of properties in the area, with more growth on the horizon.
Company operations are overseen by Managing Partners, Fredrick Schulman and Mark Silber
Primary Capital is an SEC regulated banking firm. From their headquarters in New York, they are able to offer their services to a variety of regions, including, not only, the United States, but China and Europe as well.
Company operations are overseen by Chairman, John C. Leo.
Harbor is a young company specializing in the tokenization of assets. Based in the United States, and founded in 2017, Harbor has developed a comprehensive platform for the creation, issuance, distribution, and management of digital securities. This is made possible through the use of custom ‘R-Tokens’, which are based off of the ERC-20 protocol.
Company operations are overseen by CEO, Josh Stein.
Out with the Old, In with the New
The deal discussed here today may sound familiar. That may be, in part, due to it being reminiscent of a recent deal involving Harbor that fell through. Check out the articles below to learn more about this past endeavour, and what exactly happened.
Vertalo to Underpin Tokenization Effort Surrounding RECM Portfolio
$300 million worth of real estate assets will be, potentially, tokenized in the coming months. These assets are part of a pair of investment funds managed by Real Estate Capital Management (RECM).
This undertaking is the handywork of, not only RECM, but of an enterprising group of blockchain oriented companies. Those involved include:
- Advantage Blockchain
- Prime Trust
This group of companies, each working together, will provide their own areas of expertise. Vertalo will facilitate tokenization through use of the Tezos blockchain and act as a digital transfer agent, while tZERO will provide liquidity via secondary markets and act as a broker/dealer. Advantage Blockchain, meanwhile, will act as a marketing and consulting firm, and Prime Trust will provide custodial and settlement services.
This joint effort is slated to begin by focusing their efforts on an initial $90 million worth of real estate- leaving $210 million in untapped potential for the near future.
Two notable properties to be first up, include hotels located in, both, the United States and Costa Rica.
Blockchain of Choice
Increasingly, the digital securities sector is moving towards utilizing Tezos for undertaking, such as the one discussed here today. Reasoning behind this often point to increased versatility provided by the blockchain through highly programmable smart contracts.
This shift has caught our attention in the past. It was only months ago that Vertalo, themselves, announced their decision to follow suit.
Upon announcing this endeavour, RECM President, Gary Grandeis, took the time to elaborate. He stated,
“Real estate is the perfect industry to take advantage of the newest innovations with those companies transitioning us to digital platforms and flexible ownership structures having the largest impact. Advantage Blockchain is focused on bringing breakthrough financial technology solutions to commercial real estate owners.
“As a Pennsylvania-based commercial real estate owner and developer, Real Estate Capital Management is working with Advantage to identify and implement real estate tokenization solutions with the goal of increasing ownership efficiencies and creating real estate liquidity where it hasn’t existed before. Real Estate Capital Management looks forward to being a leader in this space and is excited to work with both the Advantage Blockchain and Vertalo teams.”
Founded in 2017, Advantage Blockchain maintains operations in Philadelphia, Pennsylvania. Above all, the team at Advantage Blockchain works to ‘unlock new value for businesses by providing strategies and solutions centered around cutting edge revenue creation’.
CEO, Dylan Rhodes, currently oversees company operations.
Operating out of Austin, Texas, Vertalo was founded in 2017. In the time since, this company has managed to establish themselves as a clear leader with the burgeoning digital securities sector. Beginning as cap-table specialists, Vertalo has expanded their areas of expertise to become a diverse service provider.
CEO, Dave Hendricks, currently oversees company operations.
A product of Medici Ventures, tZERO describes their goal as ‘enabling the market to create and trade digital securities using blockchain technologies’. This has led tZERO to develope a fast growing secondary market, providing liquidity for digital securities.
CEO, Saum Noursalehi, currently oversees company operations.
In Other News
In recent weeks Tezos has generated buzz on various occasions. This is, not only, in part due to the recent adoption being seen through the digital securities sector, but due to the potential closing of a turbulent chapter in its history. The following articles take a look at both of these.
Black Manta Capital Partners Tokenizes $12M Of German High-End Real Estate
The EU tokenization market just got a jolt of energy after Black Manta Capital Partners announced a strategic partnership with the German real estate firm, Tigris Immobilien. The partnership will help facilitate the tokenization of $12 million in high-end properties located in Berlin. The news showcases accelerated adoption within the EU sector, as well as, how tokenization brings professional opportunities to the regular investment community.
According to company documentation, Black Manta Capital Partners intends to purchase high-end real estate projects located in and around the Berlin area. In total, the firms seek to acquire around 2000 square meters of real estate. These properties include a variety of individual apartments from 40 to 60 square meters in size. Once the properties are in the firm’s portfolio, the group seeks to have the units updated and then sold to investors and owner-occupiers.
Notably, the total value of the project is expected to be €10,943,398. Additionally, the firms will finance an additional EUR €1,999,500 via the real estate token offering (RETO). Importantly, the group estimates a 2022 completion date for the project.
Discussing the decision, Black Manta’s co-founder, Christian Platzer spoke on the advantages tokenization brings to the market. He explained how blockchain technology enables lower transaction costs, increased transferability, and streamlined tradability. Platzer also touched on how tokenization eliminates the need for third-party verification systems such as notaries.
The Black Manta Capital Partners RETO
The Black Manta Capital Partners RETO started on April 14th, 2020. Importantly, the firm chose to keep the minimum investment amount reasonable to encourage participation from regular investors. As such, the minimum investment is only €500. In contrast, major investors have a maximum amount of nearly €2 million.
The RETO is only available to residents of Germany and Austria at this time. Despite this fact, Black Manta Capital Partners stated that more STOs will be carried out on its platform this year. Specifically, the group has plans to host a series of other EU-wide offerings. Importantly, these offerings will cover a wide range of tokenized assets including startup securities, small-medium enterprises, and funds.
Investors in the Black Manta RETO gain a host of benefits for their participation. For one, investors are privy to dividends from the sale of the residential apartments and their subsequent purchases. Additionally, investors gain preference during the sale of the apartments. Lastly, token holders receive a share of twenty percent (20%) of the total profit following the sale of the entire project.
Crucially, Black Manta Capital Partners’ RETO has the blessing of regulators. Specifically, the event is regulated by the German regulator BaFin, the Federal Financial Supervisory Authority. Describing the approval process, Platzer called it “straightforward.” However, he did point a need for more regulated custodial firms in the space. He explained that these firms will bring the liquidity of bigger players to the market.
Germany Gets A Leg Up on The Competition
As the tokenization race continues to heat up across the globe, this latest development catapults Germany to the forefront of the EU RETO sector. This positioning could strengthen in the coming weeks as the Black Manta Capital Partners RETO gains momentum. For now, this crowdfunding campaign represents a huge milestone for the entire EU market.
Nick Bhargava, Co-Founder of GROUNDFLOOR – Interview Series
GROUNDFLOOR is an American real estate lending marketplace. It was the first real estate crowdfunding company to achieve SEC qualification utilizing Regulation A+ since the regulation became operable through the JOBS Act. GROUNDFLOOR was purposely built to serve self-directed investors instead of institutional ones
You’re both a director and one of the co-founders of GROUNDFLOOR. What was the inspiration behind launching this crowdfunding platform?
My co-founder, Brian Dally, had years of experience to make telecom services more accessible to everyday individuals. Meanwhile I had a lot of experience in the securities and regulatory industries. We wanted to combine our respective strengths in a way that opened up high yield investment opportunities for everyone, not just the 1 percent. We eventually started with single-family residential housing because most people are familiar with this kind of asset from being homeowners themselves.
When the idea was conceived, we had no idea if there would be a market for it. We needed to first find an accessible regulatory framework that would allow them to test the business concept. We discovered the Invest Georgia Exemption (IGE), created in 2011 to help small businesses access capital. Being an intrastate offering rule, it was only available for Georgia companies, so both of us picked up and moved to Atlanta to launch GROUNDFLOOR. Because of IGE, we were able to fund $2 million in loans in Georgia, clearly demonstrating the demand for GROUNDFLOOR’s platform.
Over time, GROUNDFLOOR has grown considerably and is now open to investors in all 50 states.
Can you explain how GROUNDFLOOR connects investors with real estate developers?
We are focused on providing retail investors with high yield investment opportunities. A real estate borrower, someone who develops real estate for a living, secures a loan through GROUNDFLOOR rather than a traditional bank or a hard money lender to finance a residential real estate project. That borrower submits a loan application, and we vet the individual and the project to determine if we should originate a loan. Our underwriting is based on past experiences, amount of skin in the game and many other factors. If approved, the loan is assigned a loan Grade of A through G and a corresponding rate where Grade A loans are the least risky, with the lowest rate of return and Grade G loans are most risky, with the highest rate of return.
We have filed an offering with the Securities Exchange Commission (SEC) through which we sell securities. The proceeds of these securities are used to fund the loans we originate. The performance of these securities and corresponding rate of return is tied to the underlying loan. Investors can choose which securities, and therefore, which underlying loans, they wish to invest in.
Investors can choose to invest up to $10 increments to fund the loan. Once a loan is fully funded, the borrower draws money according to a draw schedule, and completes the new construction, renovation or rehab project. The property is then typically listed for sale. When the project sells or is refinanced, which is usually 6-12 months from the time the investor invested, the loan is repaid. The investor’s principal investment, plus all accrued interest, is deposited into the investor’s GROUNDFLOOR Investor Account. The cash balance in an individual’s GROUNDFLOOR Investor Account can be withdrawn or reinvested in other projects.
Are there any types of restrictions or quality controls in place to ensure that real estate developers can repay the loans?
When the borrower submits the loan application, our underwriting team works closely to vet the projects and the borrower. We also factor in the local real estate market. We don’t lend in markets we don’t like. When a loan is originated, we stay in regular contact with the borrower to ensure that the project is meeting deadlines, and we share regular updates with investors. Draws are not given out if the borrower is not making sufficient progress or has deviated from plan. If we think there could be delays or the borrower violates terms of the agreement, we can decide to step in and proactively put the loan in default, which can result in a stronger outcome for the investor because we pass through penalty interest. Most GROUNDFLOOR loans are first lien position, so the loan is backed by a physical asset, which is the land and structure.
What are some of the types of returns that can be expected by investors?
For the past six years, participants in GROUNDFLOOR real estate loans have earned annualized returns averaging 10 to 12 percent in a 6 to 12 month timeframe.
Are all investments currently in the United States? Is there a preference for certain cities or states? If yes, could you describe these.
While anyone in the country can invest in GROUNDFLOOR with only $10, the company focuses its lending in 30 states.
You were an early advocate for the JOBS Act, were you happy with how the JOBS Act was written? Was there anything that should have been left out?
I am generally happy with how the act turned out. The different provisions are designed to help companies of different sizes, and each provides value for companies in different situations. I don’t think any particular provision should have been left out.
What would you like to see changed in a future version of the JOBS Act?
We have seen Reg. A be used heavily by real estate issuances. I think there is value beyond this use case, particularly for mid-sized privately held companies that want to access public market capital. The cap for Regulation A will soon change to $75M, which will be more appealing to companies of that size. I think we could see some novel offerings in that space.
Is there anything else that you would like to share about GROUNDFLOOR?
There is no other company that offers what GROUNDFLOOR does for individual investors and borrowers. We’ve created a new category and offer completely new products.
Why hasn’t anyone copied us? One reason is because regulatory innovation. Providing investments directly tied to this type of high quality, high yield real estate credit is not something that has been done for the retail investor. GROUNDFLOOR was the very first company qualified by the Securities & Exchange Commission to offer this type of investment via Reg A for non-accredited and accredited investors alike, and because of the enormous amount of infrastructure we put into place, we can continue to iterate on our product where others cannot.
I really enjoyed learning about your company, readers and/or investors who wishes to learn more may visit GROUNDFLOOR.