Ari Shpanya is the CEO at Slice RE, an STO that offers institutional grade commercial real-estate in prime markets.
AT: Is investing restricted to accredited investors?
AS: This would depend on the investor’s nationality. In general, Slice dedicates a great deal of time and resources to comply with the regulatory requirements of each jurisdiction our company targets. Accreditation is a US regulatory process, so in the United States investing is restricted to accredited investors. Other countries have different definitions and requirements, and Slice complies with these requirements. Oftentimes, we get approached by individuals of countries we’ve never dealt with, so our compliance officer helps these individuals find out whether they are eligible to invest or not.
AT: Slice RE currently enables international investors to take advantage of US real estate. Are there any geographical restrictions on the location of investors?
AS: Our current focus is on EMEA. More specifically, we are currently working with investors from countries like Singapore, Hong Kong, Japan, Europe and Israel.
AT: You recently partnered with StraightUp which offers commercial real estate in major hotspots such as Boston, Los Angeles, San Francisco, and New York. Any plans on further diversifying into secondary cities?
AS: In the long run, definitely. Our focus at the moment is commercial real estate projects in major US cities. For example, our Manhattan One project is in the heart of Manhattan in the sought-after Chelsea neighborhood. Our experience has taught us that international investors look for opportunities in markets they understand or are somewhat familiar with. Once they experience these investments first hand, they’ll be more inclined to invest in secondary and tertiary markets. We have a team of real estate analysts in Los Angeles and San Francisco that actively vets and sources deals nationwide.
AS: We don’t consider these companies competition. Slice is in the business of cross-border RE investments. Our current investments, like Manhattan One, can be treated as a traditional private equity deal. The tokens and optional liquidity are just an additional layer of benefits that lives on top of our core business. Liquidity is something that is going to be fully realized when secondary markets (like OpenFinance and tZero) will mature and facilitate meaningful trading volume.
AS: Our investors must go through 3 simple steps before they are able to invest in our offerings (registration, onboarding and investment).
During registration, investors provide general details like email and phone number to quickly set up an account. Onboarding is the process of Slice getting to know the investor on multiple facets: (1) initiating a KYC/AML/Accreditation process, (2) learning the investor’s intentions, expectations and experience with alternative investments (3) cultivating a meaningful relationship by assigning the investors with an account manager.
The KYC/AML process includes uploading:
- A selfie
- A government-issued ID (in English) or a passport
- A utility bill
The uploaded documents and information are then being verified and screened.
Once this is done, investors can explore offerings suited for their preferences. The investments can be subscribed using the platform, which includes a data room, eSigning and online payment modules. Later on, and depending on market volume, investors can expect to enjoy liquidity for their investments.
AT: Will investors be able to handpick the investment that they wish to be involved in? Or will it be simply an investor holds a security token, and that security token is invested in multiple properties?
AS: Slice lets investors cherry pick a specific project, as opposed to a traditional REIT model, where investors have to invest in a basket of projects of varying quality. We let investors get involved with a fairly little capital, because we understand that this type of investment vehicle is new for most investors, and we want to give them the opportunity to experience the benefits of this investment before adding more capital to their Slice real estate portfolio. The beauty of this model is that it allows investors to allocated small amounts to different projects and thus create a truly diversified real estate portfolio.
AT: Can you explain the investment style option which currently offers conservative, medium, or aggressive investments? I’ve seen this in traditional mutual funds, but it’s something that might be new for a lot of people in the real estate space. What are the different levels? Is this based on a projected yield/risk analysis?
AS: Real estate investments are typically divided into 3 main strategies based on perceived risk and projected returns. As the projected returns increase, so does the potential risk.
Core – Core assets are relatively stable yielding assets, located in major developed markets. They are characterized with strong fundamentals, high occupancy, credible tenants and a low degree of leverage. These projects are usually owned by institutional investors for a long holding period. These assets are considered to be a conservative investment, and the main objective investors choose them is wealth preservation.
Value-Add – These investments holds a higher level of risk with a greater upside potential. These assets can be found in primary or secondary markets, where the manager can actively add value by renovating the asset, increasing occupancy, or improving the tenants quality.
Opportunistic – There are many types of opportunistic investments, but generally these are either highly distressed properties (major vacancy, financial distress), new development projects, or assets in emerging markets. These assets typically require significant rehabilitation and have little to no cash flow. They carry the highest risk, and require experienced management, but can generate the highest returns (most of the return will be generated when the asset is sold or refinanced).
AT: Investors can earn dividends from real estate. Will you be outsourcing the collection of rent, managing properties, etc. to a management company or will you create a management company to manage these assets?
AS: Slice is a tech company that specializes in the tokenization of commercial real estate investments. We believe in domain expertise and therefore work with professional property management firms and legal advisors to best serve our investors. These services are being outsource to contractors with a proven track record, as we have no intentions to become a property management company.
AT: With the potential economies of scale that can be had, what are the property management fees that we can expect?
AS: Again Slice is not a property management firm. The industry has its standards regarding fee structures, depending on the property type. Due to our team’s vast experience, and the numerous relationships we have with developers, we are able to compare and negotiate attractive terms and fee structures for our investors.
AT: What’s the average projected holding time? For example, is the idea to purchase the development in pre-construction, tenant it for a year, and then flip it?
AS: The holding periods depend on the underlying asset. This might be a 2-3 year hold for a new condo construction or a 5-year hold for an income-producing asset. Our model lets investors take charge of their own holding period and liquidate their position without having to pay a hefty premium. We believe that the introduction of secondary markets is around the corner and that the revolution of tradable private securities will be expanded to other asset classes like fine art, stock options, and more.
AT: How are you planning on attracting the retail investors who are new to the concept of blockchain and tokenization of real estate?
AS: At Slice, we are not in the business of overpromising; we believe that retail investors should be handled with special care and with full transparency. The true adoption of retail investors will come from the fruition of projects led by developers with a meaningful track record (like our partners @ HAP NYC), the continuous development of quality project, and the emergence of secondary markets with meaningful trade volumes. Once these three pillars are in place, we believe that more retail investors will be actively looking for these kind of deals, and regulators worldwide will approve investment vehicles that are aimed specifically for retail investors.
AT: What are your marketing plans for the next 12 months?
AS: We focus on educating the market about the benefits of security tokens for cross-border investors. Most prospects we talk to don’t fully understand the difference between utility tokens, which are backed by empty promises, and security tokens that are backed by real-world assets. These same investors certainly don’t understand security tokens advantages like fractional ownership, increased liquidity, rapid settlement, reduction in direct costs, automated compliance, and asset interoperability – so educating the market is key. This month, we are launching a webinar series to help prospective investors understand the benefits of our technology and get to know our strategic partners (like HAP) which build some of the projects we tokenize. This effort gives our audience an opportunity to meet our management team, ask questions, and ultimately build trust with our brand.
Oliver Siah, CEO of Fraxtor Capital – Interview Series
You have an interesting and diverse life story, having spent 17 years in the civil service as a Republic of Singapore Air Force Officer, and Pilot. How did you transition from such a career to launching your first real estate investment company Hanson Court Pte Ltd?
I had two passions growing up. One was Aviation, and the other was Real Estate Investment. I enlisted as a pilot in the Air Force when I was 19 years old and was offered a government scholarship to further my studies in Australia. At 21 years old, I bought my first commercial real estate, which was a retail unit in a shopping mall in Singapore. By the time I graduated at 23 years old, I had sold the retail unit for about double the purchase price, netting me more than 10x return on equity. I was so intrigued by this that I could not wait to buy my next property, this time, a residential unit in Singapore. I sold this unit six years later for more than double the purchase price as well.
I knew I was on to something. So I set up my family investment vehicle Hanson Court Pte Ltd (named after the first property we acquired) after completing my Pilot training in the Air Force in 2009 (during the financial crisis). We went on to buy ten commercial and industrial units in Singapore, with a strategy to add value to the assets through asset enhancement. By doing so, we managed to push the rental income up substantially and sold the units five years later, achieving more than 40% IRR (p.a.).
After serving for 17 years, in 2018, I left the Air Force to focus on my startup Fraxtor.
In order to familiarize our readers better, could you share with us what Hanson Court Pte Ltd does?
Hanson Court Pte Ltd was formed as a property investment company in Singapore. During the financial crisis in 08/09, we acquired many commercial and industrial assets for below valuation and held on to them until the market recovered, earning us more than 40% IRR. At the moment we are still invested in commercial units in Singapore and have also ventured abroad to China to develop properties.
Was there something that your saw or experienced operating Hanson Court that inspired you to launch Fraxtor, a company that specializes in offering tokenized and crowdfunded real estate?
Through my experience investing in property, I realised that some pain points could be addressed through tokenisation. First, it was the large capital outlay that is required to purchase a property which makes it difficult for investors to diversify their portfolio. Second, it was the lack of liquidity of the investment, which makes it prohibitive for people who want to invest in the short term. Third, it was gaining access to the global real estate market. The know-how required to conduct the due diligence on the property and even to structure the investment makes it difficult for individuals to invest overseas.
With a platform like Fraxtor, we can allow investors to co-invest with us from as low as $10,000 and enjoy a hassle-free investment experience.
Could you elaborate on how Fraxtor sources which property to invest in?
We currently focus on opportunistic and value-add projects in matured markets like Australia, Japan, Singapore and Europe (including the UK). These are markets that our team is more experienced as well.
First, we look at two key factors: location and potential. Location is something we cannot change. Hence it is essential to select projects based on the accessibility and desirability of the asset’s location. Potential is what we can unlock in the property through redevelopment or asset enhancement initiatives. This we feel would be the allow us to increase the value of the property.
Next, we look at the financial structuring of the asset. We look at the best way to structure the capital stack of the investment to maximise the return for the investor. In the current market situation, we are looking at 10+% IRR for value-add projects and 15+% IRR for opportunistic projects.
Projects that meet our criteria would be presented to our investment committee for selection.
How long are the properties held? Is the goal to tenant them, or to flip them for capital gains?
The duration of the holding period depends on the type of property and the strategy we adopt. For our development projects, we aim to sell the assets as soon as possible to unlock the return for our investors. This would probably take between 1.5 to 3 years. For our investment projects, the goal is to add value to the assets through enhancement initiatives, increase the net operating income and subsequently sell them for capital gains. This would take between 3 to 5 years.
Are monthly or quarterly updates issued to investors? What type of information can they access?
Investors are updated as and when there are updates on the property. Investors are able to access the information memorandum for the property as well as the financial feasibility study that we had done for the project.
Where is Fraxtor regulated and what licenses does it have?
Fraxtor is currently exempted from licensing in Singapore as we only deal with accredited investors.
Could you tell us about some of the current investments that you offer, such as the location and property type?
Our current project is to redevelop a residential landed property in Singapore. The property is situated in Adelphi Park Estate along Upper Thomson Road. We plan to demolish the existing property and build two semi-detached units on the land.
Is there anything else that you would like to share with our readers?
Fraxtor will be expanding our operations in Australia soon and we are in the process of obtaining an Australian Financial Services Licence.
Christian Platzer, Co-Founder & Managing Partner of Black Manta Capital – Interview Series
As a senior HR professional, managing director, and as a consultant, Christian has broad experience from startups to a global enterprise (Groupon). He managed complex international teams in high growth environment, operating in 30+ countries. He lived and worked in Berlin, Zurich, Sydney, and Vienna. Christian is passionate about startups, talent management, people operations, and organisational design.
Outside work, Christian likes to eat well, travel often, and dive hard. He is based in Malta.
How did you first personally come across cryptocurrencies?
I kind of stumbled quite late into crypto: in 2017 during a consultancy project, and finally out of curiosity. For my Co-Founder Alexander Rapatz and me, creating Black Manta Capital Partners was and is more about the adoption of blockchain capabilities in the wide realm of securities, “real world assets”, rather than widening the field of crypto currency adoption. That said, being able to invest both in fiat and crypto currencies on the Black Manta Investment Platform is at the core of our value proposition.
What inspired you to launch Black Manta Capital Partners?
Our very first business idea circled around tokenized funds. We have a broad and deep experience in venture funds and private equity in our team. Yet, when we analyzed the market closely the question remained: who is going to run all those STOs we’d like to invest in? Setting up a single STO as a company is a complex and lengthy endeavour; you have to bring a lot of services together for one offering. In the end, you still have to face the financial regulator for the whole package. This is not easy. Hence, we came up with Tokenization as a Service® on a Multi-STO-Platform.
Crowded? I beg to differ. There are indeed many FinTech players in the space, that provide tokenization engines. Then some players went for niche jurisdictions like Liechtenstein or into a London sandbox. But licensed Financial Services Institutions in major financial markets like Germany, we do not see too many. In that regard, we are very pleased and encouraged that we were able to convince the German Financial Regulator, BaFin, to grant their permission to us.
What types of products can be tokenized on your platform?
This is another way how the Black Manta Investment Platform will differentiate from what we see on the market so far: step by step, STO by STO, we will develop a broad portfolio from real estate to startups and small and medium sized enterprises, from commodities to tokenized funds. We want to give investors, both retail and professional ones, the options to diversify their STO investments on one platform. At the same time all our issuers will benefit from an existing and growing pool of registered investors.
Why should startups or small businesses choose to tokenize versus more traditional fund-raising methods such as venture capital?
For us, we do not see it as an either-or, nor is a Security Token Offering the magic bullet of fundraising. If you are planning a seed round, you might be well served with a venture fund or business angel, its connections and expertise. If you are a grown-up startup that is looking at a series B or C round or an established SMB, that has a track record in the market, you might be much better served with a STO. In the end, it boils down to the fact that as the issuer of a Security Token, you are highly flexible in structuring your capital and you gain access to a highly international financial market.
You recently partnered with Tokeny to launch a ‘Multi-STO Platform’. Could you share with us some details regarding this partnership and what it means for potential clients?
We see Tokeny Solutions as the European leader in the field and for sure one of the top global players. Their platform has a proven track record, is stable, and has met regulatory requirements. In our partnership, we both focus on what we do best: Tokeny the FinTech on Blockchain part, Black Manta Capital the part as a licenced Financial Services Institution. For the client, we’d like to think you get the best of both parts. And apart from that, we simply enjoy working with these guys in Luxembourg.
For potential clients who may be interested in your services. Are there minimum capital or other financial requirements?
In general, we see a minimum capital target of EUR 5 million. In some cases, we will run a smaller first round, but these will usually prepare the market for a bigger round two.
Do clients pay up front or are fees collected from the revenue that is generated?
Our services for structuring and placing the offer require a retainer for the financial and technical setup and a success fee on capital raised. Both parts of the fee are tailored to the complexity of the project, the type of asset to be tokenized, and the estimated sales and distribution effort for the placement itself.
Are there any current projects in the pipeline?
The Black Manta Investment Platform will start in the first quarter of 2020 with two real estate projects in Germany. After those, we are looking at a long list of offerings and different kinds of tokenized assets, but for them it is still too early to make announcements. It is important to know that within the European Union’s freedom of services and the so-called MiFID-II directive, we are able to execute STOs all over Europe, based on our German license.
Is there anything else that you would like to share about Black Manta Capital Partners?
Finally, one question I get a lot is: why Black Manta? And the simple answer is: I am a passionate diver and Manta Rays are not only the fish with the biggest brain power, they are simply majestic and it is mind-blowing to meet them in the deep blue.
Masha and Xenia Vyazemskaya, Founders of ValueTokenized – Interview Series
Masha and Xenia Vyazemskaya are known as the Crypto Twins. They host the popular podcast ValueTokenized which provides free educational content to help businesses tokenize the world.
How did you first discover blockchain and cryptocurrencies?
By lucky chance! We have always been in communications, and a good friend once asked for our assistance and PR advice for a blockchain project back in 2017. Fast forward several months, blockchain has entirely captured our attention, and we’ve been helping blockchain projects with content marketing and PR ever since, helping the tech guys tell their stories and educate audiences.
Which was the first token that you purchased and what motivated you to purchase this token?
I believe it was XRP. Xenia liked the idea and completely ignored the “buy low, sell high” principle, which turned out to be a pretty bad investment. The sum was insignificant, though.
Bitcoin was our second crypto investment. And it quickly became more. It took us over a year to understand the real beauty of bitcoin and the values behind it. We’re big believers in bitcoin vs. fiat currencies, and we’re doing our best to facilitate the adoption.
What inspired you to get involved in the space?
It is fascinating to watch the new industry emerge and mature. For us, it started with curiosity and excitement for the brand new space, which then turned into a clear understanding of the demand for unbiased expert content and the value we can bring in this regard. The most inspiring thing for us now is when experts contact us to arrange an interview or a panel discussion, and receive feedback from the audience.
You’ve done multiple YouTube videos, including discussing some recent industry trends such as IEOs replacing ICOs. How do you personally feel about IEOs?
Our podcast ValueTokenized is dedicated mostly to asset tokenization and practical applications for blockchain technology in capital markets. When the IEO trend was growing half a year ago, however, we couldn’t help but cover it.
Our opinion on IEOs is pretty much aligned with that of our speakers – including an early investor in Bitcoin, Uber and Airbnb Jeffrey Wernick. IEOs merely seems to be an attempt to prolong the fading life of ICOs – which per se had nothing bad to it as a concept, but the implementation left a lot to be desired.
In any case, we strongly believe that the future for blockchain and cryptocurrencies lies within:
1) asset-backed tokens and;
You’ve also conducted multiple interviews which feature different jurisdictions for launching an STO. These jurisdictions include Singapore, the United States, Israel and Liechtenstein. Based on these interviews and your knowledge of the space, which jurisdiction would you personally favor to launch an STO and why?
The choice of jurisdiction for conducting an STO depends on many things: whether you want to target retail (non-accredited) investors, in what regions do you want to sell your securities, and so on.
Switzerland and Liechtenstein are probably our favorites in Europe due to clear rules and industry specific regulation that doesn’t require any legal workarounds. The United States, however, attract a lot of attention as a jurisdiction because there are many tech-advanced investors who currently might be more open to purchase new financial instruments in the form of tokens. An important thing to remember: if you want to do an STO and sell your tokens in Europe and in the US, you must be compliant with both.
You’ve also discussed tokenizing various assets. What are some of these asset classes and which asset class do you personally believe has the most potential to scale?
Real estate offers the biggest use case with clear benefits for tokenization. In October, we have seen multiple cases including Tokyo-based Lead Real Estate funding development of condominiums and hotels ahead of the 2020 Japan Olympics through issuing security tokens; a consortium of Gulf families’ plans to tokenize US$ 1 billion worth of property assets and other exciting projects.
There are several reasons: fractional ownership offered by tokenization is a natural fit for real estate. Moreover, programmability of the tokens allows a structure to represent various economic interests – ownership rights, different income rights. On top of that, real estate is something investors understand, it’s a fixed income asset class and a rather low-risk investment.
From the perspective of the issuer, tokenization can offer a more cost-effective way to fundraise with a significant reduction in cost and friction for further management of securities.
We also believe venture funds to be a promising field for tokenization. Today, it enables easier and more cost-effective management of funds, easy ownership transfer, and so on. Potentially, tokenization can provide for democratization of VC market, opening it to millions of investors with small checks. For the latter, however, the technology is not enough – it requires corresponding amendments in the regulation. Whether we will see it or not soon remains debatable. Nevertheless, the existing benefits are already exciting.
What are some of the companies in the space that personally excite you?
Where do you see the industry being in 5 years?
We share the vision that capital markets on blockchain is the question of when, not if. In 5 years, we most likely won’t be talking about blockchain as a separate industry, as it will be the essential part of global financial markets.
Whether tokenization will unlock the liquidity for previously illiquid assets, democratize access to venture capital and fulfill other promises that are widely discussed today, remains to be seen.
In any case, communication and education is what is need for the industry to grow and mature. The more we focus on this today, the more outstanding results we will see in 5 years.
Is there anything else that you would like to share with our readers?
Just one thing: feel free to reach to us anytime with podcast and collaboration ideas.
Let’s do something cool together 🙂