This week, we saw one of the first examples of a digital security being issued, representing the first real-estate backed tokenization within Luxembourg.
More specifically, this project saw investors purchase portions of real estate developmental projects within the city of Belval with the entire process being facilitated by issuance platform, Tokeny.
While various STOs have caught the attention of the industry in recent months, this event is one of the first to actually undergo the issuance process.
Details of the Deal
Investors which took part in this offering were able to gain access to fractionalized ownership of the project through issuance of an ERC-20 security token. Access was given to qualified investors with as little as €1000.
These tokens entitle their holders to a proportionate share of profits garnered from the properties. This includes rent, eventual capital gains, etc.
Recognizing the need for a safe means of custody, the parties involved in this deal partnered with Coinplus. This will see Coinplus act as a custodian, with the tokens being stored in a physical vault.
Belval, Luxembourg is a former manufacturing hub which, in recent years, has undergone extensive gentrification. This process has seen the region turn into a science hub, boasting the University of Luxembourg campus.
This process has made the area a prime location for real estate developments, with high potential for future returns.
One of the major draws for investors to take part in an STO, is the promise of liquidity. While this has been quite elusive, to date, brighter days are on the horizon. In recent months, Tokeny announced a partnership with U.K. based, digital securities exchange, Archax. This partnership will see digital securities, issued through the Tokeny platform, supported on the exchange upon launch in late 2019.
Upon announcing the successful issuance discussed here today, Tokeny CEO, Luc Falempin, took the time to comment on the achievement. The following is what he had to say on the matter.
“We see real estate as one of the key asset classes that drives the adoption of tokenization. Tokenization brings the opportunity to a wider group of investors and in the long term will bring liquidity to an asset where it has been non-existent.”
Property Token is a real estate initiative that was undertaken by a pairing of companies well versed in the industry – construction company, Crea Haus, and real estate investment firm, Espaceinvest.
This initiative saw these companies reach out to Tokeny to facilitate the tokenization – and raising of capital – for a development project in Luxembourg.
Tokeny is a Luxembourg based company, which was founded in 2017. Above all, Tokeny functions as a tokenization platform, for companies looking to issue digital securities.
CEO, Luc Falempin, currently oversees company operations.
In Other News
Tokeny has, over the past year, managed to, not only develop their own public STO framework, but also see their services utilized by various entities. Naturally, this hard work has resulted in investments in the company. Below are a few articles detailing the Tokeny framework, service implementation, and investments in their efforts.
$105M STO from REI Tokenized by REINNO
While REINNO is responsible for the tokenization of the fund discussed here today, it was developed and managed by a company named REI.
Coming in at, roughly, $105 million, this fund is backed by U.S. based real estate. Through the tokenization process, access to this asset class is now attainable on a much more global scale.
In a somewhat unique approach, the pairing of companies have decided to structure/offer the REI Capital Growth Fund in what they call a ‘two-tiered’ approach.
- $40 million in equity
- $65 million in debt
By raising capital in this manner, REI hopes to attract a greater amount of investors. Many investors are simply not interested in equity, or maybe debt – by offering both, investors can choose what suits their particular needs.
Upon announcing the tokenization of their fund, and releasing details of their STO, representatives from each, REINNO and REI, took the time to comment. The following is what each had to say on the matter.
Alan Blair, Managing Principal of REI, stated,
“I have been in the real estate business for over 36 years. It is exciting to see the industry evolve and use innovative technologies, such as blockchain, to create new opportunities…Tokenization allows us to reach international investors and offer them exceptional investment opportunities in American commercial real estate. We are now able to deliver flexible, paperless assets and the highest standards of excellence to investors worldwide.”
Viktor Viktorov, CEO of REINNO, stated,
“Tokenizing REI Capital Growth brings us one step closer to creating an ecosystem where commercial properties are liquid while real estate transactions are paperless, instant and efficient…We already provide real estate tokenization and lending services; soon we are launching a new functionality which makes investing in tokenized real estate easily accessible.”
Maintaining headquarters in Connecticut, REINNO is a young company, which was founded in 2019. The team behind REINNO has identified real estate markets as being ripe for an infusion of technology such as blockchain. As such, the company has developed a comprehensive suite of services allowing for the tokenization of such assets.
CEO, Viktor Viktorov, currently oversees company operations.
REI Capital Growth
Like REINNO, REI Capital Growth calls Connecticut home. They are a private equity company looking to provide ‘global access to US real estate investing’ through an upcoming STO.
Managing Partner, Alan Blair, oversees company operations.
In Other News
To date, Europe has widely been seen as a leader with regards to tokenized real estate. Not content with being left behind, we are seeing an increasing amount of U.S. based companies jump aboard. The following are examples of this.
Real Estate Fund First of Its Kind to be Regulated by the FMA
The development of said fund was possible through the collaboration of two companies – Token Factory and Bank Frick.
Bringing to the Table
In this particular instance, each of the participating companies bring different specialities to the table, making the fund possible.
- Tokenization capabilities
- Sale, generation, and distribution of security tokens to investors, representative of ownership within the fund
- Investor on-boarding
What makes this particular fund interesting is its recognition by the Financial Market Authority of Liechtenstein (FMA).
The regulatory body designated the aforementioned fund as an ‘Alternative Investment Fund (AIF)’. In doing so, the fund becomes the first of its kind to be regulated in such a manner within the continent of Europe.
With the announcement of this new regulated fund, also came the commentary of those responsible. The following is what representatives from each, Token Factory and Bank Frick, had to say on the matter.
Bastiaan Don, Managing Director of Token Factory, stated,
“Our tokenization solution is based on standard protocols like ERC20 and an open Blockchain (Ethereum). This allows our customers to maximize the potential of Blockchain technology without having to commit to a central technology partner or proprietary (closed) solution.”
Raphael Haldner, Head Fund and Capital Markets of Bank Frick, stated,
“As the preferred point of contact for Blockchain Banking, we were again able to demonstrate the possibilities of Blockchain technology with the tokenization of a regulated investment fund. The issuance of digital, Blockchain-based fund shares leads to greater efficiency and a higher degree of automation in the transmission process.
While evaluating possible technology partners, we were impressed by Token Factory’s team, their track record and their far-sighted and understandable tokenization solution.
We are pleased to take this step to further strengthen our service offering in the issuing business and are confident that we have set an important milestone for future developments.”
While digital securities hold the potential to transform many industries, to date, the world of real-estate has been the greatest benefactor. Furthermore, although there are examples world-wide, Europe is most definitely leading the way. The following articles are just a few examples of European real estate being tokenized.
Speaking with Bastiaan
We were fortunate to have recently interviewed Bastiaan Don through our on-going interview series, hosted here at securities.io. In this exclusive conversation, Bastiaan Don discussed, not only his own entrance into blockchain, but how Token Factory hopes to develop the sector.
Founded in 2018, Token Factory maintains headquarters in Zug ‘Crypto Valley’ Switzerland. This forward thinking company is currently comprised of multiple branches, which address different market needs. These include Blockimmo (RE Tokenization), and STX.Swiss (secondary market trading).
Managing Director, Bastiaan Don, currently oversees company operations.
Founded in 1998, Bank Frick maintains headquarters in Balzers, Liechtenstein. Above all, the company works to provide bridging services between traditional, and blockchain based, banking.
CEO, Edi Wogerer, currently oversees company operations.
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.