As I See It: Tokenization - Radically Transforming Real Estate Investment

 

Mike Glasser, RPBG President
Winter, 2022

 

 

A couple of local real estate entrepreneurs, Tom Shallcross and Mark Ainley, run a popular and informative real estate investment podcast called Straight Up Chicago.

Regardless of whether you are a regular podcast listener or new to this medium, I encourage you to subscribe to their informative and entertaining podcasts.

Each week Tom and Mark interview a significant voice in Chicago real estate, though in a December, 2020 broadcast, they scraped the bottom of the barrel to interview me (Episode 37).  In all seriousness, they’ve featured some great talent within the RPBG and the NBOA: folks such as Jon WomackIbn Abney, Matthew Fritzhall, Jack Crane, and Stacie Young, among others.

My favorite podcast was a December 23, 2021, interview with a gentleman named Neal Bawa, a technologist who is universally known in the real estate circles as the “Mad Scientist of Multifamily.”  Bawa serves as CEO and Founder of Grocapitus Investments, an iconic, data-driven commercial real estate investment company. Bawa humbly describes himself as “a nerd and a geek!"

Among Bawa’s insights:

  1. Despite the growth of e-commerce, retail is not dead. Cities and towns are showing an increasing tendency to revise zoning laws to encourage integration of multifamily, office and other uses in their communities to draw in traffic. As for industrial uses, consider the "astonishing demand” for Amazon-like fulfillment centers in cities and towns across the nation.
  2. Expect continued compression of cap rates for multifamily housing. Cap rates in the U.S. likely will follow the path of cap rates in other industrialized nations, such as  Singapore and most of Europe – two percent or less. According to Bawa, real estate will follow the same path as stocks, where less than five percent of stocks pay dividends, and those that do, pay very little. Yet the increased valuation of the stock – or the real estate asset – make the investment worthwhile.
  3. 3D printing will dramatically impact construction and drive down costs, while improving quality. Bawa points to an important 100-unit 3D printing project now underway in Austin, Texas. In five or more years, expect 3D printing to radically transform new-construction single-family and multifamily markets. 3D printing allows for more interesting designs, at markedly cheaper costs.

But the portion of Neal’s talk that most impacted me was his description of a new phenomenon called “tokenization.”

Bawa describes tokenization as the process of fractionalizing and selling every asset that is already not in the stock market.

A real estate investor may devote 500 hours to a single real estate project: searching for the property and making and losing bids until he or she prevails. Along the way, they are conducting due diligence, obtaining financing, preparing for and phasing in improvements, etc. Or an investor can invest the same amount of money purchasing, say, Apple stock, which takes only five minutes of the investor’s time.

The concept of tokenization allows an investor to treat real estate like a stock. Through this technology, he or she can invest $50 to $100 and purchase a partial interest in a real estate parcel, even an Airbnb. By owning that “token,” he or she owns a small piece of that asset. The process of assuring that the person’s $50 or $100 investment will result in a return is handled through a “back end process" called tokenization.

Tokenization brings a combination of Silicon Valley and Wall Street to the world of real estate investment, providing an opportunity for the ordinary investor to own a piece of real estate. This transformation, Bawa says, will take out the middleman in many real estate transactions, drive up demand and, as happens whenever private assets are converted into shares, increase prices.

In ten years, tokenization will be the primary way in which people will own real estate, Bawa predicts.

According to Bawa, over 200 companies are developing the front and back end of this tokenization movement “which is already here.”  Check out the website www.lofty.ai  to see how it works.

I was so impressed by this podcast that last month I invited Bawa to be my guest on one of NBOA’s weekly Zoom calls. It was a pleasure to meet Bawa. My colleague, Roman Vierre, and I thoroughly enjoyed speaking with him during the 40 minute “prep time” before the meeting. I learned about Bawa’s data driven approach to real estate investment and his various investments in what he calls “the Smile States”--Idaho, Utah, Arizona, Texas, Georgia, Tennessee, Florida, and South and North Carolina.

If you would like to hear him directly, I urge you to listen to the following interviews.

The NBOA January 25 Zoom meeting: https://nboachicago.com/webinars/ (30:00 tokenization discussion).

Tom and Mark’s interview:  Episode 110 of Straight Up Chicago:  (38:42 - tokenization discussion).

And check out Bawas’s websites, using the links above, and be prepared to think about the future of real estate in a completely different light.