Commercial Investment Real Estate Winter 2020 | Page 44

CRE INNOVATIONS
By Lee Samuelson and Shawn Amuial
A TOKEN CHANGE
REITs can realize advantages by leveraging blockchain technology
to offer tokenization.
T
okenization will revolutionize fund-
raising for commercial real estate
investments. Real estate investment
trusts are particularly well situated to capi-
talize on the benefits of tokenization due to
a well-developed real estate management
infrastructure and practice in regulatory re-
porting and compliance.
First, what is tokenization? In short,
it is the process of digitally evidencing own-
ership in a “thing” on a distributed ledger.
This ledger is commonly referred to as a
blockchain. Second, why tokenize? Within
the context of real estate transactions, much
of the conversation centers around increased
liquidity, trust, and automation. REITs are,
perhaps, uniquely situated to take advan-
tage of these benefits. (A quick note: This
discussion will focus on the tokenization of
entities that own real estate, mainly because
the tokenization of the “dirt, sticks, and
bricks” that is real estate has its own set of
complexities and legal hurdles.)
On a basic level, tokenization trans-
forms one’s evidence of property ownership
(thus a beneficial interest in real property)
from a piece of paper (that is, your name on a
schedule to an LLC operating agreement) to
a state on a digital ledger. This process is like
the evolution of traditional stock issuances;
stock ownership is now tracked with a cen-
tralized digital ledger, controlled by the is-
suer’s administrator, rather than by physical
stock certificates. The significant difference
between traditional stock ownership and
tokenization is that tokens, in addition to
evidencing ownership, can also carry other,
more robust functions, including the ability
to transfer, vote, and receive economic ben-
efits virtually instantly. This transformation
could have profound implications, especially
for privately held securities. Once one’s ben-
eficial interest in real property is tokenized,
then, arguably, that interest becomes sig-
nificantly more liquid — for the creator and
subsequent holders.
Of course, a few questions need to be
answered to determine whether tokeniza-
tion is possible, including:
1. Can one find and access a licensed
security platform currently trading
such tokens?
2. Is that security-trading platform
linked to a robust enough “white
Photo by Gremlin
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COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE
WINTER 2020