Commercial Investment Real Estate Winter 2020 | Seite 45
list” (a way of confirming that the
acquirers of the token satisfy vari-
ous legal requirements) of poten-
tial participants to create a liquid
market?
3. Are new automated platforms
or apps developed to satisfy the
foregoing and comply with legal
requirements?
Presuming these issues are addressed,
tokenization could provide token holders in
private REITs with much of the same bene-
fits as unitholders in public REITs by provid-
ing them with tradeable, and thereby liquid,
tokens (in lieu of traditional, non-tokenized
units). Second, and perhaps more impor-
tantly, it provides REITs (public and private)
with the ability to raise money at different
asset levels and at more favorable terms.
Most stakeholders in REITs own
shares in a public company that is the gen-
eral partner in an umbrella partnership (an
UPREIT) or units in the UPREIT itself, each
of which directly or indirectly owns all the
real property assets of the REIT. Also, some
REITs have a DownREIT, which is a part-
nership below the UPREIT that only owns
a few of the REIT’s assets. Tokenization can
unlock several additional variations of the
foregoing arrangements, enabling unique
debt and equity issuances and thereby
Tokenization may also
reduce administrative fees
and costs by cutting out
brokers, servicers, and other
third-party service providers
by lever aging automation
via smart contracts.
creating more ways for REITs to fundraise.
For example, a public REIT may de-
cide to tap into the token economy in lieu of
seeking traditional public or private equity
or debt for a particular property acquisition
or refinancing. Tokenization could allow the
REIT to tap a wider, non-traditional group
of investors. Such an issuance would, argu-
ably, provide access to cheaper capital, due in
part to the investors’ presumably fragment-
ed, and thereby less powerful, position in the
market. It could also provide more flexible
terms (including for debt, such as more fa-
vorable debt covenants and less restrictive
prepayment penalties). Finally, tokenization
may also reduce administrative fees and
costs by cutting out brokers, servicers, and
other third-party service providers by lever-
aging automation via smart contracts.
It is important to consider what token
holders stand to gain from tokenization.
Investors who otherwise would not have ac-
cess to certain investments could find them-
selves, thanks to tokenization, swimming in
new investment opportunities with reduced
transaction and administrative fees as a
result of efficiencies captured by the REIT.
In addition, the token could be coded with
“smart contracts,” providing token hold-
ers with clarity with respect to transaction
terms, servicing/payment, voting/control,
and real-time information and reporting.
Lee Samuelson
Partner at Holland & Knight in New York,
where he focuses his practice on complex
commercial real estate transactions
Contact him at [email protected].
Shawn Amuial
Real estate and technology associate and a
member of the firm’s innovation committee
Contact him at [email protected].
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