REIT ASIAPAC MAGAZINE REITASIAPAC 2Q 2019 ISSUE | Page 18

REIT ASIAPAC MARKET HOTEL DEVELOPMENT PROJECT IN A TOKEN WORLD Market VIRTUAL OR REALITY: LIFE IN A TOKEN WORLD By Tan Kok Keong, Co-Founder, FundPlaces PROJECT STRUCTURE: THREE TOKENS 1 H.O.T. HOTEL-OWNERS TOKEN Equity holders 2 A tokenized property would be analogous to a REIT with much more flexibility and minimal fees for intermediaries. Tan Kok Keong, Co-Founder of FundPlaces, explains how to finance, build, and lease a hotel with three types of tokens. Loans from investors. Each new issuance of LITs, similar to fixed-income products, may be auctioned and traded. 3 1 2 Smart contracts enabling automated payments to token holders H.U.T. HOTEL-USE TOKEN Token holders can use the tokens to occupy or resell the rooms PROJECT CONSTRUCTION & MANAGEMENT: DIGITALLY-DRIVEN, REDUCING WASTE & TIME 1 2 Construction technologies include 3D-Printing, as well as Augmented and Virtual Reality. THE GENESIS OF A TOKENISED HOTEL PROJECT At present, blockchain is no longer test- tube babies with uncertain use cases and a questionable future. Regulators have started to institute laws that facilitate blockchain adoption and even spearheading projects. Tan Kok Keong, Co-founder of FundPlaces In November 2017, Propy brokered the sale of an apartment in Kiev, Ukraine to Michael Arrington, co-founder of the technology media website TechCrunch, for US$60,000 via smart contracts on 18 the Ethereum blockchain. Propy has sold numerous other properties in a similar fashion in California and Vermont in the U.S., and even a 40 million euros Italian mansion. Last November, Proppelr and Fluidity started working with the developer of a luxury apartment in Manhattan’s East Village, Thirteen East + West, to tokenise the $30 million project on the Ethereum blockchain. This is the first tokenisation of a premium asset of such magnitude. Its success could entice more building owners to consider the same. But how does tokenisation work, and what are the advantages of executing a tokenised real estate project? Cloud-based accounting system L.I.T. LOAN-INTEREST TOKEN Blockchain has come under scrutiny following recent security breaches at Bitcoin exchanges. However, its proponents would regard the incidents as a blip in the journey of a technology whose use would eventually become the norm. For instance, developments in tokenisation—the process of converting an asset into a token that can be transacted on a blockchain—have continued to gain pace. PROJECT FINANCIALS: REAL-TIME Teams are formed based on cloud-based, data- powered procurement and management platforms HOTEL OWNERS TOKEN (HOT) In undertaking a real estate development, the key risks are the process of securing equity funding, the challenges of securing financing at tolerable interest rates, and most importantly, the uncertain demand upon completion. Can tokenisation of real estate change this equation? HOTs are similar to equity stakes in a development project. HOT owners are assigned their proportionate economic rights similar to an owner of the project. The project financials will be recorded on a cloud-based accounting system. Project teams are formed via Honest Buildings, a data-driven platform for procurement of services, to ensure projects are developed on budget and on time. Let’s start with a use case where I want to acquire a site for hotel development. Before executing on the land purchase, I start sourcing for buyers of three types of tokens: Hotel-Owners Token (HOT), Loan-Interest Token (LIT,) and Hotel-Use Token (HUT). If these tokens are entirely sold, I would have de-risked the development entirely. Advanced construction technology in the areas of pre-fabrication, automation or even 3-D printing, will help to reduce the variations in project schedules. Contractual agreements will be on smart contracts whereby collections and payments are automatically triggered. The system will then provide a real-time risk-adjusted value of the project, i.e., the value of HOT. Assuming HOT starts 19