REAL (Real Estate Asset Ledger) is a crowdfunded property investment token that incorporates blockchain technology and is governed by Ethereum smart contracts to keep a transparent record the investment portfolio and purchases into it. While not disruptive to the current real estate market, it will offer crypto investors a way to incorporate a less volatile coin into their portfolios. More so, investors will be able to purchase fractionalized non-ownership economic rights from a varied property portfolio for even a dollar if they want.
The business model for the REAL token is easy to understand, the point of the ICO is to provide them fiat liquidity to invest into residential and commercial property. Their focus will be on “Buy-to-let commercial property investments, discounted buy-to-sell “flip” opportunities and loan-note investments” and “high-quality hospitality assets.“ For its services, REAL will charge a flat %10 commission on all profit from rental income and sale of the property.
During the ICO, they plan to release 100 million REAL tokens priced at 500 per 1ETH. The ICO will run for thirty days or until they hit their softcap of 200,000 ETH or the hardcap at 400,000 ETH. In dollars this is 40 and 80 million and would represent .0021% and .0042% of the total ETH circulating supply. 51% of all tokens will be distributed during the REAL Initial Token Sale and any tokens not sold during the ICO will be burned. The founder team Team, Advisors and Strategic partners will receive 20% of all contributed tokens over a 24 month vesting period, with a 6 month cliff.
The funds from the ICO will be split 80/20 towards the initial purchase of real estate assets and operations, respectively. The company Real or one of its subsidiaries will purchase 10-20 properties starting in September and October, with the full platform to be released in November. The company will use only the token sale capital to fund operations and sales for the first 12 months, only afterwards do they plan to start liquidating their REAL tokens.
Company Info & Investment Strategy
The team has extensive experience investing into the Spanish market and so it can be expected they will begin their project their. They also have a partnership set up with Portblue Hotels to provide investment capital for their new “opportunities.” The hotel chain currently has 8 establishments in Majorca and Menorca. Their focus will also be on other “supply constrained markets” such as Ibiza, Mallorca, and the Canary Islands due to their strong demand and infrastructure. New York and the Caribbean are listed as other focus points, but this will probably be developed during later phases of the project.
After conducting analysis, a third party apprasial and determining investment viability, the team will purchase and then list the project on the REAL website. Investors then will be able to purchase fractional shares with their REAL tokens for “REAL Property Participation (RPP)” tokens. These tokens will be tradable within the platform, allowing an investor to sell their shares if needed. Each month, earnings from rent will be distributed among token holders, paid in Ethereum. If the property is sold, the REAL team will deposit profits from the sale and documentation of the sale, then all existing RPP tokens will be automatically exchanged for REAL and profits from the sale will be distributed according to the total share of RPP’s each user held.
Concerning property prices, “We’ve chosen USD currency denomination because we think it is the most global currency. All property prices will be valued in REAL with market conversion from original purchase price and currency, whatever that is. Finally we,ve chosen to pay in ETH and not in REAL to increase trust in our business as ETH is much more consolidated than REAL. It will also help the Token since people won’t be selling their profits obtained in REAL.”
Strengths & Weaknesses
The greatest benefit of REAL is that it will act like a traditional fiat crowdfunding platform. Their business model is tested and has been used to acquire 3.5 billion in assets globally. Additionally, unlike the other two platforms I’ll be reviewing after this, REAL will provide returns based on both asset appreciation and rental income. The latter is what makes this token attractive, a guaranteed (most likely) income which will provide a set amount of fiat return a month. The benefit of this is that ETH depreciates, then the rental returns will return a higher amount of ETH. For example if you receive 100 ETH month one, if then in month two ETH declines by %50, your next rental earnings payment would be 200. The opposite is also true if ETH appreciates.
The biggest weakness of the project lays in their claims that they will provide annual returns of 12-20% a year. Realization of these claims will rest with their two property advisors, Arnau Porto and Georgio Martin-Montalvo. Arnau is the co-founder de Jaguar Capital, a real estate fund based in Colombia and also owner of Portblue Hotels. The relationship between REAL and the Portblue hotel chain exists because of his membership on the team. Nothing has been released yet as to where the initial property purchases will be, but it probable outcome would be existing Portable hotel property or a new development, or providing them a loan to purchase another hotel.
I asked the REAL team to provide previous investment history and returns for the two. They provided this article in Spanish as well as the following graphics:
Another issue would be if they fail to raise their proposed 200,000 ETH (40 mil at current prices). I asked this in their telegram channel and they said that it would not derail the project, but it would slow the pace of acquisition. They did not provide any numbers as to how much it would slow or what their minimum capital raise requirements were.
With the recent SEC opinion of ICO’s being “maybe” being considered securities, obviously there is a lot of speculation on how this could affect future ICO’s and company operations. The REAL team said that their token will most probably not be considered a security because “There is a possibility of varying returns between token holders, based on their participation or use of the platform. If token holders’ returns depend on their own efforts, and can vary depending on the amount of effort they each put in, then there is less likely to be a common enterprise” Additionally, they said they would welcome increased regulation and would be ready to comply to all new laws.
Lastly, their could be significant loses to investors and the company if the majority of their acquisitions are in the Spanish market. Spain’s economy has been under significant pressure since 2008 and a collapse in the European economy could drive house prices down. However, if there is actually a decline of this magnitude, there will be much greater economic issues to worry about.
Long term I think there is an opportunity for sizable growth for fractionalized real estate funds, it provides lower barrier to entry and reduces fees for investors. The question though is if now is the time and if the Ethereum platform is the proper method for distribution. We will see if there will be significant VC and investor interest in the lead up to the ICO. However, they probably will meet their soft cap requirements with institutional involvement, how much non-institutional investor proceeds they plan to raise will probably be a non-factor in comparison.
I also think their platform will be marketable to wealth management firms in the future. Once they build up a portfolio and investment history, brokers could supply their clients with positive returning property portfolios with less fees than a traditional REIT. However, they have no affiliate/broker system in place or fees announced. This will have to be a later addition to the platform.
This is the only real estate ICO I will be watching closely and I hope they can achieve their plans. I have no affiliation with REAL or am I an investor.