PropTech

Ep 3: Liquidity Creation in Real Estate Markets - Asset Tokenization with BRED

Michael Strucievici
April 26, 2020
27
 MIN
Listen to this episode on your favorite platform!

Selling a home can be a long and arduous process. According to Zillow, most homes remained on the market for an average of 65 to 93 days in 2018, from listing to closing. Similarly, individual commercial buildings can only be sold to institutional investors as the cost is too immense for almost all individuals. In this episode of the PropTech series, representatives will speak on how Blockchain and asset tokenization can allow retail investors to invest in commercial real estate assets.

Timestamps:
Intro to Walter and Jag: 1:24

BRED token intro: 2:28

Asset tokenization overview: 3:26

BRED presentation and slides: 6:54

Q1: What is the benefit of participating in tokenized asset trading as opposed to standard securities?: 14:51

Q2: How do you plan to drive the concept of tokenization into the market place: 16:45

Q3: What are the benefits of bringing more liquidity to the real-estate investment space?: 18:54

Q4: What are STOs?: 21:03Q5: Do you have any advice for young entrepreneurs interested in real-estate? What segment of the real-estate industry do you think is most ripe for disruption?: 22:32

Episode Transcript

[00:00:07.735]
Hi, everyone. Thank you so much for coming and welcome to the third episode of the PropTech series Liquidity in Real Estate. This episode was hosted jointly by Rotman Commerce FinTech Association and Rotman Commerce PropTech. So a little word about TechTalks are a new initiative that seeks to create an approachable and accessible environment for University of Toronto students to engage with industry professionals like yourselves and academics with the goal of understanding technology's growing impact in business sectors. Of course.

[00:00:35.845]
And this series, that sector is real estate. Over the course of the 2020-21, we're going to be providing workshops, keynotes, panel discussions and podcasts with experts from a whole host of diverse backgrounds. So in order to provide wider access to students, attendance to all these tech events, whether it's a live event or a pre-recorded webcast like this one, is free for all University of Toronto students. That being said, we do welcome five dollar donations from all attendees, which can be donated in full to local charities which will be donated in full.

[00:01:08.935]
You can donate if you're interested just by going to our site, rctechtalks.ca and clicking the community support tab. OK, so now that I'm done, my little spiel, let's get to know each other a little bit. Why don't we start with some introductions?

[00:01:22.435]
Wonderful. Thank you for having us. This is a this is an awesome time. My name is Dr. Walter Heidari. I'm the co CEO of BRED Token and my background is of real estate, but more so I'm a dentist that likes to invest in real estate. So that's how I figured out there's something special about real estate and that's what we wanted to get involved.

[00:01:44.365]
Thank you. Thank you, Michael. My name is Jack Bass. I'm the Co-CEO of BRED Token as well. My background is all specifically in the technology space and you know, from cloud computing, high performance computing and to block chain and now into asset tokenization with real estate. So it's exciting to see this massive asset class that we're all a part of that hasn't evolved to the level that other areas have. So this is where BRED Token comes in.

[00:02:16.495]
Fantastic. So let's let's learn a little bit about BRED Token and go over asset tokenization before we get into some of these community questions. Who are you guys? What do you do? Yeah, so so the idea of for BRED Token is founded in the genesis that everyone should have access to high quality real estate. So this concept of democratizing real estate for the international group of people does make a lot of sense. So when we start to take a look at this from a perspective of where we are in Canada, we have people that are accredited and non accredited investors, and we have people that will never see a great real estate investment because certain groups or institutions pick up on it before the average person does. So BRED Token is here to try to, you know, get everyone access and level the playing field for the common investor. So in many ways, BRED Token has been created for my children and their future in real estate. So from a technology perspective, we said, how do we level the playing field? And that's where Jack comes in.

[00:03:24.635]
So if if individuals don't know what asset tokenization is, tokenization as a concept backed by block chain provides a means and a mechanism to start to allocate ledger, if you want to call it that, a ledger of how something is allocated towards an asset. So you have your interior space. You could own your condo, you could own that building. You know, a large investment funds on the whole high rise that you might be living in. A few individuals will have shares in that asset and will invest and grow that portfolio, having the capability and the option for an average individual to have a piece of that asset other than buying into a REIT into a generalized fund, it can become very difficult to own a piece of an asset that you own.

[00:04:19.925]
With skyrocketing real estate prices, this can become even more challenging, especially for the millennials in the next generation that's coming forward.

[00:04:29.615]
Tokenization allows for for an asset to be sliced up. It allows for that same asset to now have ownership models across a number of individuals into that one asset. And the block chain provides that transparency and and the ledger capability for individuals to know exactly who owns or which address owns how much of a share of that asset.

[00:04:56.845]
And so what we did at BRED was BRED stands for block chain real estate development, and it slices up that real estate into the smaller portions that Jack was talking about. But we created a mechanism to allow investors from all over the world to onboard to a proper platform and through their wallets, through their digital wallets, own a share or a slice of a real estate that they normally wouldn't get access to. And they have certain benefits that come to this whole opportunity of real estate when you can break it down and you can give access to people through crowdfunding sources towards a real estate investment so we can spend a bit of time around that.

[00:05:37.915]
OK, so kind of like giving a slice of bread to somebody that can afford the whole loaf. Exactly.

[00:05:43.675]
That's picked up on that analogy extremely well, because in this society, when you look at markets like downtown Toronto, when condo prices are really excessive, how many people can really afford a unit that's that's within their realm, within their ability of earning power, within their ability to be a certain size so they can start a life? So we decided that that type of prohibitive real estate opportunity needs to look different. And this is where BRED Token comes in, that one slice you can own, but maybe two slices in the future, three slices working yourself up to something that becomes almost like a loaf of bread.

[00:06:20.165]
OK, so that's fantastic. Before we go into some of those questions in the community, you guys mentioned you had some some some slides and you want to share your screen. Do you want to go for that right now?

[00:06:31.765]
Yea, Sure

[00:06:34.525]
Perfect

[00:06:34.975]
Yeah, yeah. I think I think this is a very good opportunity to kind of showcase some of the challenges that's there. So, BRED real estate development, Canadian company, where we're organized to be a security in Canada. So there is the difference between cryptocurrency and securities. So we're working with legal firms, national firms, and we have organized ourselves to that level. When when we look at BRED, what is the purpose? What is the purpose of BRED?

[00:07:04.165]
And that's to use technology to democratize real estate, to give everyone opportunities. And we found that there were three groups of people that were really targeting the first group is that retail investor, which is you and I. These are the people that they want access to high quality real estate and they want to have liquidity when they're in real estate, because often we've discovered that real estate ties your money and you can't use it. You can't go buy a coffee with it and so on when you want to do that.

[00:07:33.745]
And we wanted to give access to international people to come into high quality real estate in Canada and in North America. So the retail investor was the most important component for us. We wanted to level the playing field, but the second group were people that actually owned real estate and these groups owned large real estate or their family offices that owned real estate. But these these real estates are trapped. They were not able to to create liquidity. They weren't able to go and exit parts of the real estate.

[00:08:05.125]
So we provided an opportunity to look at that, that full capacity of this real estate project and see if we can tokenize that and give some liquidity and bring some other investors into an asset that was significant. And then we decided the third opportunity for BRED was how do we leverage technology to allow us to gain access to the retail market and to gain access to the asset owners and to bring this marriage of two groups together. So, Jack, in terms of the in terms of the technology, if we can maybe look at look at the last slide, this slide here, I'll let you speak about that, because this this slide is very powerful to what BRED has been able to do with the KYC, AML and the suitability testing of investors.

[00:08:55.315]
Sure. Thank you, Walter. So one of the challenges we now live in a globalized in a global world, but from a fund structure standpoint, from investment in real estate, it's very localized. If you want to buy if you want to invest in an asset that's out in in Africa somewhere, you may not be able to do that. You don't have the capabilities. You don't trust the networks. You don't trust the environment. It can become very difficult and prohibitive to do that investment and vice versa.

[00:09:27.595]
Having a retail investor, an individual not with millions of dollars sitting in their pocket, it becomes very prohibitive to invest in North America. You know, having that investment in in Canada as an example, tokenization allows for us to level the playing field, smart contracts and the programmatic way of being able to configure and set a certain rule set in place that everyone is governed to. So if an investor if the rules are that, then.

[00:10:00.352]
Investor needs ten thousand dollars or one hundred thousand dollars or whatever the rule can be, no matter where you come from, that rule is now programmatically set in the smart contract and allows for a more democratized approach to investing in real estate and acquiring assets that no matter where you're from, you can now acquire assets in whichever jurisdiction that you feel that you want to invest in. And if you look on this slide right now, it shows the path of investment and how an individual from a mobile device, from a technology that's connected can go through all the traditional means and mechanisms, these rules and regulations that we all follow that even with new disruptive technology, we're not losing the focus of having that security in place, of having that regulation and regulatory bodies in place, because what they do is very significant.

[00:10:56.172]
But it's it's modernizing that and moving it forward to a level where it's not attractive, but it actually helps speed things along. So having the investment go through the mobile device, going through the broker networks, having, you know, your customer, your anti money laundering and your suitability analysis and testing done to ensure you're suitable for this investment and then having that investment go through the major geographic areas around the world. Yes, and and the end result is that with your mobile device, you're able to understand the real estate and the opportunity and now you're able to actually make some really informed decisions for yourself where you end hundreds and thousands of people are investing in the same real estate by having fractions of it versus coming in as one hundred and fifty two hundred thousand five hundred thousand two million dollars.

[00:11:52.132]
So we're looking at that democratization event because that we feel is where the level of the playing field starts to happen and the technology is what carries it to that level. So on the other slide that we have, we actually talk a little bit about what is the issue. So the challenge in many real estate opportunities is that it does lack liquidity. And if we tokenized the opportunity and we had little slices in that that tokenized real estate was on a public stock market, then the individual can buy and sell their shares or their tokens all of the time.

[00:12:26.362]
So that creates that liquidity that's required in real estate and the barrier to entry, the financial barriers lowered because the amount that we can accept because of the technology is enhanced with a lot of the costs and fees that are involved at a high level. We can look at redoing those and changing the fee structure so that more people can come in to an investment so that traditional real estate investment of liquidity in terms of minimum amounts, in terms of the the prohibitive costs, we've been able to change that.

[00:12:58.162]
The retail investors now finally they finally get true access to great assets that they normally wouldn't. And we manage the jurisdiction problems. We manage the legal problems, the security problems within the the smart contracts and the technology. But in order to do that, we still need to have some great assets. And what we've been able to do is for the asset owners that own these buildings, these these high rises, these complex subdivisions, we're able to say, let's partner with you and let's tokenized the entire hundred million dollar project, but let's take 20 million dollars of that, put it out to our market and we bring in the 20 million dollars of investors and we become partners in this project that's been doing extremely well, which has been more managed and so on.

[00:13:42.472]
So that family office gets the liquidity. Our investors are now able to join and partner with assets that they would never have access to. All of this is because of the technology that's been developed to be able to onboard and give people access.

[00:14:00.962]
That's great, wow, that's really, really fantastic. I mean, it's anybody can go ahead and participate now is what I understand. So I'm sure some of our viewers may may be looking at saying, OK, well, I've never thought of getting into the real estate investment game, but maybe I should.

[00:14:17.942]
So it's one of the strongest asset classes right in the world. And we have known historically that people's net worth has often grown on the back of real estate. So now why not give everyone an opportunity from a one thousand dollar investment and higher? Why not give give my my children that opportunity that in some of these markets are prohibitive for them to get into? And why not do it in a way that if they invest today but they need cash tomorrow, they can do it on a on a push of a button on a screen.

[00:14:52.712]
That's fantastic. And you're talking about things like that. What are the actual benefits of participating in this kind of tokenized asset trading as opposed to regular security trading?

[00:15:03.362]
So in traditional securities mechanism, you're investing in your local jurisdiction. It can be prohibitive if you don't have the funding involved to get into your broker network. You can invest with traditional markets, you can invest with your bank. You can do those kind of things. But you're limited to all the opportunities out there where they tokenized model. The the rules when it goes outside of your jurisdiction can be standardized. So, you know, your smart contract doesn't care about the border between the US and Canada.

[00:15:40.892]
Right. The same rules can apply across borders, can apply across the world. So an investor in in Japan can invest in an asset in in the US knowing and understanding that is complying with all the rules and regulations that are necessary and required by the SEC as an example. So this this provides that certain level of understanding to get, especially the lower middle class, you know, the retail investor, the ability to invest, because if you're a high net worth individual, you know, these challenges become less because you can put money towards a challenge.

[00:16:18.332]
You know, if you're going to invest a billion dollars, who cares? It'll help drive. But if you've got five thousand dollars in your pocket and you want to buy into into North America because it's growing and it's booming and you want to you want to get a return for it, how do you do that? In a cost in a cost efficient manner that doesn't exist today with traditional securities and in the future with asset tokenization? That mechanism is what the goal is here.

[00:16:45.662]
Fantastic. But, you know, asset tokenization is something that that's relatively new. I'm sure all the people that are tuning into this, this webcast probably are at least a little foggy on that. So how do you plan to actually drive this this concept of tokenization into the marketplace?

[00:17:01.562]
So it's the theory behind it is actually quite I mean, I always laugh when I when I first got into block chain and try to understand what it was about. And it's a very simple concept. It's a ledger based system. We've been using this for many, many years, hundreds of years, in fact. Right. But it's I agree with you that the new digitized way of doing things is is new and modern and can be a little scary.

[00:17:29.552]
But when it's used on the existing technologies and existing regulations that exist today, that it really enhances what we're trying to do here. So at BRED, what we're trying to do is to look at the more progressive stock markets as an example, the stock markets that are now actively pursuing and looking to trade on tokens, you know, modernizing their own infrastructure. So as an example, the Jamaican stock exchange is a primary stock market. You may not have heard it listed in Jamaica, but it's an actively involved stock market trading, a significant volume for for a primary market and is now looking to to release a sixth market.

[00:18:13.082]
And that's on tokens and using block chain based ledger to do their trading to the other exchanges in Canada. They're all actively looking at this as a means of doing of trading shares. You know, the the banks, the the major banks around the world, they're all actively looking at how do we implement a digital currency. These are all these are all ways of using the same technology, the same asset, the same tokenization mechanism to modernize their own infrastructure.

[00:18:45.392]
That's now now you're seeing the legacy constraints that are placed on it. OK, so I want to go onto a little bit of a liquidity, of course, as a retail investor, somebody that can, like you said, have investment today, in money tomorrow. That's fantastic. But what are the other benefits of just bringing more liquidity into the system? So liquidity in real estate and in general, I mean, this is one of the largest asset classes in the world, the more investment we can do, the more growth potential that occurs.

[00:19:18.582]
It benefits the local geographic area as well. So if we can put in a complex, we can put in enhancement innovation centers, if we can start to grow asset classes and we can invest in real estate and benefits localized economies as well. And if you can get that investment coming in from international players or the global groups, it really then starts to funnel growth in areas in areas around the world that could be very beneficial to investors. But at the same time, it's not just it's not just benefiting the call it the upper middle class, the high.

[00:20:00.153]
Net worth individuals, but now has the capability of allowing the average individual, the retail investor accessibility into those asset classes as well and doing so on a medium that is familiar to us all.

[00:20:15.243]
Yeah, and what what happens now is that, you know, only a a token in an entire real estate investment. So many people that own tokens within the investment and that's where liquidity starts to happen, is that when you start to exchange tokens, you can do so to create liquidity. So it's an internal exchange or an external exchange. And if we go to a primary stock market, then these tokens are now being exchanged on an external exchange whereby the individual can buy and hold and get dividends for their returns or in a in a push of a button, make it make it make a deal whereby they're selling a token at a certain price that's on the market.

[00:20:54.753]
So that's where liquidity in real estate really starts to drive itself to a higher level. Fantastic. So one thing I read a little bit about you guys on the Internet was that with Assetto Organization, there's this new kind of IPO. I think it was called the STO. That's right. What what's that all about? What are the benefits of that big thing?

[00:21:17.093]
So an initial public offering IPO. You know, you've heard of companies going into an IPO and listed on a stock market. The paperwork involved in that can be quite onerous. It requires a lot of due diligence being done, paperwork being filed, a lot of lawyers and legal fees being submitted to to get listed. And stock or securities offering is follow the same regulatory steps, but is trying to speed up and minimize the costly steps involved. So if we can automate a lot of the prospectus filing as an example or an IPO requires a prospectus to provide an investor guidance as to what's going on, what the what this issuance is about, and still follows the same process.

[00:22:09.953]
But now it can try to optimize those areas. So we're not spending half a million to a million dollars and trying to list a company. Now, let's see if we can do this quicker and sooner at allowing the flexibility of more startups and more innovative organizations, having the having capability of accessibility into the markets. Fantastic. So the last question I have for you guys today, we really nailed the was that was so great is just do you have any advice for four young entrepreneurs interested in real estate?

[00:22:42.673]
You know, what segments of this real estate industry do you think is the most ripe for disruption right now?

[00:22:48.233]
Yeah, I think that's that's a really, really good question. You know, we're sitting in and the time when we're just experiencing covid and the ability to have governments look at the safety of communities where you're shutting down certain businesses in certain sectors. And a lot of those businesses are housed in real estate. So you look at the retail market where you're not able to go to a store. And if you can't go to a store, the store is unable to make income.

[00:23:16.043]
If it can't make income, then its business is in jeopardy. So when we start looking at real estate from this perspective, we had thought all real estate was really good investments. But covid has put light on that. Not all real estate are good. Some have inherent risk to it. And the risk is that if you don't have customers coming into it, then you have a problem. So we had better looking at the world a bit differently.

[00:23:39.563]
And we're saying what are good real estate investments that don't have that type of risk? What what grew during covid and what we recognize for digital assets, digital real estate, anything that housed digital components in a real estate component group, for example, data centers, we found that is a really important component because people were using their phones, they were using the Internet, they had to store more data. These companies needed that digital background and these clouds were housed in certain types of real estate.

[00:24:11.183]
So we found that type of real estate, asset class to be very good. We found other real estate areas where people have to live. And there the concept of how they're living, what they're living in right now is also an asset to them because staying at home now required a whole different type of energy, the value of being home and all of the components of that, the smaller community within within that area. So you don't have to drive and walk and rely on external things.

[00:24:37.103]
Those type of assets became really quite significant. So we're starting to look at these things a bit differently and we're looking at that, that the component, like the indoor malls right now, may not be future proofed, but other type of experiences are future proofed. So we at BRED, we constantly are evaluating this and we're like, where's the world going? And we do recognize that the infrastructure of Canada in regard to what we do today, how we're moving the digital experience of real estate, how we communicate, how cars are going to drive by themselves, and how many data centers do you need to allow for that experience to happen?

[00:25:15.173]
That's where we're future focused.

[00:25:17.633]
And just to add to that, I mean. Millennials in general, the next generation, I think, has started to not focus heavily on real estate and investing into real estate, and this is an asset class that's been with us and it will continue to be with us. It's we're relying on infrastructure. And it's something that I think generations going forward needs to keep their eye on the ball here and continue to look at ways of investing, growing and and being a part of benefiting from the stuff around them that they use.

[00:25:52.213]
And this is one way to look at doing it. That's great. Thank you so much, guys. That was all the questions I had lined up here. I think if anybody is watching this from home, they're going to have learned so, so much about this. I personally didn't really know too much about Asset tokenization before I started getting into conversations. And I think that I might actually start looking at investing.

[00:26:13.533]
So thank you. Thank you for having us. Sounds good. Have a nice day. Take care. Bye bye.

About The Association
Rotman Commerce FinTech Association
Tech Vlogger & YouTuber

The Rotman Commerce FinTech Association (RCFTA) is an undergraduate interest group at the University of Toronto. Our mission is to educate students on the growing relevance of technology in finance by providing hands-on learning opportunities to enhance technical and soft skills through workshops and case competitions.