Liberty Launches First Tokenized Real Estate Fund

The new token will allow users to invest in a diversified portfolio of net lease real estate in the United States. Theoretically, this would make it the first of its kind to launch on the market successfully. While the world was promised an internet of things and the tokenization of everything, real estate in tokens has been elusive. Leases offer a very low turnover because they are contracts written with 10-20 years of term, while also offering a relatively stable product. This makes them attractive to some investors. Many people who are not rich, invest in real estate. Some argue that real estate is attractive as a tokenized asset because commercial property is so expensive. Tokenization allows for fractional shares of property and lease agreements.

The Real Deal

Now, the Liberty Real Estate Fund is launching a tokenized $30 million worth of fractional shares. The launch is issued through Securitize.io, a company that specializes in transferring securities into a tokenized form. Liberty Real Estate says that their fund offers all the upsides of real estate investment. Besides price appreciation, this includes income. This is a similar model to Real Estate Investment Trusts (REITs), publicly and private-owned companies that tend to offer high dividend payments, driven by income flows. These investments can also be seen as a hedge against inflation (an ever-more pressing issue). The tokenized fund should be more liquid than traditional real estate investment, which often requires a large amount of starting capital. Likewise, tokenized securities can be purchased from anywhere around the world. The new fund will be comprised of net leases rather than gross leases. Net leases include all expenses in the property, including property tax, and are more common in commercial real estate. This puts the payments in the hands of the tenants and can be seen as a lower-risk form of lease.

But Is It Legal?

Liberty claims that its security tokens are fully compliant with securities laws:

“We have been working for more than a year with securities attorneys and certified public accountants to ensure that the fund follows securities law and is in compliance with US tax codes.”

Recently, the US Securities and Exchange Commission (SEC) has gone after ICOs, accusing them of conducting illegal securities sales. Last week, the CFTC, another regulatory body, charged the derivatives trading platform BitMEX and three executives with illegally running an exchange in the United States. This contrasts with SEC Charman Jay Clayton, who said on Oct 2, 2020, that the door to tokenized assets is “wide open” and that the SEC is willing to work with companies to regulate the new type of security properly. This suggests that the question for token creators is not whether there can be tokenized securities, but whether they can follow regulations. Which regulations those are, is still not entirely clear.

The Tokenization of Assets

The tokenization of assets is not entirely new. On September 8, 2018, the art investment platform Maecenas tokenized and sold shares of an Andy Warhol painting worth over $5 million. Though this may be the first multi-asset fund of its kind, real estate services in the crypto space have been around for some time. RealT provides a service for real estate owners to sell tokens of their property. Tokenized asset platforms like Cocoricos and the exchange UVAS provide ways to buy and sell tokenized property. It’s unclear if the Liberty Real Estate fund is the first true tokenized Real Estate fund. But with a $30 million offering, it does appear to be the first security sale of its kind, similar to that of a REIT.