BBW24 – Day 3 – Brick by Block: Real Estate and Blockchain

good afternoon uh it's nice to be able to start the day off and uh be the first panel uh like Ian said I am Greg molar um CEO of stay busy we are developing uh some software for networking but we also have a segment of Consulting and that is the perspective that I will be speaking from today and some stuff that we're doing with uh the city of Fall River I'm Matthew Schneider the CEO and founder of building we focus on tokenizing construction data as well as commercial real estate assets and we take this approach because we believe that really good data qualifies an investment and that that component is missing uh in in many respects to the current tokenization scene and the the sorts of tokens and smart contracts that exist uh in the tokenized economy right now uh and I'm Chris Leman co-founder and policy architect at gromma groma is a boston-based real estate and tech company we have a vertically integrated real estate business focusing on small unit count multif family and we're working on launching a blockchain powered Reit to enable anyone to invest at any level uh and then later on enable a broader array of uh defi applications built off of that blockchain uh real estate backbone so with real estate and blockchain and the differences of the current system or current ways of doing it and ways that you guys are trying to move it forward what are some of the key differences um in that process and then what are some of the things that that's opened up for you guys to you know be able to innovate good well I'd say right now current tokenization Solutions don't really change the existing model when it comes to raising capital or tracking data providing valuation for property the technolog is not quite there now this is something that we're working to resolve because we believe that perhaps tokenization could improve existing uh underwriting uh financing syndication of commercial real estate or construction management processes if we start to get more information on chain but that that currently doesn't happen so what we're hoping to see uh as opposed to what currently exists in the industry is more transparency more reliability of information uh pertaining to real world assets and then that might open the doors for uh secondary markets uh collateralization financialization uh and liquidy and perhaps even democratization of uh some of these real world assets right and for us we we think about the uh value of blockchain in a few different stages today most of the value proposition of our real estate comes from from the real estate itself and it comes from our management method so you know we have a compelling return profile we target mid uh High Teens to low 20s internal rate of return that's valuable in its own right and you know if you're an accredited investor you can invest there um the value proposition of blockchain today is really about additional transparency um REITs uh for those of you who aren't familiar real estate investment trusts think of it as a ETF but for real estate uh they tend not to really be interested in retail dollars they go for Pension funds they go for institutional investors and so their uh disclosure processes are really geared towards these large institutions they have kind of you know bespoke meetings they sit you down with analysts they'll give you a full download of what they're investing in but if you just go to their website you can get broad Strokes of the strategy you won't actually know what buildings they're uh investing in what are their management practices all these things um so blockchain enables us to give more transparency to retail investors in a cost-efficient way uh so you can go on our website and you can look at individual buildings you can check out the nfts on ethereum that are representing the facets of the characteristics of these buildings and get a better idea of what you're actually investing in now that's marginal value add today in the future what we're really looking at is first of all making barriers to entry in real estate Lower right um many RS require High uh High uh initial Investments and have medium liquidity um liquidity will improve as we get more of the source of Truth moving on chain uh which is going to require some transitions both from a policy perspective and from the perspective of uh financial institutions transfer agents that are actually maintaining the records of ownership of these Securities and once we get to that point once we get to the point where you can have the source of Truth for ownership be on chain for these real estate Securities you can have um really robust integration with the defi ecosystem you can use them for staking uh we can talk some more about why real estate is well suited to staking as opposed to some of the existing pure digital assets and then later on you could even unlock currency functionality but that's pretty far down the road yeah and and to paint a picture real quick just to talk about alternative assets so commercial real estate and and most real estate is an alternative asset because in many instances a wealth manager is not going to allocate a lot of your Investment Portfolio to commercial real estate they'll look at equities or bonds so if you look at how alternative assets are invested into it is a really problematic sector and even how these alternative assets are built owned and operated is full of issues for something that is worth so many trillions of dollars and is the built environment that makes up our cities you would think commercial real estate was facilitated with a little bit more wisdom but that's not necessary neily true there's errors everywhere from uh litigation Clash delays expenses problems and and these can rack up I mean there's there's people that can be injured or killed if a building is not developed properly so just adding the transparency aspect uh to that underlying uh data is you know of the asset is really really valuable for a lot of people whether it's insurance companies owners operators or investors and ideally yes we'll we'll move towards uh an economy where Alternatives can become more trustworthy the risk mitigated because right now commercial real estate is not really risk mitigated I mean just look at the credit crisis that we have going on in office that's not exactly where I would want uh the majority of my portfolio allocated right now yeah so when you bring up data and transparency that's right in line with what I'm working on with sqe and the historic Commission in for specifically because what they do is they identify historic properties and then they do these big forms called formes where they go through and do like a deep dive study on the entire history of the property record everything and then we're going to take those records and start putting them on blockchain but as we're talking through it with them we heard stories of like records from the 80s not making it to the '90s and Records getting lost records getting left in Old buildings burnt just thrown away whatever um and one of the uh main points that one of the gentlemen is is he's getting ready to retire and he has records going back into the 1800s and he's like at a loss of how do I compile this and put it in a way that my replacement can come along and pick up and understand not get confused it's all there for them to be able to see and continue putting you know together with that so already like you see massive problems and I'm sure with the stuff you guys are doing even more so when you go down the rabbit hole even deeper with permits and deeds and active things um brings up a whole another you know conversation but um I wanted you guys to talk about tokenization because you've said it a few times and maybe not everybody is familiar with tokenization and you hear like Black Rock basically saying they're going to tokenize the world so it should be something that we're probably getting familiar with so what exactly does that mean when you say tokenizing real estate uh yeah I'll take that one to start um so we we tokenize real estate in two ways so the way we structure it is uh as I mentioned earlier we have individual unique nfts that represent properties so it might be 108 calendar Street or 19 parent Street individual properties have nfts that are on chain that are inspectable uh and that can more importantly uh plug in to the actual fungible tokens ER c20s that our Reit is based off of and so the the utility of this is if you step back and think about what it means to own say stock in a company or reach shares or any kind of security in the traditional Financial system uh the the syst system is fairly well set up for buying it and holding it um or or selling it on the open market but there's pretty meaningful limitations in actually being able to do anything more bespoke or customized with those tokens so for example um suppose I had uh you know one of these shares I want to um pay a a debt with it right it's very difficult or at least it takes weeks and requires multiple humans in the loop doing expensive time consuming labor to make that trade happen um and blockchain tokenization solves this problem right you you have Smart contracts that are pre-established that make it trivially easy for you to send it from one wallet to the other in settlement of a debt in payment for a service whatever else it is uh and so the the automation of these processes and the fact that you don't need human in the loop each time dramatically reduces the cost dramatically reduces the time required to make these things happen and by reducing the trans transaction costs there enables a lot of liquidity a lot of Market flexibility that's really just absent from the current system did you want to add on I'll jump in um the way that I like to describe tokenization to people is starting with blockchain what is what is the blockchain doing it's a ledger and that's as simple as it is and ledgers record transactions and in the case of tokenization we're recording the transactions of value and information we're actually blending these there's nothing more to blockchain than that and and that's why you don't need blockchain and everything because not everything requires a ledger but why black rock might be interested in tokenizing everything is because when you have so many parties involved in something like investing into a stock so equities or bonds or real estate and you have transfer agents and you have settlement and of course you have to make sure everything clears and you're looking at what is the value of this investment you have all these moving parts and you want to consolidate that and so in something like real estate it makes sense to consolidate ledgers whether it's value that you want to keep track of or other information uh in in our case you know we're using tokenization in two ways for the underlying documentation of a property and anchoring that to the blockchain to say yes this is legit it's attested it's verified and then of course with the ownership of that property whether that's in the form of Equity or debt but having these uh intangent moves information of the assets and ownership of the assets so value simultaneously sorry could you repeat the question no I did you want to introduce yourself a little bit I'm Caril bensen off I'm the CEO of new silver apologies I'm late I was told it starts at 12:15 but no excuse um with so I do have a question on the tokenization um so in theory if we can like on a wide range tokenized real estate um can we talk about how that would open up more liquidity or more opportunities for people to be able to get involved into real estate yeah so one of the um one of the applications that we're most excited about with tokenization of real estate is the ability to use real estate as collateral uh now real estate is often used as collateral in in the world today right if you have a mortgage your house is effectively collateral for that loan and that's a really powerful way for you to get value upfront that you wouldn't otherwise be able to but there are a lot of other applications at a smaller scale that can take advantage of the fact that real estate is as compared to say equities or as compared especially to kind of traditional digital assets like Bitcoin ethereum Etc um it's pretty stable um it doesn't have have the wild swings that you see in the stock market or in other digital asset markets now obviously there's some volatility but it's much lower and it also yields income in most cases and so what this means is that um suppose you're a renter um your typical trade is you pay your landlord some amount of money and you receive living space in return and that's not necessarily a bad trade living space is valuable but you're not ending up with anything durable in the long run right you're not building any assets but if you're a renter you're demonstrating that you have the ability to make a large payment $1,000 or more in many cases month after month after month and that's something that should in theory be collateralizable and so what we're planning to do once the Reit uh once the tokenized Reit is fully operational is enable renters to invest their rent money into shares in the Reit that they then own uh take out debt against that use it to pay their rent and so you now have offsetting equity in the Reit uh and and debt secured against it um that's a very secure transaction in fact it's in many ways more secure than a traditional mortgage because that's a non- diversified asset um and and there's also issues with the transaction costs around discrete houses and what this means is you're effectively making a a long bet a leveraged long bet on the value of the real estate where you have debt payments um that you have to make month after month that are in most cases going to be off set by the dividends you're earning on the real estate that you now own plus whatever the appreciation that that real estate's experiencing and so without having to actually invest any additional money you're building net Equity over time in a way that previously may have been inaccessible to you depending on your budget now this is I I I realize there's a lot of numbers floating around there and it's easier to make this point with a presentation but the the takeaway here is that tokenizing real estate which is a stable and in most cases appreciating asset allows people to use it as collateral and build wealth more efficiently than is currently possible well I'm glad that we went this route when it comes to liquidity because this is this is the number one question that I get from Real Estate developers and investors if something is tokenized does it become liquid but that's the wrong question the question is does anyone want to buy what you're selling that's where liquidity comes from if I can sell something and there's a buyer on the other side I have liquidity just because it's not super complex with technology and you need a wallet and you need to understand tokenomics actually doesn't mean that you're going to have more liquidity and so being able to collateralize an alternative asset especially something that has a lot of data to risk mitigate that that's a perfect example of how blockchain could introduce liquidity to something like alternative assets so I'm glad that we went that route and I think we kind of touched on democratization I can't remember if that was in the question but it's it's similar as well where I get the question could this democratize real estate and the answer is no that you can already do that without blockchain but could it enhance democratization is it certainly easier to move a lot of shares and people and ownership when you have something that is again on a uniform Ledger and I would say yes I think I just want to add on I I do I you know I think democratization is a huge use case I mean we've done a sort of an Institutional use case where we've taken uh a pool of mortgages and we basically created like a private securitization on chain uh with institutional and uh you know non-institutional participation uh and I I think you know that's certainly one use case I know that others are are um you know kind of tackling that as well there you know the the ability to to have a standardized pool of you know call it loans or or underlying real estate shares or whatever you have uh is very valuable when you have these like institutional exits in a form of securization because everything is standardized you may you know you may have not have to touch every single package of loans by hand right like you've got everything is kind of the same it's easier to move it's easier to trade but the democratization of of um you know participation by investors worldwide right it really opens up um could you do it now yeah but is it easier I believe blockchain makes it a lot easier yeah and democratization is great at a baseline on just the financial side right you remove barriers to entry more people can participate um it's good for Sellers and it's good for those buyers but there's an additional layer of this especially when you're talking about real estate and especially as Matt was mentioning the the barriers that exist today in lots of cities to actually getting development done have been really pernicious right we have today way more demand to live in say Boston to live in Quincy than there is Supply in these places and a lot of that is because the default stance of many people who are in these cities is we don't want more development um and a lot of that is in in turn Downstream from there are really two types of people with regard to real estate ownership in cities for the most part there are homeowners and there are renters if you're a homeowner you're taking out a massive leveraged bet on a single asset and you're going to be really defensive of the value of that asset which often means you're going to say no to any new development um on the other side you're a renter uh and most renters unless they're really actively investing in Sayre shares have zero real estate exposure and have zero Financial stake in the value being created in the city around them which is also a problem because it means that say demand increases to live in that City that just means your rent is going up and that's bad and so you might want to do things that reduce demand in the city which in general means making it less attractive place to live and so bridging this gap between these highly leveraged highly conservative homeowners and these zero skin in the game in some sense renters by creating a middle class of people who own a moderate Diversified index of the city around them would in our view lead to a much more uh permissive approach to development and allow more wealth to be created in Aggregate and so on a wide range adoption where this stuff starts becoming more normal um to talk about like the mystifying which we kind of talked about real quick because the story you shared was uh I think very in line with kind of how people react now when um you start talking about this stuff uh so I am the treasurer of the Rhode Island blockchain Council and we did a educational panel like this in Rhode Island with some real estate groups and a lot of the questions were you know from like uh loan officers and attorneys like when do I lose my job and so when that is the like status quo attitude to when you start talking about this stuff with people it makes it extremely hard to move forward so if you guys could talk on some like demystifying the real estate on blockchain a little bit they lose their job to AI before they lose it to blockchain true yeah and I I would add to that I mean you know the the promise of blockchain in these cases is to reduce transaction costs right and so if you're reducing the transaction costs you are by default reducing the earning per transaction of these intermediaries whether they're a lawyer whether they're a broker whether they's somebody at the registry of deeds or a title insurance agent or whatever else it is um and that is perceived as a threat um but I think it's also important to consider if you're reducing transaction costs a side effect of that is to increase the total number of transactions um because you're creating room for transactions to be viable where they previously weren't and you know this is not to guarantee that everybody's going to get more business but you'll find I think that people who are enterprising about what new transaction now are feasible in a lower transaction cost environment will be able to reap outsize gains um and it just requires having an attitude about adapting to new technology and finding new ways to leverage it which you know we've seen this in every W uh every wave of technological development in the past some jobs disappear or change um but in on average more new jobs are created and more total value is created and so the P gets wider even if it shifted around a little bit people are better off on that so the perspective that I take from working with a lot of blue collar workers because if I want assets data I have to go to The Architects the engineers the contractors and the subcontractors those are the people that I'm engaging with a lot it would be very difficult to teach them about web 3 and at the end of the day they would probably say I don't care so it's not worth the time to try to teach them how I think that we're going to get these people engaged with the technology is by inadvertently mandating it and this is if I'm a a subcontractor and I have documentation I'm going to upload it somewhere and that's going to be anchored to the blockchain and now without understanding anything about wallets and blockchain and whatnot they've just contributed to this value economy in web 3 that we're creating and that's they didn't realize that they're doing it and that's how I actually think that we're going to get the next hundred million or billion people into web 3 it's going to be in ways that they don't realize that they're contributing they're just getting a job done but it is a very very important job for sure so with uh staying on that topic of getting adoption and and policy are there current things that you guys are working on or have worked on where you've worked with whether it was was a company or a town or a city where some of this stuff that we're talking about is being implemented in real time yeah so so I mean the you know what that brings to mind for me is the uh the the the blockchain digitization efforts that are under or sorry the the registry deed registry digitization efforts that are underway here in Massachusetts now this is something that moves slowly because as as you may have known um the legislature has not been especially um has not been releasing a lot of new legislation over the past two or three years but um there is an appetite both at the state and the county level here in Massachusetts to launch Pilots of blockchain uh digitization of deed registry records to determine what actual value that adds and so it's not at the top of the priority list but it is something that's moving forward and in the long run we do think that having a a single database not just for deed Registries but for many of the other Financial functions of government whether it's taxation whether it's spending um and and giving people the ability to have a a unified standardized system and obviously I know standardization is one of your big priorities giving transparency and standardization to a pretty opaque and non-standardized government especially at the state and local level is a huge value at uh and blockchain's a natural candidate for that we we do realize though that when they're on the chopping block the government does care a little bit and you see that with uh the SEC right and they do have some centralized databases when it comes to finance such as the Edgar system but that doesn't exist for the private markets that we're dealing with it hardly exists it's it's all over the place there is no standardization so if we can start to collect that consolidate that go to municipalities whether that's local state or federal and say here now we we've brought everything together you can look over it government we know you like to look over things now it's in one place and it's attested and you can do your job more effectively but we have to start seeing that in these new private markets that are are popping up whether it's real estates or if it's cryptocurrencies to have some sort of database and it can be scary to some people but it is necessary if you're going to get the government behind it yeah I'm not sure what the government's doing but um I think uh you know there there I think they're has to be a clear use case for blockchain right before anyone gets into spending the the money and the time and building stuff and uh I I agree that that it has to be you know users have to be presented with an application right they don't they shouldn't have to worry about like am I on chain or am I on a database like they don't really care they just want to use an app get whatever they need done pay their bill or you know get their their title uh reassigned or whatever they're doing so you know I think I think there has to be a clear use case and in a lot of cases unfortunately uh blockchain has not uh proven its uh a real world use cases yet you know I think they're there I I certainly have a list of uh things I'd want to see on chain uh personally in my business or personal life I think that there is a use case but there just hasn't been this push and I do think it it may have to come from the public sector um supported by the private sector of course and and on the note of proving use cases I think it's been really heartening over the past year and a half or so to see the rise of stable coins as a really really strong demonstrated use case that's integrated into the real world right we're seeing tons of demand especially overseas for US dollar stable coins in countries where the banking systems aren't stable where the currency is not stable where payment systems are really not accessible and people can't get access to the us-based payment systems and stable coins have fulfilled that Gap hugely uh ni Nick Carter and a few people had a white paper out on this yesterday that I I recommend um but it's worth noting that you know when you hear stable coin you mostly think of dollar stable coins and dollar stable coins are today 99% of stable coins but stable coin fundamentally just means a token that is backed by a real asset right dollars have been the ones that have run away so far there are some other currencies some other Fiats that are are in there as well Golds there too but a currency backed by real estate is a stable coin also and you know a dollar is great if your comparison is the currency in Nigeria or turkey or Venezuela um but a dollar still loses value every year and really at the end of the day you probably would rather have a currency that gains value every year than one that loses value every year and real estate's natural candidate and and to I know that we're out of time but to add a cherry on top a yields bearing stable coin because commercial real estate Bears yield and so it's it's it's perfect to be able to transact it it's backed by something that is generally risk mitigated or at least that's what we're trying to do it could you could park it somewhere and it's going to generate x amount percentage per year that's fantastic and I mean honestly if we're going to create currencies out of properties and we're building properties we could pay people with the currency backed by the property that's being built and so it's like they have equity in the building yep that's a different conversation yes well we are out of time so thank you everyone for uh welcoming us for this first panel and we will give it back to Ian