The American start-up is in talks with the AMF to establish itself in Europe. His offer? Sell fractions of real estate in a few clicks thanks to the blockchain.
The US company RealToken, launched in 2019 by Canadians Remy and Jean-Marc Jacobson, offers to buy goods in the US real estate market using tokens, digital assets issued and exchanged on a blockchain. This idea dates back to the year 2018, when US judges recognized the validity of a token as an asset demonstrating ownership of a company in the United States. This decision paved the way for tokenization and the two brothers, who run a Bitcoin foundation in Montreal, jumped at the opportunity.
For the time being, it is not possible to sell real estate shares directly in the form of tokens. Thus, each property put up for sale has its own company with its shareholders. The tokens thus correspond to the shares of these companies and have intrinsic real estate value. Their price starts at $50. On average for a property valued at $100,000, the owner-owned company has 130 shareholders. RealT appoints an internal manager of ownership at the head of each company who can be changed if the majority of shareholders (token holders) so desire. Each month, shareholders receive dividends on their Ethereum or Gnosis portfolio in USDC, a stablecoin comparable to the dollar. Dividends correspond to rents paid by tenants in US dollars less management fees and any unpaid claims or claims. RealT is remunerated in two ways, by taking 2% of the gross income of the property and adding 10% when raising funds for the purchase of the property.
1,000 homes sold
Since RealT’s inception, $4 million in rent has been transferred to its clients’ accounts. The company has put 220 homes for sale, the equivalent of 1,000 homes. It takes an average of just two minutes to sell all tokens of a home valued less than $500,000. During the real estate listing, a client cannot purchase more than 10% of the total tokens.
Initially, RealT advanced the money to buy the property, which was then tokenized and sold. As of now, the sale of the tokens will fund the acquisition of the property during the transition to the signing deed. If the money raised is not enough for the closing, the operation will be canceled and the money will be returned to the investors. Jean-Marc Jacobson assures us that this never happened.
RealT’s real estate portfolio at acquisition is worth $55 million versus a valuation of $65 million
RealT’s real estate portfolio at the time of the acquisition is worth $55 million at a valuation of $65 million. Jean-Marc Jacobson does not opt for “beautiful properties with high potential for value”, but prefers profitability. As proof, RealT offers between 6 and 11% annual profitability. The co-founder, on the other hand, is less talkative about his company’s growth and content to talk about “exponential” results.
Leverage and DeFi
“There is no investment without risk,” recalls Jean-Marc Jacobson. According to him, the risks correspond to those of the traditional real estate market: unpaid bills, additional work, management problems. The main difference lies in the lack of a bank loan at the time of real estate purchase, and thus in theory of the famous leverage that is dear to rental investors. Except that would be to forget that RealT is a Web3 company. And who says Web3, says decentralized finance. RealT offers its customers a DeFi platform, RMM, incorrectly nicknamed “RealT makes magic”, which helps them find this leverage. By immobilizing their tokens on RMM, a customer gains 50% of his dollar value which he can reinvest by purchasing other tokens, while continuing to collect the rent.
An individual can also decide to sell their tokens on the RealT platform for a 3% fee or for free on crypto platforms such as Uniswap. Ultimately, real estate tokenization makes the real estate market liquid and significantly shortens the time to obtain financing, as “everything is done in a few clicks,” says Jean-Marc Jacobson.
“Real estate is a very local business, every sovereign country tries to protect its territory, which forces us to adapt to the regulations of each country”
Accreditation in France
But not everything runs smoothly for RealT, which encounters the legal framework of securities on a daily basis. Of a team of 21 people, 3 are fully dedicated to the subject. “Real estate is a very local business, every sovereign country tries to protect its territory, which forces us to adapt to the regulations of each country,” specifies the co-founder. In Switzerland, residential real estate is open to foreign investment, provided it does not exceed a certain percentage. For the purchase of real estate in the United States it is advisable to create C Corp, in France it would be necessary to create SA or SAS. Contrary to what one might think, taxation does not seem to be an obstacle: “everyone is responsible for his tax in his country”, summarizes Jean-Marc Jacobson. In some states, owning tokens is not subject to taxes, in others it is considered a taxable security.
Marketing is very limited: advertising a specific property is prohibited. Going forward, RealT is seriously considering creating an application to facilitate the purchase of tokens and adapt to the habits of millennials. But the main project is international. The 10,000 customers come from 135 different countries, but RealT currently only offers homes in the US real estate market. In the future, Realt intends to offer real estate outside the United States (by the end of the year) as well as investments in euros.
For this, the company must submit a file to a European financial market authority. The choice fell on France because of the Francophonie of the two makers. Since RealT is a US company, it could benefit from exemptions during its establishment in Europe and would be subject to obligations, in particular the ban on offering goods in excess of $8 million. When asked “where are you with the regulators?”, the co-founder replies that “the file is progressing”, without further details.