From a private to a democratised market

In the previous article, we have seen that Trophy Assets are an asset class in their own right, within the real estate industry. The risk/return ratio they offer is one of the most optimised. However, very few investors have Trophy Assets in their portfolios because of their scarcity and the excessive investment it requires. The Trophy Asset market currently has several barriers to entry that create investment friction. Indeed, only certain large investors have access to this asset class.

So, how can we democratize investment in Trophy Assets?

Can the barriers in this market be removed?

The idea of an democratized investing platform

In order to create a friction-free market, resources must be allocated optimally, which means creating a space where all players have access to the same information, at the same time, in the same place. A platform that brings together investors and project leaders makes it possible to meet these needs.

Firstly, on the investor side, having access to several projects of different types, allows a better understanding of the possibilities offered by in market. Case-by-case presentations provide essential information: financial data, legal structure, planning, budgets, etc. Investors, therefore, have their hands on the investment options available to them and how they wish to support a project. For example, a Trophy Asset investment project will allow them to have a diversified portfolio, while minimizing risks. A rental investment project, for its part, will allow them to obtain tax advantages with a strong return on investment.

Then, on the project owner's side, having a community of committed investors at their disposal allows the person to leverage speed and flexibility. Other sources of financing, such as bank financing, are time-consuming and tedious to obtain. For example, the owner of a high-value asset facing cash requirements, may offer one of its assets to investors. This allows the owner to generate cash, while retaining his rights over the asset. A project owner such as a Real Estate Merchant can also rely on a pool of investors to accelerate the development of his business, while maintaining good profitability.

Blockchain, the investor’s best friend

A Blockchain is a decentralized digital ledger. All the entities in this network are tasked to validate the transactions carried out within it. Thus, creating new “blocks” so that the chain of blocks continues (more information here). Blockchain is a promising technology, seen by many as a revolution as important as the Internet.

So what does it have to do with Trophy Assets? In addition to being the technology behind cryptocurrencies, Blockchain allows to “tokenize” already existing assets such as financial instruments or real estate goods. Tokenizing is like creating a digital representation of an asset on a Blockchain, it allows you to split assets into several tokens. In this case, Trophy Assets that are inaccessible to small and medium investors, can be divided into several tokens with a much more affordable unit value. For example, in 2019, a mansion worth €6.5 million was sold in one million shares worth €6.5 each (the AnnA operation). This operation, which was the first one in Europe, enabling Equisafe to demonstrate that it is now possible to pool investments to gain access to a new class of assets and obtain the related rights.

By making it possible to fractionalise high-value assets, Blockchain enables investors to diversify their portfolios as much as possible. For example, instead of owning one exceptional asset in full ownership and thus concentrating a lot of capital on the same asset, it is now possible to hold one-tenth of ten different assets. This allows investors to spread their investments to reduce the risks associated with them.

To understand in detail what tokenization can bring to the real estate market, we must look at the opportunity it brings. That is the registration of an asset and its rights as a token that allows it to be managed and exchanged in a peer-to-peer manner on a blockchain, instantaneously and securely.

A peer-to-peer exchange introduces the notion of liquidity, a notion previously impossible to imagine in the real estate market. If the holders of tokens — representing a fraction of a property — wish to resell (or buy) it, they can now do so, at any time, which allows significant fluidity of exchanges.

For Stephen McKeon, Professor of Finance at the University of Oregon, tokenization is very promising for relatively illiquid assets, as their valuation is currently penalized by their low liquidity, in significant proportions (which he estimates at “20% to 30%”). Tokenization will increase market depth by opening it up to more participants, thus generating more trading.

The freedom of exchange and its security, allows a liberated circulation of capital. This guarantees investors liquidity for their investment.

Finally, by offering services oriented to both investors and developers, Equisafe enables supply to meet demand, and vice versa. Blockchain is now a decisive tool for investors, enabling them to manage their investments in an optimized, fast, and transparent environment.

We are only at the dawn of an era that will at long last revolutionize the way we own and trade real estate properties. Blockchain removes the blinkers that are restrictive to investing and unveils new horizons with infinite possibilities. We must now ensure that this change is part of a sustainable and united approach to allow the greatest number of people to benefit from it. Are the economic players ready to take this technological shift? What impacts will this new paradigm have on the real estate industry? Future looks exciting.

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Equisafe is an agent of Lemon Way payment service provider under registration number 85392 on the registry of REGAFI.