A blockchain-based real estate market has been launched by QuantmRE and Texture Capital, showing the advantage of distributed ledger technology to unlock previously illiquid asset classes.
Richard Johnson, managing director of Texture Capital, told Markets Media that there is huge potential for putting alternative assets on a blockchain, so they can be traded. Texture Capital is one of the few digital asset brokers operating an alternative trading system registered with the United States Securities and Exchange Commission and providing issuance, tokenization and trading tools on the secondary market.
Johnson said, “We’ve been looking at real estate for some time, but other markets we discuss range from music royalties and film financing to Web3 strategies.”
QuantmRE offers home equity agreements, which give homeowners a lump sum in exchange for a share of the current value of their property and a share of any potential price increases. Real estate is created and secured by a lien on the owner’s home. Owners do not have to incur additional debt or make monthly payments as QuantmRE becomes an investor in the property.
The company’s partnership with Texture Capital and the launch of its blockchain-based Home Equity Marketplace allows investors, ranging from individuals to institutions, to trade token fractions of home equity deals.
Matthew Sullivan, founder and chief executive of QuantmRE, told Markets Media that real estate assets are an equity-based investment but provide investors with cash flow. Also, investors may have to wait a long time for a return if the homeowner waits 10 or 20 years to sell or refinance their home.
We are delighted to partner with @quantmre to power their new blockchain-based marketplace for tokenized ownership equity deals. This partnership will allow investors to gain exposure to residential home equity through fractional investment contracts.https://t.co/h1hE17LcEh
— TextureCapital (@texture_capital) August 9, 2022
Sullivan said: “The QuantmRE marketplace cuts that investment into many small pieces and then offers them to small investors to buy into this exciting asset class of equity in owner-occupied homes, a class of untapped assets of several trillions of dollars.”
Freddie Mac estimated the home equity deal market to be over $25 trillion according to QuantmRE. Sullivan went on to say that QuantmRE realized that blockchain was the ideal technology for tracking fractional ownership equity agreements.
“We’ve created a platform that allows us to enter into property equity agreements with owners, create the assets, and put them on a market,” Sullivan added. “We were missing the critical ingredient of compliance with regulatory requirements to be able to grow and grow this business in the United States and beyond.”
As a result, QuantmRE has partnered with Texture Capital which Sullivan says brings expertise in working with digital securities in a regulated environment and can support real estate token trading.
Sullivan said, “This solves the problem of investors potentially owning a long-term investment with no cash flow because they can trade digital securities.”
There is a debate about the regulation of digital assets in the United States and whether they should be treated as securities and regulated by the Securities and Exchange Commission, or as commodities supervised by the Commodity Futures Trading Commission. Sullivan said real estate tokens are securities and the market will operate in accordance with securities regulations.
Johnson went on to say that he started Texture Capital in 2020 because he believed digital asset tokens are securities, which is why its proprietary ATS is registered with the SEC to comply with all regulations. information, including know your customer and anti-money laundering requirements.
“We’re excited to leverage the platform we’ve built and apply it to this previously inaccessible market,” Johnson added. “It really is a perfect fit, like peanut butter and jelly.”
Delighted to announce our partnership with @texture_capital! Together with @Algorand we make home equity accessible, investable and tradable on the Blockchain. #Algorand #property investment #blockchain I
— QuantmRE (@quantmre) August 9, 2022
The Home Equity Marketplace currently operates under an SEC Regulation D exemption that allows tokens to be sold to accredited investors. The roadmap is to receive an exemption from SEC Regulation A to offer tokens to non-accredited investors and expand the investor base.
The two companies will immediately collaborate on new issuances and tokenization according to Johnson. There is a one year holding period for a Reg D issue, so secondary trading is unlikely to begin before 2023.
Sullivan pointed out that there will be activity on the platform before secondary trading begins, as QuantmRE has a pipeline of home equity deals to be tokenized and issued that will be acquired by investors on the primary market. Texture Capital builds an API integration to provide QuantmRE customers with a seamless connection to the ATS.
“The most important thing for investors is this path to liquidity,” Sullivan said.
He added that there had been two securitizations of home equity deals, which would also boost activity in the secondary market.
In February this year, Unison, a San Francisco-based company that sells residential equity deeds, announced a $443 million securitization that it says gives more access to institutional investors who want to participate in the sector.
Unison said in a statement: “This landmark transaction is REA’s largest securitization to date, capping a historic year of growth for the fintech company.”
Sullivan believes that the home equity deal industry could follow the trajectory of the mortgage-backed securities market, but without increasing leverage on homeowners.
“Our platform provides broader access for investors and that’s the holy grail,” he said. “We can become a wholesale marketplace for all home equity deal providers.”
Johnson also believes the asset class will go mainstream.
“The new market is a great example of the benefits of blockchain and using this technology to unlock an esoteric asset class,” Johnson added.