German real estate developer Bauwens Group is betting big on tokenized real estate investment, in a sign that investors are embracing new ways to diversify as cryptocurrencies become more mainstream.
Last month, Bauwens Group acquired a 15% stake in Berlin-based blockchain firm Fundament Group, an end-to-end security issuance solution for asset tokenization built on Ethereum. The partnership with Fundament Group will allow Bauwens to expand its expertise to the innovative new market of tokenized real estate investments and digital assets.
‘We are delighted to announce this partnership, which recently achieved a decisive breakthrough in Germany by securing the first regulated tokenized real estate bond,’ said Alexander Jacobi, managing director of Bauwens digital. ‘The FUND Real Estate Token is an extremely interesting option for selling our real estate and we are proud to support them with our real estate and digitization expertise. By partnering with FND German RE, Bauwens is positioning itself sustainably in the emerging real estate tokenization market.’
Fundament claims to offer the first real estate token fully approved by the German Financial Market Authority (BaFin) that represent a portfolio of German Commercial Real Estate – which generates a planned annual yield of 4% plus returns from possible sales revenues.
In July this year, Fundament Securities received approval from BaFin for the country’s first blockchain-based real estate bond, with an issue volume of €250m. The bond comprised five construction projects, including mixed commercial use and residential properties, including student accommodation in Jena and a daycare facility in Hamburg.
The FUND Real Estate Token can be liquidated at any time on designated secondary markets, according to Fundament Group. The token is tradable worldwide and independently of banks. Fundament Securities also provides investors with the option of making deposits and withdrawals in euros or in the cryptocurrency Ether.
Bauwens Group is known for integrating intelligent and digital technologies into the development and realization of its real estate portfolio. It has an estimated €6.7bn in managed project development volume and over 370 employees.
One of the main advantages of blockchain to real estate investors is its inherent liquidity. In addition, it could open up the German real estate market to overseas investors who can be prevented from buying bricks and mortar assets in the country because of capital controls. As such cryptocurrencies can remove barriers to investment, providing that investors pass KYC/AML checks, because BaFin does not require any additional tests in order for investors to acquire tokens.
The strategic investment from Bauwens gives FND German RE a long-term partner in the real estate development market as well as access to an extensive pipeline of projects in Germany’s key metropolitan areas including Munich, Hamburg, Berlin and Frankfurt.
This collaboration is the latest in a slew of similar partnerships which show that blockchain is filtering through to Germany’s real estate market, not least because as a digitized, distributed ledger that immutably records and shares information, it is designed to increase the efficiency and ease of sharing information. And because blockchain contains a certain and verifiable record of every transaction ever made, it mitigates the risk of double spending, fraud, abuse, and manipulation of transactions.
In June, European investment manager Peakside Capital Advisors launched its first fund via a blockchain-powered platform. The fund, Peakside Income Fund 1, has an equity target of €200m and will invest in core and core plus offices in first and second tier cities in Germany, using blockchain technology to future-proof and simplify real estate investments. The fund was launched earlier this month on ScalingFunds, a funds-as-a-service technology platform developed by Berlin-based Brickblock Digital Services. Asset sizes will range from €15m to €75m, with a maximum leverage of 50%. The minimum investment ticket size is €125,000. Over the fund’s lifetime, it is expected that distributions (excluding sales proceeds) will average around 4%.
Fund manager Wertgrund Immobilien has set up a joint venture with Munich-based blockchain services provider Datarella and property group Hammer AG to offer tokens in the Connex office complex in Munich occupied by BMW, according to Datarella co-founder Yukitaka Nezu, who told REFIRE earlier this year that the plan to take around €2.5m of it and tokenise it: ‘We want to make something that is illiquid, liquid,’ he said. ‘To appeal to retail investors, the minimum ticket size will not exceed €10,000 per investor. It’s a pilot project but going forward we’d like to offer this service to other real estate companies and scale it.’
In March, Germany’s Ministry of Finance recommended that the country recognize blockchain-based securities as a legitimate form of financial instrument and regulate them as such. Without comprehensive regulation of security tokens in Europe, dealing with them can be problematic, not least because holding a token doesn’t necessarily equate to holding equity from a legal standpoint and dividend payments are not always legally compliant.
Ultimately, blockchain has a lot of potential and could simplify the sharing of real estate data, thereby unlocking the market to a wider range of global investors. Still, technology can be fickle and bitcoin and cryptocurrencies in general have not always had a smooth ride. For now, it’s just too early to predict whether blockchain will become an integral part of the real estate market.
