Alt.Estate (ALT) group offers a new solution for real estate tokenization. They provide the protocol and the Platform. The protocol covers the technology, corporate structure and the legal compliance aspects of the tokenization. They have stated that the protocol is a turnkey solution for users who wish to tokenize real estate – developers and individuals. The platform is the marketplace where users can partake in primary and secondary trading of tokenized assets. Additionally, allowing users to trade fractions of real estate thus providing liquidity and lower costs.
Demand and Market
When speaking about the real estate market, one has to always discuss how far we have come since the global real estate crash of 2008. The current estimates suggest that the value of all developed real estate in the world amounts to about $217 trillion USD, including retail property, offices, industrial, hotels, residential, commercial and agricultural land. It has been estimated that approximately $81 trillion USD of the total developed real estate around the world is deemed investible. In 2015, the global property value was estimated to be 3-times higher than the global GDP. Suggesting, an important method of storing wealth. (Figure 1).
We will not dwell on the current state of global real estate markets; however, I can say that although we have come a long way since 2008 crisis, we are beginning to face certain challenges that have begun to slow down the real estate sector globally. The real estate market also faces challenges such as, the need for high capital for entry, lack of liquidity, slow and complicated process of ownership transfer, risk of fraud, high transaction costs, and complications surrounding cross-border transactions.
Although the debt does not seem to be an issue this time around, there is an increased amount of equity capital that is ready to be deployed into commercial real estate, and it appears to be at an all-time high. Cross-border investors account for about 35% of global transactions. From 2009 to 2015, it was estimated this number had grown about 330% from $65 billion to $217 Billion. However, since this capital comes from diverse sources, it has faced challenges such as domestic policies and has been subjected to repatriation of capital, thus slowing the transaction volume. Thus, it has been estimated that compared to two decades ago, new construction is below a historical average (Figure 2)
Alt.Estate provides a solution that can be beneficial for both the crypto-investor and the traditional investors alike. The crypto-investor can:
- Purchase a new class of assets without needing a significant capital (only a $100 minimum investment required)
- Provides new diversification opportunities for investors and funds alike, which can be useful in down turning markets.
- Some may use it as a hedge for their portfolio, or a safe investment with low volatility.
Access to foreign markets without needing to deal with the conversion costs.
The traditional investors will benefit from Alt.Estate by:
- Access to a new class of investment with a low threshold of entry.
- Benefiting from high liquidity and transparency – tokens can be traded on Alt.Estate platform.
- Tokens will be jurisdiction-agnostic thus enabling for cross-border transactions.
- A public market for all types of real-estate properties.
- Ability to easily buy and sell property in pieces, making the market more liquid and efficient. This also provides the owners to borrow money on the open market, using only a portion of their property as collateral.
The way Alt.Estate provides this service is by the following steps:
This may be a long-term investment for those of you interested in participating in the ICO stage. Although, they have already provided us with a working prototype in December 2017, they plan to release their beta version of the platform in Q3 of 2018, and it will not be until Q1 2019 until tokens can be traded. They hope that this is fully functional platform by Q3 of 2019 (Figure 3).
The Alt.Estate business model is relatively capital-intensive due to the sourcing of deals, the vetting of deals, and the sourcing of capital. Thus, Alt.Estate will need to move forward in a step-wise fashion, as each milestone is dependent on the previous (Figure 4).
Alt.Estate boasts about having a team that has had $400m worth of real estate deals in 2016. I must say that putting that aside, they do have a very impressive team of people with financial background. Additionally, their CEO has some experience in creating a $100m product, packaging and selling that product. Please refer to the white paper for more detail if you’d like, I have attached summaries of the team and their accomplishments here.
In addition to the team, they also have several impressive advisors as well. This includes Sayan Tsyrenov of PwC, Denis Sokolov of Cushman & Wakefield, Stas Tikhonov of Knigh Frank, and Alexander Shatalov of Savillis. The extent of these partnerships is to be determined, however, if we were to assume that these partnerships hold true, this would give the Alt.Estate team an unprecedented access to a large party of real estate agencies that are far reaching globally.
Tokens and Supply
The tokens and supply of Alt.Estate are highlighted in Table 1. The money raised will be invested mostly in block forging, marketing, legal and building of their technology (Figure 5). The node owners that record Alt.Estate transactions on blockchain are rewarded from recycled transaction fee.
Alt.Estate suggests that by continues reinvestment of net income into the market will boost growth of the community, turnover, and total value of the tokens.
Real estate developers, brokers, and investment companies willing to use the Alt.Estate Protocol will be required to pay a tokenization fee. It will vary depending on the jurisdiction, type and price of the tokenized property, etc. Generally, a 5% average tokenization fee will cover the Protocol development, user acquisition and rewards for block forging. At the same time, it will be interesting to property sellers, as it is a small price to open a new previously unavailable market and sell real estate in bulk or raise funds faster. All secondary market transactions with Protocol-tokenized properties will charge a transaction fee, which is expected to be at about 2%. The transaction fee will cover the rewards for block forging and the marketing costs necessary to attract new buyers to provide liquidity to the sellers of property-specific tokens. At the same time, such a transaction fee is much lower than in traditional real estate deals, which makes a purchase in a secondary market of interest to real estate investors. All the properties tokenized with the Protocol will be required to pay a management fee to Alt.Estate based on the amount invested, this will be about 1% average annual management fee. It will cover investment and research costs which are not outsourced to third party vendors and not covered by other sources of income.
Competitors and Key Concerns
The table below highlights Alt.Estate versus its competitors. One thing that impressed us with Alt.Estate was the fact that they actually provided a financial model. May have been the first in the cryptospace.
- Some of the key concerns include:
- Lack of liquidity and thus volatility in asset price. In the start investors can expect significant volatility in the asset prices. Additionally, investors may not be able to exit position as easily as expected, however, investors must remember that you cannot easily buy and sell property to begin with, so Alt.Estate allows for a better more liquid option still.
- The Tokens may be subjected to speculative price action and may in worse-case become worthless.
- Tokens are non-refundable and are not backed by any of the Alt.Estate assets.
- Regulatory framework – There is no doubt that at some point governing bodies will step in and try to cramp down with laws and regulations regarding buying and selling properties. Therefore, as seen in other markets, we can expect to see uncertainty and thus high volatility.
- Lack of partnerships – it would be ideal to see more experienced real estate partnerships and real estate investors on their team.
- Estate provides an alternative method for buying and selling real estate
- Disrupting a multibillion-dollar industry
- Low capital required to partake in buying and selling or property – only a $100 minimum needed.
- Allows for inflow of international capital into the real estate market by providing jurisdiction-agnostic cross-border transaction of tokenized property.
- Allows investors the ability to diversify their portfolio
- Can provide transparency and liquidity.
- Low transaction costs and fees
- A proven team that has been able to create, market and sell a multimillion-dollar product
- A working prototype
- Currently still in ICO stage offering a 20% bonus
We have mentioned in our pervious report that tokenized securities and assets will be the story of 2018 and onward. In our Polymath article, we stated that the tokenization of such classes will bring increased liquidity and give investors access to a greater pool of capital. Thus, in the process, increasing efficiency and decreasing fees associated with such transactions. The real estate market is growing with growing confidence in the market worldwide. Tokenization of property will bring about a new wave of investing and will allow for all investors alike, small or large, to own a piece of property, and thus diversify their portfolio. Alt.Estate may have the answer; however, we believe that they still have much to prove. They are certainly an exciting and a much better alternative to their competitors, and they will be a company that we will continue to monitor in the coming months as a potential investment opportunity, However, we will not consider investing at their ICO stage. Based on their financial model, and a $15m sale proceeds raised, Alt.Estate suggests that in their first three years the demand for their ALT token will be 10X the supply, thus a 1000% return on investment. We will keep Alt.Estate on our watch list for the time being, until they release the beta version of their platform sometime later this year.