tZERO Q&A on the UK’s First Real Estate-backed Security Token Offering
On October 30th 2019, security token platform tZERO announced a deal with Alliance Investments to tokenize the River Plaza, a luxury 180-unit residential development. The River Plaza will constitute the United Kingdom’s (UK) first-ever real estate-backed Security Token Offering (STO). Recently, The Tokenist connected with tZERO to gain a further understanding of both the tokenization of the River Plaza as well as additional developments for tZERO.
Congratulations again on the recently announced tokenization of the River Plaza. The deal has a reported total of $640 million worth of UK real estate in the pipeline. How much of a factor was the Financial Conduct Authority’s (FCA) support in selecting the UK as a jurisdiction to tokenize real estate?
tZERO: When we commenced our discussions, Alliance Investments had already selected River Plaza as the first real estate that they were seeking to tokenize. tZERO cannot speak to whether they considered the FCA when making this decision. We are, however, delighted with the opportunity to tokenize a quality real-estate asset like River Plaza.
At least $25 million of the River Plaza’s value will be tokenized. In this deal, what precisely will token holders be entitled to?
tZERO: It is expected that token holders will be entitled to approximately 80% of the equity of the legal entity, which owns River Plaza.
Do you have any imminent plans to tokenize real estate in other jurisdictions?
tZERO: Yes, we have a number of large scale real estate tokenization opportunities in several different jurisdictions. We believe that tokenizing assets will lead to broader adoption by issuers as a practical route to reduce the cost of capital by broadening investor access and enabling liquidity. Broadly speaking, tZERO’s tokenization pipeline of issuers is very diverse both in geography and asset class.
Are there any wide-spread misconceptions when it comes to the tokenization of real estate?
tZERO: Often real estate and non-real estate issuers do not realize the flexibility of our tokenization technology. Any security, equity, debt, royalty streams (i.e. % of revenue), etc. can be tokenized during the capital raise process in order to fractionalize assets and bring assets to the market that traditionally have not been available to investors. This significantly increases the creative financing strategies that companies can pursue.
You have said in a recent letter to shareholders that the current security token ecosystem is analogous to early cellular network towers and the first Motorola ‘brick’ phones. What are the key components needed to further develop the security token industry into an infrastructure analogous to the smart-phone driven cellular network that we use today?
tZERO: The key components needed to further develop the security token industry into an infrastructure analogous to the smart-phone driven cellular network that we use today are:
- Advancement in blockchain technology
- Regulatory advancement
- Increased adoption
We need to see advancement in blockchain infrastructure both in performance and costs, as well as in the infrastructure being built on top of it. Security tokens have evolved significantly over the past couple of years and we have witnessed several traditional financial institutions step in and advance the space (i.e. Fidelity Crypto custody solutions, BSTX, etc.), which is encouraging. With that being said, there is still a long road ahead.
The biggest hurdle to overcome in the near-to-mid-term is on the regulatory front. At this juncture, a lot relies on advancing the case for how primary offerings as well as secondary trading of security tokens both comply with existing rules and regulations, and how they should evolve to fit the advancements of this technology. As an example of progress, through our joint venture, the Boston Security Token Exchange, we proposed the first rulebook for the trading of security tokens and it was published by the Securities and Exchange Commission for comment. We look forward to hearing feedback from the public during the comment process, working with regulators to finalize the rule book and launching the first national security token exchange.
tZERO has seen success with the tokenization of equity, Hollywood-produced films, and now real estate. Are there any other asset-types in the pipeline?
tZERO: We are in discussions with over 160 potential issuers, spanning a variety of asset classes. The most prominent industry at the moment is commercial real estate, which is exciting because this has historically been an asset class exclusive to select investors – typically large financial institutions or ultra-high net worth individuals. With deals such as River Plaza, tZERO is effectively democratizing access to these traditionally exclusive and illiquid assets.
Film financing is another area that we have seen recent traction, however, we are also in discussions with potential issuers spanning from funds to yacht chartering companies.
What are tZERO’s major milestones for the year 2020? Will we see a specific focus on real estate?
tZERO: We believe 2020 will be a really exciting year for tZERO and the security token industry overall. Over the past 12 months we have been largely focused on building. Building and refining the technology necessary to make this all work smoothly and effectively. We are now beginning – and 2020 will see this in full effect – to transition from build mode to growth and adoption mode. We have two primary priorities for next year: add additional quality security tokens to regulated trading venues using our trading platform and grow investor access to the trading platform through additional introducing broker-dealers to the ecosystem.
Two exciting things to look out for in the first half of next year will be the launch of our wholly owned retail broker dealer, as well as the launch of BSTX, the first fully regulated security token exchange.
As it relates to real estate, we do not believe that it will become a specific focus, however, we certainly anticipate adding additional real estate-based tokens to the platform next year.
What do you think about tZERO teaming up with Alliance Investments to tokenize the River Plaza? Let us know what you think in the comments section below.
Image courtesy of tZERO.