Tokenization in real estate reached new level this month, when Villa AnnA, a mansion in central Paris, was successfully sold promptly after it has been tokenized. The speed, the structure of this operation, as well as its significance for the new tokenized real estate market were the topics in the talk between our Editor-in-Chief and Bilal El Alamy, Co-Founder and CEO of Equisafe, the firm behind the project, that excited professionals in both tokenization and real estate:
Q1: Perhaps the most striking about the tokenization of the Villa AnnA is that tokens went for as little as €6.5 per piece. How many investors did you attract? Why the two tier structure (shares, then tokens)?
A1: Mass adoption for investors is not there yet, nor the infrastructure to support it. Tokenization has a lot to prove, and so it was important to test some hypotheses in the real world. Therefore, only 2 investors bought the tokens. We attracted a lot of attention, specially by doing the tokenization live in front of 182 people. 30 minutes from account creation to Digital Securities Issuance. 1 minute to swap the securities to investors. Equisafe plans to multiply such operations starting the official launch of the platform this autumn and offer individuals tokens for small amounts of investment.
Q2: Do you plan to open these tokens to secondary markets? If yes, any agreements you may disclose now?
A2: AnnA is a first of its kind operation in Europe; the real estate developers who acquired AnnA on June 25, 2019. They used the process as a financing tool to renovate AnnA Mansion. Only once it’s done and that the building will be rented, they’ll open these tokens to secondary to share dividends payment.
For this specific use case, Equisafe has implemented a peer-to-peer secondary market, with options to trade with cap table or within the full ecosystem. AnnA is a to small use case to be really interesting for MultiLateral Trading Facilities. However, we have a couple of Private Equity funds in the pipe and are already discussing with several MTFs. We’ll see what best fit the interests of our clients.
Eventually, there is no two tier structure; Sapeb AnnA, the company who owns the building, has been electronically divided in shares that we call tokens.
Q3: Which rights exactly does the purchase of a token give? Is it both right to part of rental income and dividends with sale?
A3: The token entitles you to the capital shares in the company that own the real estate asset and therefor dividend payments.
Q4: Which decisions with regards to this magnificent mansion will investors in your tokens be able undertake on your platform?
A4: The capital shares of the company Sapeb AnnA owning the building were divided numerically into tokens. Presenting all the characteristics of a financial security as referred to in Article L 211 1 II of the French Monetary and Financial Code, the AnnA token thus falls under these regulations.
Each token entitles its owner to dividends, participation and voting rights at general meetings, consultation of the annual report and management report of the entity and the board, and participation on the supervisory board.
The investor will thus not receive the rental income since he owns shares of the company that owns the building, and not the building itself, in the same way as a shareholder.
Q5: In your case, what does tokenization give to the current owner of Villa AnnA, besides liquidity? Does s/he charge a premium on the sale of tokens, if yes, how much?
A5: The building itself followed a sales process a notarial deed validated the value of the building and marked the transfer of the latter to a simplified joint stock company (SAPEB AnnA) whose shares were divided electronically via the blockchain. AnnA’s building previous owner was thus not involved in the tokenization process.
There is no premium charged on the sale of the tokens.
Q6: Which blockchain did you employ and why? If your blockchain is public, does it mean that anybody in the world may buy through you a piece of real estate in France?
A6: The platform runs on a public, permissioned Ethereum blockchain. This blockchain will be used for the operations that will be carried out at Equisafe’s official launch this fall.
Anyone can read the transactions, but completing some is reserved for authorized participants. Each future investor, whether individual or professional, must pass the KYC test to access the platform.
Q7: If we are to compare your platform with other platforms that are built for tokenization in real estate, which stand out features would you like to mention?
Equisafe is a pioneer in Europe, the first to complete the sale of the building in its entirety to a company completely tokenized thereafter. It is not just a cadastral registration of property but a full sale of title deed through the blockchain.
Additionally, Equisafe aims to become a true digital investment bank: in the long term, advisory functions will be offered on the platform so that individuals and professionals are guided through the investment opportunity.
Q8: Now after the offering done with regards to Villa AnnA, what else do you have in mind to tokenize?
A8: It should be noted that the company plans to expand its activity beyond the real estate sector very soon and to offer through the blockchain the acquisition of financial securities, property rights in film financing companies and even in investment funds.
Q9: Do you think tokenization in real estate will gain popularity? Why? What changes in the regulation are required in France, if any?
A9: I definitely believe real estate transactions via tokenization are going to bloom in the coming years because they offer undeniable advantages in terms of liquidity, cost savings and data security.
Mastering blockchain technology is a stake of leadership today for any organization. The French government is taking the lead and has launched recently a national blockchain strategy while establishing a clear fiscal, accounting and legal framework.
Today, change must be achieved at European level with harmonization of regulations. Equipped with uniform blockchain regulation, the EU might become the land where blockchain companies will flourish in the future, thus creating a certain competitive advantage.
Q10: Please describe a real estate market that has adopted tokenization, how will it function, in comparison with the present conditions?
A10: First, the registration of title deeds on a blockchain register (in which the information is certified by notaries, digitized, unfalsifiable and permanently accessible) allows a faster exchange of information The blockchain allows the tracking of documents from the creation of the asset to its resale.
Secondly, the tokenization mechanism makes ownership shares infinitely divisible and therefore allows even small amounts to be invested, providing easy access to investment for individuals.
Finally, the time saved is immense for each stakeholder. Real estate developers now have access to a vast shared (of course encrypted) database of investors to offer securities to the blockchain saves the costs of data entry and constant verification of the information they usually must pay for, which leads to many administrative errors for individuals, the time required to purchase and sell is considerably reduced since it will be possible to create an investor profile and access offers in less than half an hour on Equisafe.
The platform will also democratize the investment by proposing a minimum investment amount of a few hundred euros depending on the nature of the security sold.