Tokenization 101

Tokenization empowers real estate operators with capital, technology, and flexibility

What is tokenization?

A more tangible and liquid representation of ownership interest in real estate through digital securitization on a blockchain

Tokenization is the process of creating digital securities, or tokens, to represent fractional ownership of an asset.

This is done through blockchain technology, a shared and immutable ledger for recording transactions and assets. This is the same technology that powers cryptocurrencies like Bitcoin and Ethereum.

Similar to crowdfunding, tokenization improves capital formation by allowing smaller investors to pool capital to invest in larger projects - and enables sponsors to raise capital from a larger investor pool.

How it works?

Securitize

Choose your issuance type and structure your offering as a financial product.

Tokenize

Compliantly onboard new and existing investors with a fully digital experience.

Manage

Streamline your investor relations to reduce costs, simplify servicing and enable transfers.

What is the tokenization process?

HoneyBricks can help set up your SPV, market, and distribute your offering

The process of tokenizing an asset can take two to six weeks depending on the complexity of the offering, planning and legal documentation.

1. Vehicle set-up

  • HoneyBricks (or your team) creates an SPV, which will either acquire all or part of the asset

  • HoneyBricks will “tokenize” the SPV then issue digital securities representing ownership in the SPV.

2. Investor marketing

  • The offering is published to the HoneyBricks platform.

  • HoneyBricks streamlines investor onboarding (including KYC/AML/ accreditation) and facilitates their investment via ACH, Wire or cryptocurrency.

3. Securities issued

  • Investors purchase tokens, representing their ownership in the SPV

  • Tokens are distributed to investors, with the management, distribution, payments, and reporting handled by HoneyBricks.

  • Investors benefit from the liquidity of their digital securities, as well as access to borrowing and payments tools.

Regulatory Framework

Tokens backed by real estate are security tokens, and under SEC regulation

When a company wishes to issue securities to investors, the issuer must register them with the US Securities and Exchange Commission (SEC) or operate under an exemption.

The same SEC regulations apply to tokens and must be followed, but the fact that all transactions are stored on a blockchain and payments can be processed over cryptocurrency rails makes it far superior.

The most common exemptions are accredited investors (Regulation D), non-US persons (Regulation S) and crowdfunding (Regulation CF) as adopted as part of the JOBS Act.

Investments on the HoneyBricks marketplace are typically offered and sold in compliance with regulations D and S.

Liquidity

Tokens can be traded on a growing number of secondary markets

Tokens purchased by accredited investors in the U.S. may be transferred to other whitelisted accredited investors after 90 days and will become freely transferable to anyone after 12 months.

Tokens purchased by non-U.S persons cannot be resold to US persons and are freely transferable to non-US persons after 12 months.

Once tokens pass these lock-up periods, they can be listed on an exchange so investors can trade their tokens and tokens can be listed on multiple exchanges.

Many popular cryptocurrency exchanges are obtaining regulatory approval to list security tokens and there are several Alternative Trading System (ATS) that provide these markets today.

Tokenization Outlook

Real estate tokenization will improve efficiency, accessibility, and transparency in capital raising.

The global real estate market is valued at US$230 trillion and tokenization improves the liquidity and efficiency capital in the industry.  

So far, this process is developing slowly because not all market participants understand how real estate tokenization and fractional ownership work.

This will change in time, and asset owners and developers that get ahead of the curve will have significant advantages in marketing and supporting their projects.

For investors, tokenization brings much-needed liquidity and transparency to a traditionally opaque industry.

There are a number of driving factors behind the growth of tokenization:

  • Growing number of accredited investors and supportive regulatory environment.

  • Tokenization is becoming increasingly accepted as a form of digital asset investing.

  • Significant growth in education, investing, tooling and payments infrastructure.

  • Increasing investor confidence in online investing driven by the pandemic.