Tokenisation of corporate real estate on the blockchain : New strategies for corporate ownership and financial management

Abstract

Real estate tokenisation is the process of creating a digital asset that represents ownership rights in a physical or digital asset, such as a physical property or real estate fund, on a blockchain-based system. Features of a ‘token-based economy’ on the blockchain can quicken the transformation of corporate real estate (CRE) ownership by flipping the equity and liquidity paradigm that traditionally plagues investment. For example, by providing new financial infrastructure for private secondary markets, the token economy taps global capital markets to provide an important liquidity option that was not previously available for privately held CRE assets. Separately, security tokens used together with programmable algorithms, also known as ‘smart contracts’, bring about unprecedented levels of connectivity and programmability that enhance CRE financial management, thereby removing much of the costly inefficiencies found in traditional systems. Industry experts agree that the digitisation of CRE on the blockchain — comprising tokenised real estate assets and smart contracts working off digital ledger technology — will bring about unprecedented levels of benefit to the CRE industry and the wider general economy. The impact of CRE tokenisation must not be studied in isolation, however, but within a greater perspective of ongoing industry themes. The Fourth Industrial Revolution (Industry 4.0) is driving disruptive change across all industries by fundamentally changing the way business models operate. By extension, this influences corporate motivations for how much CRE ownership is needed in the future. Separately, the continued shift towards privatisation instead of public listings over the last two decades have implications for how companies access capital markets, and consequently, how working capital in CRE asset portfolios can be recycled. This paper explores the disruptive benefits that the tokenisation of real estate on the blockchain brings to the CRE industry, in linkage with these overarching industry themes, with the aim of adding cross-disciplinary insight to the literature.