Fundament, a blockchain startup
coming out of stealth mode, has received the green light to issue the
first tokenized real-estate backed bond that can be widely offered to
individual investors.
Announced Tuesday, the Berlin-based firm has obtained approval
from Germany’s financial regulator, BaFIN, for the 250 million euro
($280 million) offering. By virtue of being regulated, the token will be
open to any retail investor anywhere with no minimum investment
restriction.
In other words, someone in, say,
Indonesia will be able to buy 100 euros worth of ethereum tokens and
thereby indirectly invest in German commercial property.
A BaFin representative told Coindesk:
“We can confirm that we
granted approval for a Fundament Group prospectus. It has indeed been
the first time we have approved a prospectus regarding blockchain-based
real estate bonds, but not the first time in respect to blockchain
technology as such.”
The token, which Fundament will start
marketing next month, will run on the public ethereum blockchain using
the ERC-20 standard popularized by the 2017 initial coin offering (ICO)
explosion.
Blockchain real estate is a busy
space. Florian Glatz, co-founder of Fundament Group, said typically what
has been seen in the past are private placements that have not required
a prospectus or a financial market authority’s approval.
In March of this year,
for instance, Inveniam Capital Partners tokenized some $260 million in
four private real estate and debt transactions, starting with a
WeWork-occupied building in downtown Miami, Florida.
Other examples include Templum Markets, which sold a security token representing shares in a Colorado ski resort last year, accepting U.S. dollars, bitcoin and ethereum. Beyond real estate, firms like U.K.-based Nivaura has explored tokenized debt and equity, done in a fully regulated context, allowing for trading on secondary markets.
Glatz told CoinDesk:
“The reason we went
through this long tedious process with regulators was to get rid of any
restrictions. Normally these projects are limited either by the minimum
investment amount, which would be north of €100,000 or limited heavily
in the amount of investors you could have. So it’s the first really like
mass-market tokenized real estate for the world.”
Compliance challenges
Fundament’s token will be backed by
five separate construction projects, three in Hamburg, one in Frankfurt
and one in the university town of Jena. The portfolio, including
residential, commercial and hotel properties, would total more than
680,000 square feet upon completion. The company projects a return on
the projects in the mid-to high single digits.
“Holding a token enshrines a legal
claim of the holder against the issuer of the bond to pay them an annual
dividend of around 4-8 percent, and obviously once the run time of the
fund is over and there is an exit, then the token holders get the
complete value that was within this fund,” Glatz said.
To comply with know-your-customer (KYC) and anti-money-laundering (AML) regulations, IDnow
will verify prospective token buyers’ identities. The vendor’s process
takes three minutes on average before a user can purchase tokens, Glatz
said.
Fundament will not use an investment bank but will distribute the
securities itself to lower issuance costs and increase returns for
investors, said Robin Matzke, another Fundament co-founder.
Buyers can pay for their tokens with bitcoin, ether, U.S. dollars or
euros. For those who pay fiat, Fundament says it will deliver the tokens
on a hardware device.
Fitting the project within the
strictures of MiFID II – a European regulatory framework that was
drafted with other things in mind – was a challenge.
“We handed in the prospectus in
December 2018 and got approval last week. So it was 6 or 7 months of
work,” said Matzke. “Every two or threee weeks you get 20 pages back
from the regulator of things you have to change, and so on, back and
forth over a period of months and it ends up being like a book. Ours has
close to 100 pages.”
It would have been impossible if the
founding team had not comprised so many legal as well as technical
experts; in other words, they didn’t have to spend a lot on lawyers’
fees because they are lawyers.
“We saved on that big time,” Matzke said.
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