The company was formed as part of a digital security sale of a student housing complex.
Harbor, a full-service platform for tokenized commercial real estate, investment funds and more has recently partnered Convexity Properties, the real estate investment division of DRW to launch the digital security token sale of a South Carolina housing complex.
Venture capital fund Andreessen Horowitz funds Harbor, and has gained a reputation for making significant investments in cryptocurrency and blockchain. The company is now moving to tokenize real estate backed securities. Andreessen Horowitz led a $28 million funding round earlier this year for Harbor, which is using blockchain technology to make commercial property investment possible with asset-backed digital security tokens. These tokens differ from cryptocurrencies because they’re digital securities for real estate and are subject to SEC laws. In contrast, cryptocurrencies often aren’t backed by anything.
“At the core, this is about moving the paper-based world of private securities into the digital age using SaaS and blockchain technology,” Harbor Director of Marketing and Communications Kevin Young told Connected Real Estate Magazine. “The digital tokens function similarly to shares in a traditional private REIT in that they have the same equity ownership rights. However, they are digitized with blockchain technology, which offers compelling benefits for both issuers and investors. It is important to note that we are not ‘tokenizing the building,’ but instead we are tokenizing the equity interest through the REIT.”
Convexity Properties, which owns the aforementioned student housing complex plans to sell its minority stake ($20 million) in an security token offering (STO) by issuing 955 tokens, which are priced at $21,000. The transaction will provide investors a fractional ownership of the complex.
Currently, if commercial real estate owners wants to raise capital, they either have sell the building, take on debt or sell a minority interest, which can be difficult because not many people can write a large check at a moment’s notice. That means the cost of capital is typically high and comes with control provisions.
Harbor offers a fourth option through tokenization, which makes it easier and more cost effective to syndicate more widely and raise capital from broader and more global investor pool.
“If a property owner wanted to sell $50 million of equity in a building, the minimum investment size can be low as $25,000,” Young said. “Through our platform it’s easy to onboard investors and ensure all of the regulations around investor numbers, investor concentration limits, ownership limits, holding periods, etc. are all enforced on any and every transfer.
“In turn, investors can access opportunities previously out of reach through lower entry points and co-invest alongside premiere companies like Convexity Properties for liquidity when it did not exist before.”
Looking ahead, Harbor believes all commercial real estate investments will be tokenized because it’s easier, more efficient and cost-effective than the current paper-based system, according to Young.
“It may take a long time for that to happen, but the digitization of private securities is already beginning,” Young said. “Historically, private investments like commercial real estate have had very little liquidity, with no significant secondary market due to the complex regulatory requirements that govern private placements. Harbor’s core technology solution unlocks potential liquidity by automatically enforcing compliant transfers between buyers and sellers around the world, which reduces the frictions and barriers to secondary market transfers.”
Tokenizing commercial real estate also opens the door for private investments to become more liquid, which would make around the clock trading worldwide possible on either trading platforms or peer to peer, according to Young. Additionally, these investments could be settled almost instantly without counterparty risk, all in accordance with applicable transfer rules.
“Harbor is a platform to enable the existing ecosystem of asset owners, broker dealers and market makers to leverage the benefits of the blockchain and bring tokenized assets to market,” Young said. “Tokenization allows for assets to be unbundled and bundled in ways not possible today – like bundling equity from multiple buildings easily by neighborhood or city, or create levered long or short positions on real estate – short downtown Class A; go long on Midtown Class A. These are possibilities unlocked by tokenizing commercial real estate.”