ICSC notebook: Is commercial real estate the next digital frontier?

The commercial real estate market could be getting ready to go digital, with attendees at last week’s ICSC Las Vegas conference talking about the potential of tokenization of brick-and-mortar assets.

The well-attended event, held at its traditional home in the Las Vegas Convention Center and Wynn Hotel, was notable for both its relentless optimism and the happy-go-lucky attitude of its attendees. The topic of tokenization was also notable, as commercial real estate has historically been a slow adopter of technology.

This, however, could be set to change as the crypto-fication of commercial real estate moves into the forefront of the conversation, said Ed Nwokedi, CEO of Red Swan CRE Marketplace, a platform for investors to buy real estate shares in crypto tokens.

“We use blockchain technology to convert real estate into digital shares. And we’re now selling a lot of real estate that’s being tokenized,” Nwokedi said. “It’s a $33 trillion industry we’re disrupting [and] we’re already seeing a lot of activity. We’ve tokenized $3 billion of projects.”

Tokenizing the equity tranches of commercial real estate could further transform real estate from a mostly illiquid asset into a highly liquid, securitized investment, Nwokedi added. The firm’s strategy is to take a physical asset and complete a thorough analysis of its value.

“We look at the debt that’s on the property and then we look at the net equity,” Nwokedi said. “We digitize that net equity into security tokens. And that’s how we now transfer security tokens onto the blockchain.”

This shift could have a profound effect on both commercial real estate debt and equity markets over the long term, with Nwokedi explaining that tokenization could change how borrowers line up loans.

Unlike pure cryptocurrency, which only has value to the extent another party wants it, real estate crypto is a claim on one of the hardest assets: real estate. And with the future value of fiat currency and crypto counterparts very much up in the air, an easily available real estate token could be in demand as this strategy is more widely adopted. 

Finally, there is another factor at play: the impact of a generational wealth transition. 

“There is a tremendous amount of capital that’s being transferred over the next 10 years,” said Nwokedi. “Basically, $40 trillion of wealth is going to be transferred from baby boomers to the next generation. And I think a lot of that’s going to be done with technology and real estate.”