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Breaking Paradigms in Real Estate Development with the Issuance of Security Tokens.

Breaking Paradigms in Real Estate Development with the Issuance of Security Tokens.

Friday, March 22, 2024

The issuance of Security Tokens breaks the paradigm for real estate developers, as it opens the opportunity to develop long-term rental projects versus short-term sales.

In the dynamic world of real estate investments, real estate developers are constantly searching for new forms of financing that allow them to carry out their projects efficiently and profitably. In this context, the issuance of Security Tokens has stood out as an increasingly attractive option. In this article, we will explore the advantages that this modality offers real estate developers compared to real estate crowdfunding and traditional real estate securitization, from the point of view of Expedit Capital, a leading asset tokenization company in LatAm.

Introduction to Asset Tokenization and Expedit Capital

Before diving into the advantages of issuing Security Tokens in real estate development, it is important to understand what exactly asset tokenization entails. Simply put, asset tokenization is the process of converting ownership rights to an asset (Preferred Stock), debt rights (Bonds), or Equity rights to a project (venture capital or joint venture), in this case, real estate, in Security Tokens through a Security Token Offering - STO, (Public or Private Securities Offering) registered with a Securities Commission, with Blockchain technology.

Expedit Capital, a leading asset tokenization platform in LatAm, has been at the forefront of this innovation, offering real estate financing solutions through the issuance of Security Tokens. Their focus on blockchain technology and their team's combined experience of more than 30 years in the real estate sector position them as a trusted expert in this field.

Advantages of Security Token Issuance for Real Estate Developers

The advantages that the issuance of Security Tokens offers real estate developers compared to other forms of financing, such as real estate crowdfunding and traditional real estate securitization:

1. Access to a Global Investor Base: One of the main advantages of issuing Security Tokens is that it allows real estate developers to access a global investor base more efficiently and transparently. Unlike real estate crowdfunding, where investor participation is limited to those who meet certain eligibility criteria and are often geographically restricted, the issuance of Security Tokens allows investors from around the world to participate in project financing.

2. Increased Liquidity and Flexibility: Security Tokens are highly liquid and can be exchanged within Expedit Capital's platform in its Secondary Market or through exchanges (Coinbase, Binance, Bit2me, etc), or Person-to-Person transactions (e-Wallets), which gives investors the ability to buy and sell their investments faster and easier compared to traditional real estate securitization. In addition, asset tokenization offers greater flexibility in terms of property fractionation, allowing real estate developers to raise capital more efficiently and create a community of investors.

3. Enhanced Transparency and Security: The blockchain technology underlying Security Tokens provides an immutable record of all transactions, ensuring greater transparency and security for all parties involved. Investors can easily verify the authenticity of their investments and track fund flows in real-time, increasing confidence in the project and reducing the risk of fraud.

4. Reduced Transaction Costs and Times: The issuance of Security Tokens can significantly reduce the costs and times associated with raising capital compared to traditional real estate securitization or crowdfunding. By eliminating unnecessary middlemen and simplifying due diligence and compliance processes through automated Smart Contracts, real estate developers can save valuable time and resources, allowing them to focus on the successful execution of their projects.

The Legality and Advantages of Security Tokens compared to Real Estate Crowdfunding

As asset tokenization, specifically the issuance of Security Tokens continues to gain momentum in the real estate investment world, it is crucial to address the legality and understand the advantages this form of financing offers compared to traditional real estate crowdfunding.

Legality of Security Tokens

In many countries, the issuance and trading of Security Tokens is subject to strict securities and financial regulation. Although regulations vary by jurisdiction, in general, Security Tokens are designed to comply with securities laws and provide investors with ownership rights to the underlying assets.

In the United States, for example, the issuance of Security Tokens is subject to regulation by the Securities and Exchange Commission (SEC). Issuers must comply with SEC disclosure and registration requirements, unless they qualify for a specific exemption, such as Regulation D or Regulation A+. Other countries, such as Spain's Comisión Nacional del Mercado de Valores, also have their regulatory frameworks for Security Tokens, ensuring investor protection and market integrity.

Undeniable advantages for Real Estate Developers.

The issuance of Security Tokens breaks the paradigm of Real Estate Developers, as it opens the opportunity to develop long-term rental projects, versus short-term sales.

The issuance of Security Tokens is definitely a catalyst to break the traditional paradigm of real estate developers by offering them the opportunity to explore and adopt a more oriented approach toward long-term rental projects instead of short-term sales. This transition to indefinite rental projects may represent a significant change in the way real estate developers conceptualize, finance, and manage their projects. The following are some of the reasons why the issuance of Security Tokens can facilitate this paradigm shift:

1. Access to Long-Term Capital:

Issuing Security Tokens offers real estate developers an innovative way to access long-term capital. Instead of relying on quick property sales to generate funds, developers can raise capital by issuing Security Tokens backed by long-term rental income. This sustained funding allows them to maintain ownership and develop projects with a focus on long-term income generation.

2. Improved Liquidity for Investors:

Security Tokens offer investors greater liquidity compared to investing in physical properties. Security Tokens can be traded on authorized exchange platforms, making it easier for investors to buy, sell, or exchange their holdings at any time. This greater liquidity can make investing in long-term rental projects more attractive to investors who wish to maintain their financial flexibility.

3. Investment Diversification:

Long-term rental projects allow real estate developers to diversify their investment portfolios. Rather than focusing exclusively on selling individual properties, they can develop and maintain multiple rental projects in different geographic locations and market sectors. This diversification can help mitigate risk and provide a solid foundation for continued business growth.

4. Generation of passive income:

Long-term rental projects offer the opportunity to generate stable and predictable passive income over time. Recurring rental income can provide a steady source of cash to cover operating expenses, repay mortgage loans, and generate returns for investors. This financial stability can be especially attractive in volatile economic environments or during periods of uncertainty.

5. Focus on Long-Term Value Creation:

By adopting a focus on long-term rental projects, real estate developers can focus on long-term value creation rather than seeking quick profits through property sales. This may involve implementing long-term asset management strategies, such as operational efficiency improvements, periodic renovations, and developing strong tenant relationships to ensure stable occupancy and high retention rates.

In summary, the issuance of Security Tokens offers real estate developers the opportunity to break away from the traditional paradigm and adopt a more long-term income-oriented approach to projects, rather than short-term sales. This transition can be driven by access to long-term capital, increased liquidity for investors, investment diversification, passive income generation, and a focus on long-term value creation.

If you want to learn more about Financial Asset Tokenization or how you as an Investment Project Developer or Investor can get more out of it, contact us right now!

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