Peakside Capital Advisors plans to launch a tokenized real estate fund, one of the first by an institutional player, with the help of partner and blockchain platform Brickblock.
The partnership expects the unnamed fund to launch during the first or second quarter of 2019, with the goal of raising tens of millions of euros. In comparison, the Zug, Switzerland-based investment manager’s last fund, Peakside Real Estate Fund III, hit its €200 million hard-cap in September.
“If this works, it will definitely have the advantage of liquidity for investors that the typical LP model does not offer,” Stefan Aumann
The tokenized real estate fund would allow investors to buy and sell their equity stakes in the fund without any negotiation process in a matter of minutes.
While the fund will still accept capital from Peakside Capital’s typical limited partners – institutional investors like insurance companies and pension funds – Aumann anticipates the tokenized fund will widen the firm’s investor base by appealing to individuals and family offices. Raising capital from individuals and family offices is harder because commitments tend to be smaller and more time-intensive to secure, he added.
The tokenized fund will allow investors to commit capital online using the cryptocurrency Ethereum via Brickblock’s blockchain technology, Aumann said. Investors will then each receive a token representing their equity stake in the fund. The fund would accept individual contributions starting at €50,000, subject to regulatory approval.
“To address the smaller investors, we previously would have worked in co-operation with a combination of financial institutions, wealth managers or online channels,” Aumann said. “This is an alternative to working with a distributor.” Qualified individual investors can commit capital directly through the platform without going through a third party, he explained.
The distribution of tokens adds liquidity to the secondaries market, which presents investors with the option to exit the fund quickly by trading share positions in the fund via the tokens, according to Aumann. Using Brickblock’s platform, investors can transfer their shares to any eligible party in the world with little to no transfer costs. The value of tokens will be evaluated quarterly, setting it apart from traditional real estate funds that report valuations less frequently, he added.
Through the fund, Peakside Capital will likely make investments in core and core-plus office and mixed-use properties in Germany. Aumann said the strategy is attractive because, at this point in the cycle, investors will likely want the steady, large cashflows generated from properties. This fund would mark the firm’s first core and core-plus real estate vehicle. Peakside Capital’s previous funds followed value-add and opportunistic investment strategies. The firm targets a return of 4-6 percent and a hold period of 5-10 years for the new vehicle.
As early sponsors of blockchain-enabled real estate funds, the partnership will not be without regulatory and currency challenges, which could impact fundraising. Blockchain still has some ways to go before legislation and service providers catch up and make it easy for the average person to use, according to Chen Zur, EY advisory principal and US blockchain practice leader.
There will also be concerns around the volatility of Ethereum, the underlying cryptocurrency, said Sabina Kalyan, CBRE Global Investors global co-head of research and global chief economist. The fund’s investors therefore would be subject to an additional layer of uncertainty on top of how the underlying real estate assets may perform, she said.
To combat Ethereum volatility, Brickblock said it is in the process of integrating a regulated crypto trading desk that will provide instant currency conversions. The platform also plans on giving fund investors the option to invest in euros, dollars and sterling.
If all goes according to plan, the Peakside Capital and Brickblock partnership will join a small but growing wave of real estate funds experimenting with blockchain. As of spring 2018, three blockchain-enabled real estate funds were raising capital and three more were preparing to launch. However, none of those funds – including Dubai-based Evareium, Zurich-based SwissRealCoin and New York-based REALECOIN – were sponsored by an institutional manager.