Real Estate Fund 2.0
Julian Kwan
CEO and Co-founder InvestaX and IX Swap. Host of the Infinity and Beyond Podcast.

The global standard and most widely used structure for a traditional private real estate fund is a fixed 7-10 year term. Investors are mostly locked in for that entire period, with liquidity optionality, if at all, coming at an expensive premium. Real estate markets and pricing is cyclical, resulting in some of these funds actually losing money being forced to sell assets in a downturn. 

Does this make any sense? Yes and no. 

Yes, because investors won’t give fund managers money “forever”, but then no,  if a fund is forced to sell and gets wiped out in the next market downturn. Investors in USA commercial real estate funds forced to sell in the GFC or Covid, lost money. Daily news headlines of 2020 brought fear and panic to some investors:

“The USA real estate market is on the verge of collapsing in April", says billionaire real estate investor Tom Barrack

40% of NY tenants may not pay rent this month” -NYTimes

To solve some of these issues we present Real Estate 2.0, using security tokens as share structures offering more flexibility and new and improved investment vehicles for both managers and investors alike. 

Security tokens, also known as real world asset tokens, or RWA tokens, are digital representations of real-world assets (RWAs) like equity or debt in real estate and private equity. Utilizing blockchain and smart contracts, they revolutionize investments by enhancing transparency, security, and efficiency.

Real Estate Tokenization InvestaX

Limitations Of Traditional Real Estate Investment Vehicles

Now, taking a look back at the history of public markets, every significant expansion of value was created when new technologies married a market place. The most notable touch point in relation to this article was the development of the ETF structure. Launched in 1989, the first being $6M USD, considered a failure at the time, started what has now become a $5-6 T USD market. According to ETFGI, there are now 5,000 ETFs trading globally.

Real Estate Tokenization InvestaX

And so the real estate industry made some moves when the real estate investment trust (REIT) model was created in the 1960s. A REIT is organized as a partnership, corporation, trust, or association that invests directly in real estate through the purchase of properties or by buying up mortgages. REITs issue shares that trade on the stock exchange and are bought and sold like ordinary stocks.

However, limitations on investing into REITs from investors’ perspectives are becoming increasingly apparent. REITs are generally expensive to set up and therefore only for larger income producing projects and do not service 99% of the global real estate assets. Sometimes there is misalignment between the interests of managers and investors, and low dividend yields due to high operational costs. There are also interest rate risks and other risks for investors related to investing in REITs. However, the growth of the REIT market globally has proven a strong appetite for investing into income producing real estate, via a tradeable and liquid shareholding structure (via stock exchanges).

Real Estate 2.0 vs REITs

Real Estate Tokenization InvestaX

At the same time, PERE fund managers  acknowledged the need to diversify their investor bases, from a handful of big ticket institutional investors to a larger pool of professional and retail investors, and these managers leveraged their reputations and their funds’ returns to attract and amass the same assets under management (AUM) from these "smaller" professional and retail  investors as before, regardless of whether they operate open-ended or closed-ended fund structures.

Blackstone and Starwood Capital are the key players which have launched new PERE funds targeting this new base of investors. However, these PERE funds face certain operational challenges. Their investor relations (IR) teams  do not have the requisite training to handle large numbers of investors and are therefore  heavily reliant on distribution partners to manage IR matters. Additionally, the new investor base demands more liquidity in respect of their positions, with typical holding periods and traditional redemption approaches adopted by PERE funds not viewed favorably.

Real Estate Tokenization InvestaX

So, how can PERE fund managers overcome these challenges while still being able to tap into such new investors? At InvestaX, we believe our Tokenization SaaS model would be a viable solution to balance both the interests of PERE fund managers and their investors.

By leveraging on our tokenization technology and our regulated market, PERE fund managers will have flexibility to manage their offerings, targeting wider groups of investors at lower operational costs. What we offer are:

  • A centralized software-as-a-service platform for managers to onboard investors, manage investor communications and  monitor investment activities   
  • A fully digitalized offering subscription systems for qualified investors, where fund tokens issued to investors will share same investor rights as would be present in the traditional paper format
  •  Over-the-counter and trading solutions (powered by InvestaX’s licenses which have been granted by the Monetary Authority of Singapore) which eliminate the necessity for fund managers to offer redemption mechanisms for their offerings.

The benefits of our Tokenization SaaS model extends to investors as well because they will be able to access such tokenized PERE investment offerings at lower investment commitments, while enjoying secondary liquidity solutions which are similar to the public markets.

At InvestaX, we offer the leading Singapore Licensed Tokenization Service-as-a-Software (SaaS) platform for Real World Asset Tokens (RWA) and Security Token Offerings (STO). We provide a one stop shop for tokenized assets for global investors, including real estate, private equity, venture, ESG, startup, private credit/debt and more. We also provide IX Swap, the first legal and compliant Automated Market Maker (AMM) for RWA and STO.