Red Swan Startup Tokenizes $2.2B In Commercial Real Estate Through Polymath
Ed Nwokedi, an 18-year real estate veteran, has tokenized $2.2 billion in real estate through security token platform Polymath.
Nwokedi’s New York City-based commercial real estate investment platform, Red Swan, hopes to make commercial real estate more affordable. By tokenizing a large asset’s value into smaller investment allocations, the company plans to help investors participate in real estate who were traditionally unable to do so in the past because they didn’t have enough equity.
Red Swan says its platform provides low barriers to entry, liquidity and more affordable, efficient transparent ownership of SEC-approved security tokens.
While banks will usually allow about 50 percent leverage on a given asset, Red Swan allows property owners to tokenize 90 percent of the net equity underlying a property, Coindesk reported.
Tokenization has struggled to transform the multitrillion-dollar real estate market, Nathan DiCamillo wrote for Coindesk. Institutions have been reluctant to re-engineer back offices until they see liquidity.
Red Swan’s ST-20 tokens are running on Ethereum. Investors’ funds are being held in escrow with plans to distribute shares in April. Meanwhile, Red Swan is in the process of becoming a registered investment adviser with the U.S. Securities and Exchange Commission, which will allow it to manage assets for accredited investors.
Of Red Swan’s $2.2 billion in tokenized real estate, $780 million is available to investors in pre-sale, according to Nwokedi. The $2.2 billion represents 16 different Class A commercial properties based in Austin and Houston, Texas, Brooklyn, N.Y., Oakland, Calif., and Ontario, Canada. The company has another $4 billion in real estate in its tokenization pipeline.
Nwokedi plans to create a new investment category of commercial real state investments with more than $500 billion in security token opportunities, according to a March 2019 Medium post.
Red Swan makes money by taking a percentage of the equity that’s issued, and tokens sit in a digital wallet custodied by Prime Trust and insured up to $1 billion.
Graeme Moore, head of tokenization at Polymath, told Coindesk he believes this project will work where others failed.
“I think what kind of happened in the past was there were platforms like Harbor, Propellr and Fluidity, which were really tech companies,” Moore said. “They didn’t really have the real estate background or the expertise to understand how the private real estate market works.”
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With 18-years in real estate, Nwokedi said he turned to tokenization because he was looking for a way to open up high-quality real estate investment, usually only available for institutions and high-net-worth individuals, to accredited investors. Red Swan claims to have 30,000 accredited investors on its platform.
“You have a very large segment of investors who are between half a million and $10 million that were not participating because they just don’t have enough equity to buy a quality piece of real estate,” Nwokedi told Coindesk. “So they’re focused on more risky, lower class-level projects.”
Nwokedi said he also hopes to help property owners who are property rich and cash poor by allowing them to pull more equity out of their properties without having to borrow money from the bank.