Commercial real estate is a great asset for earning passive income and growing wealth. However, it is not liquid. To solve this issue, REINNO offers tokenization (representing ownership of a building as digital shares called tokens) and instant loans collateralized by such tokens. Borrowers decide how many tokens they want to use as collateral, leaving the rest of the equity free - in contrast to traditional mortgages that block an entire property until the last cent is repaid. As the principal is being repaid, the borrower gets back the equity equivalent.
REINNO completed seven tokenizations. One is of an American real estate fund worth $105 million. The tokens will be offered to investors worldwide through an STO. For details: https://www.linkedin.com/pulse/reinno-tokenized-105-million-worth-real-estate-viktor-viktorov/ The second one is of an office building in Stamford, Connecticut worth $2.5 million. The owners are not going to sell - they will use tokens as loan collateral. For details: https://www.linkedin.com/pulse/first-tokenized-office-building-connecticut-viktor-viktorov/ The other five tokenizations are currently listed on REINNO's marketplace and can be seen at https://app.reinno.io/campaigns. Our platform is fully functional with registered users - it has the functionality to provide instant loans and a marketplace for tokenized real estate. The marketplace launched with five properties worth over $237 million. Accredited investors from the U.S. and abroad can participate in the offerings with a minimum investment of $5,000. They can use both USD and cryptocurrency. So far, over $10,000,000 has been invested. For more information on the launch: https://www.linkedin.com/pulse/237-million-tokenized-commercial-real-estate-now-viktor-viktorov/ REINNO is disrupting traditional bank financing by providing instant loans backed by tokenized real estate. We are currently negotiating with liquidity providers (a bank and a DeFi company) to finance and originate the loans. The tokens purchased on our platform cannot be traded for one year (the holding period is set by the SEC). However, we have already partnered with a security token exchange - ADAX - to ensure investors that they will have a place to trade in the future.
We have customers from both ends - tokenization clients (we call them sponsors) and real estate investors. Our tokenization clients are usually real estate professionals located in the U.S. who own a property and would like to sell and manage it. We issue the tokens, put them on our marketplace for sale, and after the successful raise, the seller receives a management fee for taking care of the property. Of course, if the seller just wants to sell and have nothing to do with the property, this is not a problem, and we hire a management company to do the job. When it comes to real estate investors, they are located globally and are looking for a way to start investing or diversify their existing portfolio. They are curious about new technology and open to innovative solutions. Both of these groups make up our lending clients. Investors will use the loans because of the one-year lockup period. After the token purchase, they cannot sell them for one year, making loans a perfect way to leverage their investment and gain liquidity. The sponsors often have an existing mortgage they want to refinance - to gain more flexibility. For instance, if they repaid 40% of the existing mortgage, when they replace it with a REINNO loan, they will be able to sell any portion of that 40%, which is not possible in the traditional setup. The value of commercial real estate in the U.S. in 2019 was around $15 trillion. It is growing as more buildings are built and the value appreciates. The value of loans originated in the U.S. in 2019 was around $2.3 trillion. There is a huge market and we are going to take a part of it. So far, we have tokenized over $300 million worth of real estate - which means this is the value of loan collateral we can accept up to now. As more properties get tokenized, the market for our lending grows.
Problem or Opportunity
Traditional commercial real estate is illiquid. Investors might be rich in property and have no quick access to cash. This is one of the biggest problems that REINNO's founder discovered while talking to family office executives. While real estate is great for preserving wealth through generations, it suffers from the illiquidity discount and lack of flexibility. Taking a loan backed by real estate takes several months because of paperwork, appraisals and bureaucracy. When people finally get approved for a traditional bank mortgage, the bank puts a lien on the entire property, making it impossible to sell a part of it or transfer a significant percentage of ownership to another person until the loan is repaid in full. The entry barriers are also sky-high. Due to the high entry tickets, this asset stays reserved for the richest.
Solution (product or service)
Tokenization is the process of representing asset ownership as digital shares called tokens. The number of tokens someone holds determines how much equity they have in the property. For instance, let’s imagine we issue 100 tokens of a commercial building worth one million dollars. If I own 40 tokens, I actually have $400,000 worth of equity, and I am eligible for 40% of the profits generated by that property. With fractional ownership, it is much easier to buy and sell a part of a building and the entry barriers are decreased. An investor might not be able to afford a one million office building, but they can invest $5,000 and own a small piece of it, gradually growing their wealth. It gives sellers a chance to find many small buyers rather than waiting for a big player to appear. Since ownership is recorded digitally, data can be accessed quickly, the transfer of ownership also happens digitally and does not require middlemen. There is no need for paperwork. Lending is also improved. With REINNO, taking a loan backed by tokenized real estate is almost instant with no paperwork. Moreover, since tokens represent fractions of real estate, a user can decide to use only a part of their tokens (digital ownership certificates of a certain real estate asset) as collateral - in this case, the rest of the property (unused tokens) is not going to be blocked and can be sold on secondary markets (again, as tokens). Then, as the principal is repaid, more tokens are released from collateral - before the loan is repaid in full. This makes loans backed by tokenized real estate more flexible and efficient than traditional ones.
We have three types of competitors - other tokenization companies, fintech lending companies and traditional banks. The good part is that our competitors can also be our partners. Other tokenization companies can obviously attract our potential tokenization customers. However, their clients can later come to us to either list their tokenized real estate on our investment platform or take a loan backed by their tokenized real estate - after we review all the legal and technical documentation and decide that it is safe to accept that asset as collateral. For properties tokenized by us, due diligence is made during the tokenization process and the properties are meant to be safe for lending. For tokenizations done by third parties, due diligence has to be done separately but only once per asset (if two people use it as collateral, the second one doesn't need to wait for due diligence). If another tokenization company decides to partner with us, we will share a technical and legal framework to make their tokens safe for lending immediately, without extra due diligence. Other lending companies are starting to consider accepting tokenized real estate as loan collateral. However, if a building is tokenized by us, the lending company does not have the information necessary to access the risk and value the property correctly. Therefore, they cannot take us out of the equation. The banks are the ones currently providing loans backed by traditional real estate. However, they do not directly accept tokenized real estate at the moment because it takes them a lot of time to adjust to new technologies. They can participate in lending backed by tokenized real estate by providing us funding for loans or by buying loans initiated by us.
Advantages or differentiators
We believe that providing tokenization is not enough. The real benefits come from the services that are enabled by tokenization. Most of our competitors are focused on providing a single product while we are capturing the whole life cycle of tokenized real estate - from issuing tokens and selling them to providing loans and secondary market. Liquidity is not going to appear magically once you tokenize real estate. Additional services, however, will increase liquidity.
We offer several pricing options to our tokenization clients. The first option is to pay $20,000 upfront, regardless of the deal size. The second option is to pay a success fee (a percentage of the token sale). This gives our clients more flexibility and they don't lose anything if they try while we can eventually get more money. We have a deal structured like that at the moment and if it succeeds, REINNO will earn $300,000. The third option is free tokenization but the client gives us $50,000 to advertise their tokenized offering listed on our platform; this is beneficial for both parties - the client is paying to promote the tokenized property they are selling but because it is listed on our platform, we get free advertising. When it comes to lending, we earn income from the servicing fee and the difference between the interest rate we offer and the rate at which we source the money.
We are using a combination of customer acquisition channels. We have a global team of sales managers. They offer our tokenization services and sell tokenized real estate to investors globally. We use email marketing (newsletters, launch announcements) - these are proven to bring us clients. We will be using paid advertising (on social media and google search) to attract more investors. Those who have tokens will get personalized ads for loans. We are required by law to have cap tables and know at all times who owns what tokens. We can use this information to make personalized offers and cross-sell additional services. We find that having appearances or features in established communities brings great results (for example, giving an interview on a cryptocurrency-related YouTube channel). We work hard to establish a good relationship with the influencers so that they keep featuring us and their comments are always positive. We know that in order to attract investors, we need a variety of offerings, and that's why we added our own portfolios to the marketplace. The more success stories we have, the more people will be willing to tokenized their properties and sell them through our platform - so our portfolios are helping both ways.
Money will be spent on
The money will be spent on attracting more clients (marketing), establishing REINNO as a leader in tokenized lending, software scaling and team built-out.
The biggest risks are associated with the legislation. So far, the SEC and other governmental entities in the U.S. have been rather welcoming to the concept of digital ownership. Most recently, the SEC extended the definition of accredited investors, which enabled more people to participate in tokenized real estate offerings. However, other countries are more unpredictable. For instance, Chinese government is on its way to block or control the use of cryptocurrency by its citizens. This is both an opportunity and a threat - those who are currently holding cryto assets in China might want to spend them, and tokenized real estate is a great option (real estate tokens do not fall in the same category as cryptocurrency as an asset type). We accept cryptocurrency as a payment method so we might benefit from this situation. However, if their next move is to ban tokens, this can create uncertainty.
Incubation/Acceleration programs accomplishment
One of our co-founders (Kristiyan Lozanov) participated in the Founder Institute with REINNO as a concept in Sofia, Bulgaria last year. Last month he became the regional director of Startup Grind Sofia. To clarify, REINNO is based in the USA but also has an office in Sofia, Bulgaria.
Won the competition and other awards
REINNO won Startup World Cup regionals in December 2019. We were supposed to participate in the finale in San Francisco but it was postponed to 2021 due to coronavirus.