SteelWave has launched a $500 million blockchain-powered commercial real estate fund, claiming to be one of the first.
The San Mateo-based real estate developer has launched Steelwave Digital Fund, which allows investors to convert their limited partner cash interests into digital tokens that can then be invested in purchasing commercial real estate, according to the San Francisco Business Times.
The goal is to make expensive real estate accessible to a wider range of investors.
“The ultimate goal was to create a coin, whatever you want to call it, that was backed by commercial real estate assets,” Steelwave CEO Barry DeRaimondo told The Business Times in a question-and-answer interview.
In a tokenized fund, fund shares are converted into digital tokens issued on a blockchain using technology similar to cryptocurrencies such as Bitcoin, Ether and XRP, offering fractional ownership rights.
These crypto tokens are often associated with viral scams and wild price fluctuations, but financiers see the technology also having the potential to lower transaction and management costs.
This will allow wider access to financial products that were previously limited to institutions and wealthy investors.
DiRaimondo said the fund is one of the first of its kind in commercial real estate and is aimed at attracting new investors and boosting Steelwave's capital resources, noting a shift away from commercial real estate development to investing in “disrupted” markets.
“We're doing a ground-up development, radically remodeling the building and creating a really cool work, play and live environment. We can't make a coin off of that because it's too complicated. So we thought, what's the simple strategy?” DiRaimondo told the paper.
“Let's not damage our brains by buying and making things that we make.”
According to the Business Times, Steelwave, known for building luxury office buildings along the West Coast, plans to use the fund to purchase more than a dozen office buildings with long-term tenant leases and will offer investors the option to start with either digital securities or traditional limited partnership shares.
The company said the tokenized fund would lower investor purchase requirements and provide more liquidity.
With San Francisco's office market undergoing a reset, with some buildings seeing transaction prices fall to a fraction of their purchase prices, Mr. DiRaimondo said now is the time to act.
“We're still early on,” DiRaimondo told the paper, “Whether this fund works from a tokenization perspective or not, we think we're on the forefront of this and want to be one of the groups that can build a brand within this ecosystem and mine capital from that ecosystem for years to come.”
“Are we just going to be a digital securities real estate company? No. But I think some of our capital needs will be funded by digital securities.”
Steelwave Barings vacated a 164,400-square-foot office building in El Segundo to lenders in January after facing $53.1 million in bad debts tied to its Southern California properties.
Dana Bartholomew
