A New York City-based asset manager is testing the limits of blockchain technology by selling equity shares in the St. Regis Aspen through a deal with crowdfunding website Indiegogo. The company, Elevated Returns, plans on allowing investors to buy stakes in the luxury hotel, which it owns, using blockchain to store digital tokens reflecting equity in the property.
If everything goes according to plan, this will be the first equity-stake sale to make use of blockchain. Stephane De Baets, founder and president of Elevated Returns, came up with the idea to partner with Indiegogo to sell shares of the hotel via blockchain after plans to use the St. Regis Aspen as the first single-asset real estate equity-stake sale in the U.S. fell through. Despite the Securities and Exchange Commission signing off on the equity-stake sale, which would have seen 49 percent of the resort’s total equity sold, representing 1.7 million shares with each valued at $20, Elevated Returns abandoned the plan.
“The fees charged by intermediaries amounted to the same as doing a major listing, and we also looked at our distribution and realized we were effectively placing shares with professional investors,” De Baets said. “It was basically a private placement disguised as a public offering. The worst of both worlds.”
De Baets and his team went back to the drawing board, and spent between six and eight months transferring the St. Regis Aspen’s assets over to blockchain. For De Baets, this is the first step in a process that will not only test the capabilities of blockchain and make it a viable vehicle for real estate transactions, it also will set Elevated Returns on its path for the future.
“We’re using this transaction as a benchmark for our next 100 transactions,” he said. “This is the first full-property tokenization. The significance of the offering is very impactful. We’re not doing it because we want to monetize or sell the hotels we own, we are doing this to prove the concept.”
Prove It
Blockchain technology is essentially a decentralized, encrypted public or private ledger. Using blockchain, users are able to track and record transactions in a manner that cannot be retroactively altered or edited. The technology often is associated with cryptocurrency such as bitcoin, which in many cases, is traded online but rarely used for individual transactions.
Rather than use an established cryptocurrency, Elevated Returns plans to slice up the St. Regis Aspen’s valuation into distinctive tokens created specially for this transaction and sold via Templum Markets, a broker for tokenized assets. However, Elevated Returns is accepting both U.S. dollars and bitcoin in return for these tokens. Interested Indiegogo users will be able to buy these tokens, which will represent equity in the hotel.
De Baets argues that this system is superior to existing models because of its added flexibility and accessibility for lower-level investors looking to become equity players.
“In order to have exposure to real estate as an investor today, either you are extremely wealthy, are associated with a sovereign fund or you buy a share and are then gaining exposure to a range of portfolios,” De Baets said. “It can also take a long time to monetize these investments. Tokenization gives you an instrument to give you the underlying benefits of ownership, as well as the ability to sell and trade these stakes.”
No Warm Up
Currently only accredited investors will be able to buy digital shares in the St. Regis Aspen, something De Baets said is part of the proof-of-concept experiment Elevated Returns is executing on.
Sean Hennessey, clinical assistant professor at the Jonathan M. Tisch Center for Hospitality & Tourism, said the question is not whether or not it was possible to buy portions of a hotel through blockchain, but if buying portions of a hotel was something the market was looking for in the first place.
“There were rumors earlier this year that New York’s Plaza Hotel was going to be purchased through a bitcoin offering, but it fell through during the planning stages,” Hennessey said. “I don’t see the market ready to conduct major transactions that way solely through blockchain or through partial unit sales using cryptocurrency. We may get there one day, though.”
De Baets at least partially agrees. He said blockchain is still three to five years out from being accepted as a tool to buy and sell hotels, but his company is willing to take the risk now to reach interested parties at the ground level. Elevated Returns is only tokenizing 18 percent of the St. Regis Aspen at this time, and De Baets said if the experiment pays off the company has billions of dollars in hospitality assets it is prepared to tokenize over the next few months.
“Like always when you are the first one in, there is no warming up,” De Baets said. “This tokenization connects people with the product directly. That is a key transformative behavior. The trend is here to stay and people should watch this space because investors’ behavior will change between now and the next five years.”