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H.K. developer backs fintech’s real-estate tokenization

FinFabrik is racing to be the first to fractionalize ownership of large buildings.

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FinFabrik, a capital-markets technology startup in Hong Kong, has secured the backing of a local property developer to tokenize one of its buildings.

Florian Spiegl, co-founder and COO, declined to name the developer or give a timeline for seeing the project to fruition.

Although big investment banks have been looking at the same opportunity, Spiegl says a property tycoon is better positioned to drive this, because they oversee huge and stable wealth, without shareholder or managerial concerns. But a large real-estate family’s involvement could signal the rest of the market that tokenization is a respectable route, says Spiegl, a former developer of digital solutions at Credit Suisse’s private bank.

Doing the deal
The open question is how Hong Kong’s financial regulators will respond. A bold property family might be more willing than a licensed investment bank to attempt something innovative, but Spiegl declined to discuss what kind of discussions are taking place with the Hong Kong Monetary Authority or the Securities and Futures Commission.

Nor would he comment on whether any such transaction could be packaged so that retail investors could participate – a necessary achievement if tokenized assets are to be made accessible to all investors. That could come down to how such transactions are structured – as simple fund units, or as more complex claims on income streams or dividend payouts.

The deal in Hong Kong, assuming it takes place, is intended to be the start of turning a variety of illiquid and intangible assets into tradable securities via blockchain technology, which enables the creation of digital representation of ownership. (There are similar initiatives underway in London and other jurisdictions.)

How big the opportunity?
A limited company or a wrapper around an asset with units or shares—for a building, a shipping vessel, a work of art, or a piece of intellectual property—can be recreated as tokens, which can then be fractionalized and listed on a digital exchange. That allows units in, say, an office building or a shopping mall to be traded in small lots, so that retail investors could participate in a new build, for example.

Making such assets trade like securities implies unlocking a potentially vast amount of liquidity, trading volumes and mass participation. (DigFin has covered several companies attempting to do this for gold. Among other things.)

Assets become accessible to anyone with an app
- Florian Spiegl, FinFabrik

Spiegl gives the following stats, based on FinFabrik’s research: as of 2017, there is $227 trillion of real-estate inventory worldwide, of which $28 trillion is investable (via real-estate investment trusts and other vehicles) and $8 trillion traded. Turnover in real estate is therefore 3.5% of inventory.

Compare that to global equities: turnover in 2017 was $85 trillion against $80 trillion of stocks listed on world exchanges, or 106.2%.

“If we create liquidity in real estate, by making assets accessible to anyone with an app, the potential is huge,” Spiegl told DigFin.

Building capital-markets tech
FinFabrik’s goal as a tech company is to provide the capital-markets infrastructure to facilitate this transformation, with the eventual goal of becoming an exchange for such transactions. “We can help make real assets and intangible ones discoverable,” he said.

He says there is plenty of institutional demand for such outcomes, from global sovereign wealth funds and real-estate companies, among other investors.

Originating crypto assets is central to FinFabrik’s business model. The company began with building trading systems for equities, starting with Nasdaq stocks, which it is extending to foreign exchange. Although it intends to roll out tech to trade all asset classes, the current focus is on crypto-currencies, and designing a trading system that is crypto-native but includes all the elements of classic vendors, such as regulatory reporting and KYC capabilities. Spiegl says the company has one client working with it in the crypto-trading sphere—which is also now asking about extending those trading capabilities into traditional equities. “That’s the multi-asset class opportunity we see,” Spiegl said.

The company’s ambitions are broad, with trading just the first part of capital markets it wants to enter. Origination, loans, swaps, and portfolio tools are on its radar. Its target clientele is brokers, rather than funds. According to Crunchbase, the company raised seed capital in 2016. The company declined to disclose details of its raise or its backers.

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H.K. developer backs fintech’s real-estate tokenization