Token sales platform Harbor is taking another swing at introducing tokens to the real estate market, after its first deal collapsed last month.
The firm is now partnering with Rhodium Capital Advisor to create a security token that represents ownership of a number of properties, hoping to provide affordable housing, according to a press release. They will focus on urban and suburban housing projects in the U.S., with the first step involving raising capital for a development fund in both fiat and crypto; specifically bitcoin, Ether, and Gemini dollar.
A tokenized model of housing ownership is about widening access for investors, according to John Leo, Chairman of Primary Capital LLC, the broker dealer for the transaction. He explained to The Block via email that using Harbor’s technology with the fund enables crypto investors to get liquidity sooner than in a traditional investment fund, where investors are locked in for the length of the fund. Harbor can ensure compliance with securities laws and also enable the investor to transfer ownership of tokens, according to the company.
“We don’t think it adds challenges,” Leo added.
But rapid liquidity seekers is not the only target audience. Aside from providing efficiency and liquidity, Leo also believes by tokenizing real estate, Rhodium will help private capital market players pivot to digital securities.
“Rhodium has a proven track record...[It] has acquired and manages over $1 billion in real estate and is currently holding nearly 100 portfolio properties and approximately 10,000 residential units in the U.S," Leo said.
Meanwhile, Kevin Young, head of Marketing and Communications for Harbor, said he believes the tokenized fund is the beginning of a movement to modernize private capital markets.
“We hope private real estate investments become more accessible to a broader range of investors and more liquid than they are today,” Young said. “We want to remove a lot of the inefficiencies from the fundraising and investor management process and help issuers lower their cost of capital by attracting new investors through broader global reach and lower minimums.”
Second time lucky
Harbor made a previous attempt at a tokenized model with a $20 million mega-dorm for students at the University of South Carolina. The Block reported the fallout of the deal last month, when a Harbor spokesperson cited an impasse between the issuer and mortgage lender as reason for the project's failure.
Young said the company revamped its approach in light of the deal's collapse. “Earlier this year, we shifted our model a bit and introduced Harbor Platform 2.0; designed as a white-label digital securities platform for enabling issuers and broker dealers,” he said.
He said he sees these shifts as part of the natural progression towards the next incarnation of private capital.
"As private securities become digital, it can unlock liquidity opportunities as well as options to unbundle and bundle assets in ways not possible before. This is the very beginning of a broader movement to modernize private capital markets, including real estate."
The Block's Isabel Woodford contributed to this article.