Tokenization is the process of dividing traditional assets into smaller units on a blockchain, similar to how shares in a public company represent fractional ownership in the company. This allows many traditional asset classes to benefit from the efficiencies provided by digitization and fractionalization.
Through tokenization, asset classes such as real estate can solve many of their current problems, including liquidity issues, high capital requirements for investors, and complex middleman processes that make investing difficult. Moving these processes to the blockchain increases efficiency and transparency, allowing developers to streamline their current equity-raising processes.
St. Regis Aspen Resort Case
Here is a real-world example of tokenization in action. The property currently known as St. Regis Aspen Resort was originally built as the Ritz-Carlton hotel in Aspen, Colorado. In 1998, it was sold to Starwood as part of its acquisition of ITT Sheraton and converted to the St. Regis brand.
In 2005, the property was divided into two separate units: the 179-key St. Regis Aspen Resort, including 25 luxury suites, and the St. Regis Residence Club Aspen. In 2010, Elevated Returns, a full-service real estate firm with a focus on value-add opportunities worldwide and an asset pipeline in excess of $1 billion, purchased the St. Regis Aspen Resort for $70 million from Starwood Hotels and entered into a long-term management contract. The firm implemented a large-scale renovation plan worth $50 million that targeted outdoor areas, meeting rooms, and amenities. Between 2013 and 2019, EBITDA increased 138% from $6.9 million to $16.4 million, indicating the great success of these improvements and the overall profitability of the project.
Elevated Returns considered listing the St. Regis Aspen Resort as a REIT on the NYSE, but instead opted to offer digital securities representing equity (simply said, tokens) to accredited investors. And that was the right decision.
The St. Regis resort (ASPD) was traded at a volume of 138,000 on its first day of listing, and its price increased by 32% (initially, each token represented a $1 share, by the end of the day it was $1.32). Since joining the secondary trading market, the resort has seen monthly trading volumes of over $103,000, and its digital investor base has grown from less than a dozen to over 500. After entering the market in August, the digital security's trading volumes in shares and monetary value have steadily increased, indicating consistent demand for tokenized equity. Much of this investor growth has likely been due to increased investor access and liquidity. The investment is not restricted by high capital requirements or to accredited investors, unlike traditional real estate investments.
Moral of the Story
The hotel management was not afraid to apply new technologies — and attracted new investments for their project. If it has become possible for a hotel, then it is also possible for other types of real estate. Aspen is far from the only case. Homes, apartment complexes, offices and many other properties have been traded in the form of tokens or NFTs all over the world: not only in the US, but also in the UK, the EU, the UAE and many other countries.
Investing in tokenized real estate in 2023 is even easier than at the time of this story. Today, there are already projects that professionally offer such services, and everything can be done automatically thanks to smart contracts. For example, Home Key offers turnkey home construction, real estate investment, and affiliate program business — all three areas are related to tokenized real estate.
And this is just one of the projects, and one of the cases. In general, the digital real estate trend is gaining momentum.