Tokenization of real estate – the next big step

In this interview, Frank Muradov elaborates on his views and predictions on tokenization within the real estate industry and the different aspects within it.

Frank Muradov is the COO of Park Rock Capital, an alternative (private debt) real estate finance firm and a senior vice president of Veloce Capital, a real estate private equity investment fund. Muradov spoke to Max Smetannikov, The Tokenizer New York columnist.

The Tokenizer: Last time we spoke you were exploring strategies for tokenizing your real estate assets. Real estate is the next great thing in digital assets, according to research. Where are you in this process? Have you picked a tokenization firm?

Muradov: I definitely see the trend towards tokenizing real estate assets and basically creating the stable coins and really giving access to global investors to invest in real estate, which sometimes is inaccessible. And I think tokenization will actually create opportunities for massive public participation – people are ready to really take a piece of the action in this whole world of investing in real estate. So I think that’s definitely going to happen. So I’m a firm believer that, you know, that’s where the next step, the big step, is. 

I have started talking to some people about the possibility of working together on securitizing, or tokenizing, the CMBS – Commercial Mortgage-Backed Securities. Basically, tokenizing the real estate investment loans, the loans that are collateralized by the real estate. It’s not tokenizing the real estate asset directly but tokenizing the real estate loan, or private loan, which actually has underlying collateral. So obviously, you know, this is something that has not been happening. I’m in the space of private debt and private equity. There’s a huge potential to create liquidity through this mechanism, by tokenizing the CMBS or private commercial loans. This would help scale-up lending, provide cheaper capital for borrowers and really create economic activity. My goal has been to find people that would help me figure out how to create a mechanism to tokenize CMBS. 

The Tokenizer: Capital for Real Estate is pretty accessible right now. Is there a problem with getting access to money or is it an arms race – if there is a way to get cheaper capital we have to find it?

Muradov: This is a million-dollar question. The private debt and private lending space or bridge lending space has been affected by the two most recent significant and life-changing trends. Number one. Wall Street has been pouring billions and billions into that private lending space, which actually brings down the cost of capital and brings down the rates to historically low levels – which is good for the borrower. But it’s very, very competitive among the lenders. It’s eliminating a lot of other players that cannot sustain the pressure from Wall Street pouring a lot of money – that obviously comes with institutional or institutional-like requirements for the lenders in the field. Wall Street, you know, when they pour the money, they don’t really go there and lend money to investors and fix-and-flippers or directly to borrowers. They actually identify companies like us, Park Rock Capital, and they put a lot of constraints and requirements on us. And obviously Wall Street has institutional triggers and tools to make sure that they are working with the diligent and very professional lenders in the field that has certain processes they require

The second trend that’s happening is very, very important. The Silicon Valley, technology, it’s coming big-time into private lending. When I say Silicon Valley, I mean anybody who’s creating a technology to basically connect the source of capital to the real estate borrower. Investor or borrower. That’s where the goal is right now, creating a faster, more streamlined, lending process by cutting out a lot of middlemen. So, that’s where technology is really hammering out and killing a lot of lenders out there who are outdated, old-school lenders. It is an imminent threat to thousands if not millions of lenders and commercial mortgage brokers in this space. 

So those two trends are literally creating cheaper cost of capital, faster and more transparent lending practices, easier to understand private lending, commercial lending – an environment which is great for overall healthy lending practices and healthy industry. But not everybody is happy about that. Commercial lending is still very, very old school. 

The Tokenizer: If I follow your logic, you are saying that we now have millions of displaced businesses, that hypothetically will be served very well by tokenization. 

Muradov: Yes, you are right. Obviously, tokenization is a new technology not well embraced in the commercial lending space. Real estate lending is still very old school and I think more people embracing tokenization will find it a good tool to stay relevant in the industry. I think that’s critical. Definitely, tokenization is almost like the democratization of the processes, giving a piece of action to big and small players. Looking to the future, I would like to take a look at any platform that would help create white-label, tokenization solutions for my firm. 

The Tokenizer: What kind of tokenization offers are you finding in this space for your CMBSes?

Muradov: There is not much offering out there. I am still looking for a solution provider that would provide me with a white-label, turnkey solution. That would basically take my entire private lending space business and basically transform the entire CMBS portfolio into tokenized assets. I don’t see the service providers that would provide something for me, for the $900 billion a year CMBS industry.

The Tokenizer: Say you tokenize CMBSes – where would you sell these digitized assets?

Muradov: Directly from the Web site and through private placements. 

The Tokenizer: How big is your current portfolio and how would tokenization change it?

Muradov: Once we fund the loans in-house, we securitize and sell the loans to some of the biggest guys on Wall Street, in Silicon Valley, like Deutsche Bank, Wells Fargo Bank, U.S. Bank, and other big funds in Wall Street and Silicon Valley. We sell the note after every closing. Also, we don’t service loans in-house because we have a third-party servicing agreement with the nation’s largest service companies and they basically service all our loans. So, if we have a tokenization solution, we could probably do around ten million dollars worth of transactions, every month in tokenized assets. And this is just one player, us, right? If we have that platform available, what I’m thinking is to scale up and to bring on board all other lenders that I know personally who would probably take advantage of this platform. I’m talking about, you know, creating a network of private lenders who would be on-boarded onto the platform. I’m talking about scaling up to like, you know, hundred million, two hundred million, tokenized assets sold every single month. It’s a realistic volume for us.

Photo by Jukan Tateisi on Unsplash

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