A blockchain startup, Fundament comes out of stealth mode as it receives approval to issue the first tokenized real-estate backed bond that can be widely offered to individual investors.
The Berlin-based firm announced on Tuesday that it has obtained approval from BaFIN, the financial regulator of Germany, for an offering 250 million euro ($280 million). As it will regulated, any retail investor will be privy to the token from anywhere with no minimum investment restriction.
Simply putting, Indonesian citizens could buy 100 euros worth of ethereum tokens and indirectly invest in German commercial property. A BaFin representative told Coindesk:
“We can confirm that we granted approval for a Fundament Group prospectus. It has indeed been the first time we have approved a prospectus regarding blockchain-based real estate bonds, but not the first time in respect to blockchain technology as such.”
Fundament will start marketing the token next month and will run on the public ethereum blockchain employing ERC-20 standard popularized by the 2017 initial coin offering (ICO) explosion.
Florian Glatz, co-founder of Fundament Group, stated that blockchain real estate is a busy space and typically what has been seen in the past are private placements that have not required a prospectus or a financial market authority’s approval.
Inveniam Capital Partners have tokenized some $260 million in four private real estate and debt transactions in March of this year starting with a WeWork-occupied building in downtown Miami, Florida. Other such examples include Templum Markets that sold a security token representing shares in a Colorado ski resort last year, accepting U.S. dollars, bitcoin and ethereum.
Other firms like U.K.-based Nivaura has been exploring beyond real estate and tokenized debt and equity, done in a fully regulated context, allowing for trading on secondary markets. Glatz told CoinDesk:
“The reason we went through this long tedious process with regulators was to get rid of any restrictions. Normally these projects are limited either by the minimum investment amount, which would be north of €100,000 or limited heavily in the amount of investors you could have. So it’s the first really like mass-market tokenized real estate for the world.”
The token is backed by five separate construction projects, three in Hamburg, one in Frankfurt and one in the university town of Jena. Its portfolio includes residential, commercial and hotel properties with a total more than 680,000 square feet upon completion. The company projects a return on the projects in the mid-to high single digits. Glatz added:
“Holding a token enshrines a legal claim of the holder against the issuer of the bond to pay them an annual dividend of around 4-8 percent, and obviously once the run time of the fund is over and there is an exit, then the token holders get the complete value that was within this fund.”
IDnow will verify prospective token buyers’ identities so as to comply with know-your-customer (KYC) and anti-money-laundering (AML) regulations. As per Glatz, the vendor’s process takes three minutes on average before a user can purchase tokens.
Though Fundament will not use an investment bank it will distribute the securities itself to lower issuance costs and increase returns for investors, said Robin Matzke, another Fundament co-founder. Buyers can pay either with bitcoin, ether, U.S. dollars or euros and those who will be paying with fiat will recieve tokens on a hardware device.
As per Matzke, fitting the project within the strictures of MiFID II – a European regulatory framework that was drafted with other things in mind – was a challenge. Matzke stated:
“We handed in the prospectus in December 2018 and got approval last week. So it was 6 or 7 months of work. Every two or threee weeks you get 20 pages back from the regulator of things you have to change, and so on, back and forth over a period of months and it ends up being like a book. Ours has close to 100 pages.”
It would have been impossible if the founding team had not comprised so many legal as well as technical experts; in other words, they didn’t have to spend a lot on lawyers’ fees because they are lawyers.
“We saved on that big time,” Matzke said.