A startup Fundament has been given the “ok” to issue the first tokenized real-estate backed bond that will be available to individual investors.
This is a groundbreaking and bold decision by the German financial regulator BaFIN. It will allow foreigners from all over the world to invest in German property. It's also good news for Ethereum.
BaFIN approves the Berlin-based company's offering, which is worth €250 million ($280 million). As this token is regulated, it is available to any investor in retail, and there is no restriction on minimum investment amounts. This means, for example, that an Indonesian investor could buy €100 of Ethereum tokens and, thus, be investing indirectly in commercial property in Germany.
BaFIN confirmed that approval was granted for the first time to real estate bonds that are based on the blockchain.
The token is due to be made from August 2019 and is going to run on the Ethereum blockchain with the ERC-20 standard. Blockchain real estate is a busy area. Fundament Group's co-founder, Florian Glatz, that their company's placements differ from those of the past as they are not private, and so require a prospectus and an approval.
March this year saw Inveniam Capital Partners tokenize $260 million, but this was in four transactions of private debt and real estate.
Challenges with Compliance
The token by Fundament will have the backing of five individual construction projects, one being in Frankfurt, one is in Jena, and three being in Hamburg. The portfolio in its entirety would span more than 680,000 square feet and would comprise of hotel properties, commercial properties, and residential properties. Fundament believes there will be a projected return in mid to high single figures.
To meet compliance with KYC (Know Your Customer) and AML (Anti Money Laundering) regulations, prospective buyers of tokens will have their identities verified by IDnow. This takes an average time of around three minutes after which the user can purchase their tokens.
To keep issuance costs low and thus increase returns, Fundament will distribute securities itself instead of using an investment bank. Tokens can be bought with euros, U.S. dollars, ether, or bitcoin. Fundament has said that tokens will be delivered on hardware devices for those investors that pay fiat.
It was a challenge for Fundament to keep to the parameters of MiFID, the regulatory framework in the EU, for the project.
It took 6 or 7 months for the approval to arrive given that the prospectus was handed in in December last year. The regulator was stringent, sending back around 20 pages every few weeks that needed changes. The prospectus ended up to be around 100 pages.
Another co-founder of Fundament said that if the funding hadn't compromised a large amount of technical and legal experts, they would have had much higher costs. But, since they are lawyers themselves, they didn't have to spend a lot of money in this regard.