Democratization of owning real estate interests that generate passive income. My company has created a disruptive financial product from a large portfolio of legal, passive income real estate interests. These interests are called capital recovery fees (CRF) which are covenants placed upon the deed by the developer and equates to a percentage of all property sales in the portfolio for 99 years. These interests are held 100% free and clear. Using a discounted cash flow, the present value of the future income stream is worth over $2b. These assets can be divided into strips of varying sizes with visibility down to the actual property addresses and actual sales prices. The proposal would be to start small ($5m in mAssets) to prove the concept, learn, adjust and scale as appropriate. Appreciate your questions and comments.
A lot of information is missing. What are the exact specifics of this fund, e.g. what company/ticker, and what will the oracle track? Are there licensing fees? Which country and what assets? Is the fund public? What are the advantages over the generic S&P United States REIT https://www.google.com/finance/quote/STCGUSRE:INDEXSP (or similar)? What are the financials and what liquidity risks would be present? Initial thoughts, $2b future income stream sounds like $20m/year at the present time extrapolated to 99 years, which is tiny compared to existing mirrored assets.
Answers: This particular MVP is US real estate. It is private, no ticker. The portfolio value is created when hundreds of thousands of properties sell, no entrepreneurial actions/costs required. The key component of the portfolio is residential and CRE turnover. Which makes this model counter cyclical and generally, like all real estate, tied to inflation. Each sale of any of teh properties spread across the nation generates cash flow passively. Title firms collect the sales in order to pass “good title.” Geographic variances and local real estate prices are smoothed by the substantial inventory of type/class/geographic diversity of the portfolio. Based on the size of the portfolio and duration of the 99 year asset, of which $2b is only part for the test discussion purposes here, national and historical level data was used in the valuations. Currently prices/interest rates/turnover rates exceed the historical average for both residential and CRE. Larger and additional stock are available once proven. Dentons Law Firm reports that there are 40 countries that use similar title laws allowing for additional portfolios. $5-10bn portfolio creation takes 6-12 months to create. Comparing this asset to a generic S&P 500 REIT. This forum inherently understands the advantages of a blockchain reported fully transparent system of property ownership/appraisal/sales price verification. However, the management risk in REITs is high. Traditional RE is highly dependent on effective management. This portfolio does not have a management requirement or costs. REITs are subject to capital, strategy, operations, supply chain, execution, executive/management/workforce risk this product is not, it passively produces revenue based on hundreds of thousands of sales prices requiring no further entrepreneurial actions except to track sales. Therefore, not only is it counter cyclical to any given market (turnover increases revenue in down markets) it is also, non-correlated to Wall Street. Liquidity Risk is, in this case, is the American real estate market, not local or regional, subject to demographics fluctuations, supply and demand.
Unless your private business is pre-IPO, your proposal will probably be rejected since there is no reliable way to track a private asset’s price, or if there is then it will be under the direct control of this private asset’s management which presents a large centralization risk.
I wouldn’t equate centralization risk to being correlated to Wall Street. Actually a private company presents more centralization risk than a public one. If you restructured your private business to run as a smart contract, for example on Ethereum or Terra’s blockchain (difficult to fathom for real property) you might have a better shot at getting such a mirrored token asset listed.
Thanks Justin. Lots to unpack here as this asset is currently private but was intentionally set up to act as a passive external agency controlled, distributed market driven revenue generation, external verification and collection system in 2008. This private company has zero control over prices (1). The prices of sold real estate property is 100% controlled by local buyers and sellers (2). The local title company (3) ensures all fees are paid (title insurance as required, escrow of funds) in order to verify a clear title as ownership passes fro seller to buyer. Generated fees are paid to a central distribution site, but verification is, can, and will be completed by local title companies, county deed offices (4), Zillow and other real estate automation sites, and the final piece is Black Knight (Lead Generation and Property Data for Real Estate from Black Knight) which is a third party real estate data analytics capability to ensure all revenue (property price) is captured, titles are properly recorded in county deed records etc. It is basically a multi-tiered stack of distributed Oracle functions, plus the one central clearing house that receives and makes payments to equity holders from title companies all over the nation. This has been occurring for years, so the process is proven that all the major title companies from states all over the nation will recognize the fee and make the by law payment to the clearing house. If the fee is not paid, good and clear title can not be passed. This capital recovery fee sits senior to the debt holder and therefore must be paid first.
There are other groups looking at this opportunity. Hedge, PE, tZERO, and SPACs (NYSE & NASDAQ). So, if the oracle described above is not sufficient, maybe the tZERO/SPAC route might change the vote? Or maybe a Founder led (live) discussion to explain this new asset class is in order?
All existing mAssets have relied on simple public APIs. In my opinion (I have nothing to do with Terra) your best bet to get this to pass would be to contact band protocol or chainlink (or other oracle feeder provider) prior to making a poll, as this would be a first use case for Mirror. If you had oracle support in place in advance, your poll would probably garner more support. In honesty I would not personally vote yes on this proposal, as there is no precedence for an oracle feeder through a non-public API (either your company or Black Knight’s data stream), nor would I trust it in its current form.
Thanks Justin. I like Chainlink. They could be a good addition to the Oracle stack of an already transparent public system of revenue generation and distribution. Good discussion and feedback.