Elevated Returns, the New York City-based asset manager that owns the St. Regis Hotel in Aspen, Colo., saw its plans to use the property to create what it called the country’s first single-asset REIT fizzle in February, days before a planned IPO. Now, it’s calling an audible—but its ambitions to make a big splash, if anything, have only grown.
The company, led by founder Stephane De Baets, said today it is linking up with Indiegogo, a crowdfunding website, to let investors buy stakes in the luxury ski-town lodging in a first-of-its-kind sale that will use blockchain technology to store shareholders’ equity. Prospective owners, through Indiegogo, will be able to buy digital tokens that represent equity in the hotel, the two firms announced.
The blockchain deal, if it precedes as planned next month, would seem poised to drastically boost the technology’s credibility as a serious tool for real estate investment. A handful of other companies, including a Romanian startup called Propy and an American firm named Meridio, have announced fledgling steps toward pulling off real estate transactions via the encrypted, decentralized ledgers that blockchain infrastructure enables. And a trade group, the International Blockchain Real Estate Association, has sprung up as a forum for real estate stakeholders to share ideas about the technology.
But, at least in the U.S., no company has used blockchain tokens to represent shares in as prominent an asset as the St. Regis, an ultra-high-end resort worth almost $200 million.
“As a firm, we’ve always been searching for ways to inject liquidity into the real estate [asset] class,” De Baets said. “A lot of money is being deployed towards real estate tokenization platforms. We wanted to be the first one to tokenize” a flagship property.
Elevated Returns bought the Rocky Mountain resort in 2010 and, by all appearances, was free and clear early this year to follow through with its single-asset REIT strategy for the property. It won approval from the Securities and Exchange Commission (SEC) for the deal, which would have sold off 49 percent of the resort’s total equity in 1.7 million shares worth $20 a piece. As late as the third week in February, the IPO appeared set to proceed by the end of that month, but Elevated Returns abruptly canceled the sale on February 26.
This week, De Baets did not offer a detailed account of the change in strategy, but implied that there was a mismatch between Elevated’s offer and investors’ appetites.
“We realized that we were talking to the old world,” De Baets said. “We decided to retool or experiment, just to make [the equity sale] more scalable and current.”
The new plan aims to take advantage of a set of digital tools that has sparked fascination throughout the worlds of finance and business.
Blockchain technology uses cryptographic techniques—developed mostly in the last decade—that allow computer networks to record transactions in a way that all members of the network can trust, even without the authority of a centralized institution like a government or a bank. The concept paved the way for bitcoin, a decentralized currency—independent of any government—that exploded in value starting last year, rising to a peak of about $18,000 per bitcoin as some investors users wondered whether the asset could replace reserve currencies or gold a valuable way to store cash
The months since have seen the currency burst abruptly like a bubble, falling to under $8,000 by February of this year. Shares in the St. Regis will be denominated not in bitcoin but in a special securitized token created specially for the hotel’s sale, but investors will be able to use either bitcoin or dollars to buy those tokens, according to Elevated Returns’ announcement.
Key questions about the revised plan’s success hinge on the partnership’s ability to shepherd the deal through a U.S. legal framework for real estate and security transactions that is scrambling to digest blockchain technology’s financial implications. In September, one of the SEC’s first-ever enforcement actions in the realm of blockchain was to charge with federal crimes the founder of a company that claimed to offer a digital token secured by real estate, much like Elevated Returns and Indiegogo promise soon to do. In that case, the founder, Maksim Zaslavskiy, claimed he had assembled a team of real estate experts to guide the efforts of his company, RECoin, when in fact he had consulted none, the SEC alleged.
Slava Rubin, an Indiegogo co-founder, promised that the St. Regis sale will brook no such shenanigans.
“Anytime you’re looking to find a path in an uncertain world, you need to make sure you’re doing it [with as much] compliance as possible,” Rubin said. “We’ve worked with Congress to figure out how to move forward on equity crowdfunding. We’re used to figuring out how to thread the needle.”
Although only accredited investors will be able to buy the venture’s digital shares, De Baets said he relishes the chance to experiment with a novel deal structure at what he thinks will turn out to be the dawn of its widespread acceptance.
“The goal here is not to raise money,” De Baets said. “The goal is to be the first step into something that will be very dominant in the very near future.”
“You’ll see more of these security tokens,” he added.