Tying commercial real estate with blockchain technology isn’t new. Many companies are finding it useful for record-keeping and transaction transparency, simplified payment processes, and less cumbersome leasing activities.
Then there’s real estate tokenization. In 2018, the St. Regis Aspen’s ownership group sold 18.9% of the Colorado resort for $18 million in digital tokens, one of the first to tokenize a real estate asset.
Since then, real estate tokenization has generated occasional news. However, according to a recent report from the Deloitte Center for Financial Services, “tokenization has helped open new avenues for real estate investment through fractional ownership.”
The Basics of Tokenization
Blockchain technology supports tokenization, which converts physical assets (like real estate) into digital representations. These representations can be owned or traded in fractional portions on a digital platform.
The Deloitte Center for Financial Services predicted that approximately $4 trillion of real estate will be tokenized by 2035, an increase from the $0.3 trillion reported in 2024.
One reason why tokenized real estate is of interest is that, if used properly, it could level the investor playing field.
“Our view is that there is a greater desire to access real estate assets from retail investors,” Tim Coy, real estate research manager with the Deloitte Center for Financial Services, told Connect CRE. “But these assets have been inaccessible for a large portion of the retail base.”
The reason for the inaccessibility is that most direct real estate investments are open only to accredited investors who either own or earn more than a million dollars.
But tokenizing real estate assets could be a game-changer for the average investor. “With advances in blockchain technology and clarity on regulatory hurdles, tokenization is not too far off from being an avenue for many investors into direct ownership of properties,” Coy said.
Asset tokenization could also streamline and shorten the buying and selling process. “Aside from the broader access to direct CRE investment, a major benefit of tokenized transactions is that they occur almost instantaneously, rather than through the typical contract process of an existing real estate sale,” Coy said.
A Realistic Timeline—And Challenges
Though real estate tokenization can offer many advantages, don’t look for it to sweep the CRE industry tomorrow or even next year. Coy explained that tokenization on a larger scale is at least five years off.
“There are limitations around data and technology modernization, which are probably still barriers in the near term for an industry that can be more generally resistant to change,” he observed.
Additionally, issues concerning ownership and liquidity need to be worked out, while tokenization payouts and the capital stack generate their own questions. “And in order for tokenized asset transactions to work, there has to be an exchange platform to execute these deals,” Coy said. “Tokenized real estate will need to be able to be seamlessly exchanged across platforms.”
Furthermore, tokenization could be subject to breaches if not carefully handled. “Organizations planning to engage in tokenization efforts should shore up potential vulnerabilities against data breaches, such as storing tokenization servers in separate and secure locations,” Coy advised.
Moving Forward
The report indicated that tokenized real estate assets could benefit real estate funds while allowing “institutional investors to create custom portfolios with tokens that match their investment thesis.” However, asset tokenization still has a way to go before it can be considered a mainstream tool.
However, there are indications that the real estate industry is at least dipping its toe into the tokenization waters. The report said that tokenized real estate could provide new markets and products, adding that it could also give real estate companies the “opportunity to overcome some challenges related to operational inefficiency, high administrative costs charged to investors, and limited retail participation.”
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