REITs and Tokenization
How real estate will merge into modernized capital markets
I’ve said this before, and I am saying it again: The capital markets are a miracle.
Think about it. What kicked off with stockbrokers signing the Buttonwood Agreement under a literal tree, with a quill, is now the system of connective code that executes trades in microseconds, at an unfathomable order of magnitude. Nasdaq recently moved nearly $100 billion in under a second. That’s not just progress, it is a teleportation machine for capital.
One of the things I’ve always loved about working with ETFs is the ability to bring different asset classes onto equity markets where the trading is most liquid and efficient. So, instead of stock markets only trading stocks, they are also trading physical gold through the GLD ETF, and they are trading bonds, and CLOs, and foreign markets, and even magnificent office building at One Vanderbilt through the SLG REIT, and so on.
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As for that last point, real estate has been participating on stock exchanges through the REIT structure. The REIT structure lets you invest in real estate like you're buying stocks, with steady income - and no tenants to deal with. No late night calls to fix the plumbing, just the rents.
REIT stands for Real Estate Investment Trust, but those first two words, “real estate”, are themselves progressing. IRS Private Letter Rulings have expanded the definition of real estate to include non-traditional commercial real estate categories such as digital infrastructure, healthcare facilities, data centers, fiber networks, hospitals, and more.
Publicly traded REITs now have a market cap north of $1.3 trillion and make up 3-4% of the U.S. equity market. That might sound like a lot, but it isn’t. Only 6% of the US CRE market is trading through REITs on public market exchanges.
REITs are more than a tax designation. They’re a bridge between the illiquid world of bricks and mortar and the high-speed digital bloodstream of capital markets. They bring permanent capital.
And they bring price discovery.
Price discovery, of course, is a feature. But in the arbitrage of opaqueness, high fees, unverified private market NAVs, and in the mirage of exclusivity, price discovery is being treated as a bug.
The liquidity premium has flipped into an illiquidity premium. But that won’t last forever. And the lower REIT valuations of listed REITs are nothing but an opportunity.
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Forming a REIT is no joke. Restructuring costs are material. Everything has to be built from scratch. Sarbanes-Oxley, exchange fees, compliance, investment bankers, minimum shareholders, income going out as dividends, and on and on. There is a lot of restructuring work to be done.
There are some very good reasons to go REIT.
The REIT vehicle is a growth tool. REITs give you the ability to issue shares for acquisition capital.
They lower your financing costs. When you’re publicly listed and can tap equity markets instead of relying on bank loans or capital calls.
They give you tax benefits - REITs pay no corporate income tax as long as they meet the distribution requirement. That’s massive.
They give you duration. Private syndications live and die by fund terms. REITs live on. And with rising rates and frozen private transaction volume, duration is a luxury.
They give you the ability to tell your story to the market, where a strong and differentiated story can lead to a narrative-based market valuation.
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You’re probably hearing a lot about tokenization these days. You’re going to be hearing about it more.
Tokenization offers a new kind of public listing—a digital one. You can mint anything and store the audit trail digitally. We all know that you can tokenize digital assets, but you can tokenize real world assets and financial assets too. Ownership interests trade as tokens on a blockchain. These can trade 24/7, globally, with embedded compliance, verified and real-time audited data reporting, and smart contract controls. Done right, they can settle in real time, reduce friction costs, and open new investor markets.
It isn’t science fiction. It’s already happening. Platforms are sprouting up and building compliant marketplaces. My partners at Inveniam have built the backbone for data storage and compliance reporting. And a growing cohort of DeFi-native investors are hungry for yield-backed, real-world assets that don’t correlate with crypto prices. They are hungry for diversification.
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Here’s the key: tokenization and public listing are not mutually exclusive. A REIT can tokenize its shares. A private real estate operator can issue tokenized preferred equity or create a feeder vehicle.
You can start private, tokenize a sleeve, build a community of token-holders, and eventually IPO on a stock exchange. Or vice versa. Tokenization isn’t a competitor to REITs. It’s another market and an alternative ecosystem.
REITs were the first bridge between physical real estate and financial securitization. Tokenization is the next. Both serve the same goal: unlocking real estate for investors and giving real estate operators the capital they need, on terms they can live with.
If the ETF world taught us anything, it’s that reducing friction and barriers to entry works to expand markets, which means more liquidity and more trading efficiency.
And that means the future of real estate capital isn’t public or private. It’s both. It’s modular, liquid, and programmable.
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Note: I am actively working on building solutions in this space. If you are a potential strategic partner or would like to discuss partnering and working together on this opportunity, please send me an email to say hello. -Phil