Overview

Typical Commercial Real Estate purchases take an average of 30- days to close. During that time, buyers, also known as sponsors/principals, will borrow debt from lenders in a range of 50%-90% LTV (loan to value). This leaves potential owners with responsibility to syndicate the down payment in time to close properties.

Within the time limit, buyers must secure the funds from each accredited investor which requires a time commitment and adds risk as investors may back out at the last minute or their funds may not be available at the time of purchase. For their time and effort, sponsors receive on average a 25% promote/carry from the profits (after preferred returns to the LP have been paid), encouraging the ongoing success of the property.

Current Issues

	Syndication Barrier Commercial Real Estate sponsors need funds for down payments to purchase new properties or to re-cap their existing properties.
	Lucrative Deals Lost Commercial Real Estate deals move quickly and most are closed off market, so when buyers have to spend extra time to syndicate funds, deals can be lost.
	Investor Limits Assuming the property title will be held by an LLC, the number of shareholders will be limited to no more than 100, per Reg D, making the out-of-pocket per investor cost significant and limiting the pool of potential investors.
	Compliance Maintaining compliance requires legal preparations such as preparing a PPM (Private Placement Memorandum), risk disclosure, and SEC registration. Furthermore, solicitation is limited to investors who have a pre-existing relationship with the issuer.
	Provider Fees Tokenization providers charge upfront and success fees for using their security token or digital share solution.
	Marketing Cost Having security tokens created for the property does not alleviate the need for marketing and soliciting investment opportunities.