Background
Table of contents
- Jointer’s New Commercial Real Estate Approach
- Jointer’s Vision – A Safe and Profitable Alternative for All
- Historic Commercial Real Estate Investment Vehicles
Jointer is a decentralized financial (DeFi) and property technology (PropTech) based on a Decentralized Autonomous Organization (DAO) established in 2017 in Silicon Valley, CA and expanded to include Tel Aviv, Israel. Jointer has invested talent, resources, and funds to build an alternative to Commercial Real Estate syndication, scaling the needs of investors and owners in a complete and independent end-to-end blockchain syndication and investment solution.
Jointer is a multi-award winning company, including:
 | A $1,000,000 “Best Startup in the World” prize in 2018 during a worldwide competition between 4,000 startups and 196 countries |
 | Winner of the Disruptive Startup Award at Stanford University in 2019 by a panel of Google, SoftBank, Bain Capital, Thomson Reuters, Stanford Angels, BMW, Andreessen, NEA, and other top VC Funds, |
 | First place for the Disruptor Daily “Blockchain in Real Estate” Disruptor Award, |
 | Most promising venture from the Carnegie Mellon University US-China Innovation and Entrepreneurship Association |
In addition to Draper Venture Network inclusion, Jointer’s prestigious advisory group includes Nobel Prize Winners, the previous Chairman of the SEC, the previous Vice Chairman of the NASDAQ, founder of Visa, the previous Chief Economist of the U.S. Department of State, founder of LA Blockchain Summit (CIS), the CFO of Yahoo, the co-creator of Bitcoin’s prototype, and other luminaries.
Through years of work, Jointer has created a decentralized fund of funds syndication economy utilizing the blockchain while providing uncorrelated returns, diversification, and unlimited liquidity. The syndication economy is powered by a world’s first patent-pending multilayer system that helps to increase the company’s valuation daily while preventing a value decrease, regardless of market volatility or manipulation. This syndication economy system can be applied to a multitude of industries, including insurance, venture capital, and many more. Jointer’s first use case will be commercial real estate.
Jointer’s New Commercial Real Estate Approach
Where most solutions crowdfund or tokenize individual assets which presents scalability issues, limited liquidity, and unnecessary risks for investors, Jointer democratizes Commercial Real Estate investments by making the process safe and simple for all. Jointer offers investors a single check for their desired equity, removing the need for any syndication. On the other hand, Jointer also allows the general public to syndicate funds while receiving uncorrelated returns with Commercial Real Estate backing and without sacrificing liquidity or needing a large amount of capital up front.
For over a century, traditional Commercial Real Estate private syndication has been limited to accredited and sophisticated investors while presenting many barriers and a lack of liquidity. Public syndication, such as REITs (Real Estate Investment Trusts), increases access to accredited investors but delivers lower returns due to leverage limitations. Modern solutions such as token-based private syndication do not solve liquidity issues and require a high level of knowledge, and come with unnecessary exposure to risks.
Jointer is a new blockchain based syndication model that removes Commercial Real Estate barriers and gives investors uncorrelated returns and instant diversification through a multiple asset class protocol that provides unlimited liquidity.
Jointer’s Vision – A Safe and Profitable Alternative for All
Jointer strives to democratize and simplify the Commercial Real Estate industry so that every investor, even one with zero knowledge or experience, will have the opportunity to enjoy lucrative returns along with low risk cross-collateral investing and high liquidity. Jointer is an alternative to Commercial Real Estate syndication that provides increased access and higher returns.
“Jointer’s new syndication approach presents a better solution that has the potential to disrupt the real estate industry”
– David Weild IV
The former Vice Chairman of the NASDAQ and Father of the US JOBS Act
Historic Commercial Real Estate Investment Vehicles
Most Commercial Real Estate investments begin with the formation of private syndication[1] through a General Partner (GP) / Limited Partners (LP) structure or through public syndication like REITs. The differences in returns, efforts, and risks between the two investment strategies highlights investors needs and where Jointer adds value.
REITs are diversified with a portfolio of many assets and provide liquidity on public exchanges such as the NASDAQ or NYSE, while private syndications are designed for property owners that take a loan from lenders and need capital for a down payment. Usually, owners (also known as the GP, Sponsor, or Principal) syndicate funds from multiple individual accredited investors, taking time, resources, and providing limited liquidity since the investor’s principal is tied up in the property for a few years until liquidity events take place (sell or refinance).1 These limitations create exposure and risk to investors.
Moreover, private syndications are able to outperform REITs because they leverage properties with debt loans while REITs tend to avoid debt2 focusing on increasing cash flow which determines their valuation.
Although private syndications can provide higher returns, they are unable to welcome non-accredited[^4] investors and are not ideal for institutional investors.
Institutional investors which qualify for private syndications investments continue to choose REITs as an investment vehicle because they need to present low risk investments that still provide minimal returns while also diversifying their investment portfolio. Moreover, it is impractical for institutional investors to analyze and oversee a multitude of small to medium sized properties.[^5] Furthermore, the same barriers for institutions lead to excluding the general public as high amounts of knowledge and due diligence become necessary to ensure a profitable exit.
Private Syndication vs Public Syndication
Private Syndication
Diversification
Private syndication pool investments are created through a partnership between passive investors (Limited Partners) and a General Manager (also referred to as sponsors or principles). To obtain a diversified portfolio, investors have to perform due diligence on each property and source multiple opportunities before identifying a lucrative deal which may take underwriting many properties.
Liquidity
A liquidity event takes place on average three to seven years after purchase.
Returns
Syndication pool returns can be high and average ~20% a year over a five year holding period.
Public Syndication
Diversification
REITs source multiple properties to hedge risk. An investment in a REIT is investing in the asset portfolio of the issuer so the diversification is usually considered stronger than a private syndication.
Liquidity
REITs improve upon the limited or non-existent liquidity that direct investors receive by trading on exchanges such as the NASDAQ and NYSE, so their liquidity is considered high.
Returns
REITs have unused debt leverage so the average returns are usually in the range of 8%-12% a year which is 50% lower than average private syndication investment returns. Evenso, institutional investors prefer REIT investments based on their goal to keep the low risk but outperform the S&P 500.
Current market solutions
There is a public misconception that modern solutions such as tokenization can help syndicate funds to purchase new assets or unlock equity by selling a fraction of ownership or an income stream to the crowd. Jointer investigated these solutions to determine their viability and benefits but also to understand their shortcomings.
Risks for investors
Jointer believes that current tokenization solutions expose investors to potential fraud and a potential loss of funds. The below examples present weak spots that current tokenization models cannot overcome:
Vulnerable to scams
Owners may scam investors by offering equity for properties they do not own.
False claims
Owners of properties may make false claims about a property’s financial status and/or value.
Over-leveraged
Owners may deceive investors by selling them tokens or digital shares for properties with no available equity.
Limited transparency
Owners could take advantage of unsophisticated investors[^7] who are unaware of how to properly underwrite a property.For example, if an owner misrepresented a property by selling tokens representing a $10M value when the property is only worth $5M.
Must trust dividend distribution
Owners may not honor dividend distributions, a situation which leaves investors without recourse.
No Principal
Owners may sell 100% of their equity in the property and leave it without any principal in place.
Risk disclosure
Investors could be misled through non-disclosure of the risks of a distressed or completely vacant property, which is also a property not generating income.
Conflict of interest
Owners naturally have a conflict of interest with investors and may benefit from misleading them.
Limited liquidity
Investors may have an issue with liquidity because there is no guarantee that secondary marketplace exchanges will welcome every token or digital shares. For example, they may only support tokens or digital shares with high daily trading
Limited volume potential
Properties require months to years to appreciate, meaning that most investors will hold property-backed tokens for a longer period, decreasing potential daily trading volume.
Restrictive selling
One of the biggest hindrances for owners who wish to tokenize their properties is the inability to sell a percentage to more than 100 investors (or shareholders) unless: 1) they are qualified purchasers; 2) the owners turn their property into a public company; or 3) the company is registered with the SEC under a Reg A+ exemption. All these costly and time-intensive burdens need to be solved by the issuing property owner.
In spite of all these shortcomings, private syndication, via tokenizing existing equity or income streams, still requires sourcing investment through syndication and falls solely on the owner. To syndicate a property using tokenization, the same costly practice of marketing and soliciting to many investors must occur, in addition to any fees due to the tokenization provider.[^8]
Scalability issue
Regulation restricts future owners from offering equity in an asset they do not yet own.[^9] The only way the future owner can do this is by also acting as a Broker-Dealer, offering other people security tokens. Meaning tokenization is required initially to purchase and gain ownership of the property, only then can the owner become the issuer and offer fundraising through tokenization.
Until these issues are addressed, the Commercial Real Estate industry cannot scale using tokenization solutions and investors risk exposure to fraud and scams.
Furthermore, Jointer believes there is no logic for existing property owners to use tokenization as a private syndication solution for purchasing new properties or as a re-cap investment based on the associated risks and costs mentioned above.
After taking into account all of the serious issues associated with current tokenization solutions, Jointer’s approach provides a true alternative to Commercial Real Estate syndication, even for re-cap investment.[^10] Jointer provides property owners one check to cover the necessary down payment.
Current tokenization solutions are unable to solve syndication issues like Jointer. Therefore, current tokenization providers do not constitute direct competition to Jointer. Jointer could end up partnering with tokenization providers to offer their property owner client fundraising solutions along with unlimited liquidity.
Major challenges
While Commercial Real Estate investing is proven to be a lucrative method of creating wealth[^11] the opportunity for investors to become successful in this industry presents three challenges.
Minimize risk
Investors face the challenge of minimizing risk[^12] which typically requires investors to be sophisticated and experienced in real estate investing or rely on others and hedge their risk through diversifying their portfolio.
High ROI
Investors need to weigh returns against their principal capital investment to see if they can produce a high ROI.[^13]
Liquidity
Ensure there is an exit strategy to provide investment liquidity. Without liquidity, investors are left vulnerable to high capital costs and low secondary market prices due to the high costs of due diligence.[^14]
Solving the Syndication Problem with a New Approach
Jointer acts as a fund of funds providing property owners one check as a Master LP to cover the needed down payment for a new property. On the other side, Jointer allows investors diversification through the purchase of three digital assets (JNTR, JNTR/ETN, JNTR/STOCK) backed by cross-collateral and provides uncorrelated returns with access to infinite liquidity.
do not provide liquidity or increased consumer options.
Economics, 1-53. [^4]: Reg D 506 B makes an exception for up to 35 sophisticated non-accredited investors. Under Reg S a company could potentially welcome non-accredited investors from outside the United States. [^5]: https://www.entrepreneur.com/article/306846 13 [^6]: Wong, W. C. (2017). Debt conservatism and debt-equity choices: evidence from REITs’ unused debt capacity. The International Journal of Banking and Finance, 13(1), 1-28. [^7]: Cohen, J. (2016). A study on the history and functionality of real estate crowdfunding. [^8]: Xiao, P. (2016). Real Estate Finance Models and Prospect of Its Development. DEStech Transactions on Social Science, Education and Human Science. [^9]: Udell, G. F. (2015). Issues in SME access to finance. European Economy, (2), 61. [^10]: A re-cap is a situation in which the owner creates a new entity to buy the property from himself based on the current fair market value [^11]: Model, B. (2016). The World’s Oldest Profession-Now and Then: Disruption of the Commercial. Crowdfunding for Sustainable Entrepreneurship and Innovation, 78. [^12]: Sagi, J. S. (2017). Asset-level risk and return in real estate investments. [^13]: Vasudevan, S., Balasudaram, D. N., Ramanigopal, C., & Nandhakumar, B. (2017). Risk Minimising Strategies To Have Successful Investment In Real Estate Business. International Journal of Civil Engineering and Technology, 8(10). [^14]: Ametefe, F., Devaney, S., & Marcato, G. (2016). Liquidity: a review of dimensions, causes, measures, and empirical applications in real estate markets. Journal of Real Estate Literature, 24(1), 1-29.