We Tokenize a Building: An Example

Tokenization of real estate assets has emerged as an innovative solution to finance projects and unlock new investment opportunities. This model enables developers to access additional funding while allowing investors to participate in the real estate market in a more accessible and transparent manner.

Project Context

In this practical example, a real estate developer acquires land financed through a 20-year mortgage, leveraging debt from the outset. The construction costs for 10 apartments are primarily covered with the developer's equity, but a significant portion of the funding comes from asset pre-sales.

How Does Pre-Sales Work?

• Pre-sale Details: The developer sells 40% of the apartments at a price 20% below market value, with an average price of €450,000 per apartment.
• Payment Schedule:30% of the price is paid upon signing the initial agreement.70% is paid upon project completion, at the time of property delivery.

This arrangement provides an initial cash flow to partially cover construction costs, though it does not fully finance the project.

The Solution: Tokenization

To address the funding shortfall, the developer opts for tokenization, offering investors a stake in the project. In this scenario, 35% of the total value of the apartments is tokenized.

What Does Tokenization Involve?

• Tokenized Amount: €1,575,000 (35% of the project's total value) is divided into 1,575 tokens, each priced at €1,000.
• Asset-Backed Tokens: These tokens are tied to the project's value and the potential profit (appreciation) to be generated upon project completion and the sale of apartments at market price.

Investor Benefits

Tokens provide investors with a proportional share in the profits derived from the appreciation of the properties.

Key Figures:

• Initial Sale Price: €450,000 per apartment (20% below market value).
• Final Market Value: €540,000 per apartment.
• Appreciation per Apartment: €90,000.

Total Appreciation Calculation:

• €90,000 × 10 apartments = €900,000.

Since investors hold 35% of the project, their total profit is:

• €900,000 × 0.35 = €315,000.

Profit Per Token:

• €315,000 ÷ 1,575 tokens = €200 per token.

Thus, an investor who purchased a token for €1,000 will receive €1,200 at the end of the project, achieving a 20% return on their initial investment.

Developer Benefits

By tokenizing only 35% of the project, the developer retains control of the remaining 65%, ensuring the lion's share of future profits.

Developer's Profit from Appreciation:

• €900,000 × 0.65 = €585,000.

Additionally, the developer receives €1,575,000 from the initial token sale, providing liquidity to advance construction without relying exclusively on additional debt.

Model Advantages

For Developers:

• Immediate liquidity to finance development.
• Majority control of the project is retained, avoiding over-reliance on bank loans.

For Investors:

• Affordable entry into the real estate market.
• Participation in an innovative model with attractive returns (estimated at 20%).

Practical Example: Smart Contract in Solidity

To implement this model, a smart contract in Solidity can be used to issue tokens, manage investments, and distribute profits at the end of the project. This ensures transparency and automation, minimizing risks and costs for all stakeholders.

Key Variables:

• owner: The real estate developer deploying the contract.
• totalApartments: Total number of apartments (10).
• apartmentValue: Average value per apartment (€450,000).
• percentTokenized: 35% of the project's value is tokenized.
• tokenPrice: Price per token (€1,000).
• totalTokens: Total tokens available for sale, calculated from 35% of the apartments' value.
• investments: Records the number of tokens owned by each investor.
• totalProfit: Total appreciation profit, determined at the project's conclusion.

Core Functions:

• invest(): Allows users to purchase tokens by sending Ether, granting tokens proportional to the investment.
• setTotalProfit(): Enables the developer to define the appreciation profit upon project completion.
• distributeProfits(): Allocates profits among investors based on their token ownership.
• withdrawRaisedFunds(): Allows the developer to withdraw funds raised through token sales.

Events:

• InvestmentMade: Triggered when an investment is made, recording the investor's address and token quantity.

This contract serves as a foundational example. In practice, additional functionalities such as KYC compliance, audits, or automated profit distributions in stablecoins could be incorporated.

✨Remember, to successfully tokenize, it is essential to follow a series of steps that ensure compliance with current regulations and laws governing financial instruments based on distributed ledger technology (DLT).

Learn More

Thank you for reading! 😊 For a more comprehensive understanding, I invite you to explore my book 📚, which includes a step-by-step guide to token issuance, covering everything from smart contract setup to drafting a whitepaper. Essential compliance requirements such as MiFID Testing, KYC, AML, and subscription agreements are detailed to ensure a seamless process.

Thank you for reading! 😊 If you’d like to learn more, I invite you to check out the book. 📚✨

This book is part of a trilogy:

1) Blockchain, Tokenomics & Real Estate Vol. I introduces advanced concepts on blockchain and tokenized real estate.

Index, Summary, and Chapters

AMAZON

DIGITAL

2) RWA – Real World Asset: Guide to Tokenize an Asset is a simplified summary of Volume I, presenting fundamental concepts and the innovative Token Genesis framework.

Index, Summary and Chapters

AMAZON

DIGITAL

3) Coming February 2025: The Theory of Token Genesis: The Revolution of Wall Street and the Stock Market, a deeper dive into financial engineering, digital and traditional markets, and blockchain applications.

These books are shaping academic and professional discourse, already integrated into curricula across LATAM and Spain.

Explore them and join this global conversation on how blockchain is transforming the future!