Harbor launches digital token sales

Josh Stein, the CEO and
cofounder of Harbor.
Harbor

• A new company backed by investors including Andreessen
  Horowitz on Tuesday launched a token sale for a luxury
  student-housing complex near the University of South
  Carolina.
• The company, called Harbor, is using blockchain
  technology to reduce friction for investing in real
  estate.
• Several notable investors — including Michael
  Novogratz, the founder and CEO of the crypto investment firm
  Galaxy Digital Capital Management — have tapped into the idea
  of tokenizing traditional assets.

Investing in real estate can be lucrative, but it also involves a
great deal of tedious work, from finding an appraiser to
preparing mountains of paperwork. Now, a new company called
Harbor is trying to get rid of this elbow grease by using
technology to invest in commercial properties through
asset-backed digital tokens classified as securities.

Incubated by the former PayPal executive David Sacks and backed
by investors including Andreessen Horowitz, Harbor is partnering
with Convexity Properties, the real-estate investment arm of the
trading shop DRW, to launch a sale of digital tokens for a luxury
off-campus student-housing complex near the University of South
Carolina on Tuesday.

Convexity Properties, the owner of the student-housing complex,
plans to sell a minority interest in the building to raise at
least $15 million. To facilitate the sale, the company is issuing
995 tokens, priced at $21,000 apiece. The tokens, akin to equity
shares, give investors fractional ownership of the property.

Investors can purchase the digital assets in dollars, bitcoin,
and ether, the cryptocurrency powered by the Ethereum blockchain.

The process is similar to a crowdfunding method
known as an initial coin offering, which has attracted
regulatory scrutiny. The difference in this case is that the sale
comes under regulatory compliance, said Harbor’s CEO, Josh Stein.
Harbor would enforce compliant transfers between buyers and
sellers through programmable smart contracts, he said.

Read more:

A startup just closed a huge $4 billion ICO — but the crypto
fundraising method is ‘absolutely and unequivocally slowing
down’

In an ICO, a company launches a new digital token and pre-sells
it to investors in exchange for cash or cryptocurrencies like
bitcoin or ether. An easy way to raise money, ICOs have
increasingly gained interest in the past two years, but they’ve
also attracted their share of scams,
and the rate of ICO activity is slowing.

Security tokens also derive their value from tradable assets, but
issuing companies make the assets subject to securities laws and
regulations.

Harbor moves the compliance requirements “from paper to being
electronic, and then we are able to programmatically enforce all
these rules we call the who, what, and where of compliance,”
Stein said. “Buyer and seller can transact as easily as sending
an email.” 

The startup has cooperated with one of the big four accounting
firms to review the documentation and fund flows, an outside IT
security firm to audit the smart contract that creates the
security tokens, and a qualified custodian to create the crypto
wallet service.

The sale is marketed to investors in the United States and other
select jurisdictions, including Singapore, Hong Kong, the Cayman
Islands, and the British Virgin Islands.

One catch: The fundraising is available only to accredited
investors, meaning those who had an income of $200,000 (or a
joint income of $300,000) for each of the past two years, or have
a net worth of more than $1 million.

The idea of tokenized securities and security tokens has long
been discussed in the cryptocurrency industry, and some companies
have already tested the concept.

These companies use digital tokens to represent shares in a
spectrum of underlying assets, from a real-estate property to
holdings in a fund to cash. The tokens resemble rights encoded
into a smart contract and can be traded on a blockchain-powered
exchange.

Such an approach, according to Stein, injects liquidity into the
real-estate industry, known for its difficulty in matching buyers
and sellers.

Crowdsourcing platform Indiegogo in October helped a luxury hotel
in Aspen raise $18 million by issuing security tokens. 

A luxury condo in Manhattan appraised at $30 million was also
tokenized on the Ethereum blockchain in October.

The billionaire investor Michael Novogratz has also jumped on the
bandwagon of real-estate tokenization, poaching an investment
banker from Goldman Sachs to run that part of his crypto
investment firm, Galaxy Digital Capital Management,
Bloomberg previously reported.

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