Blockchain Marketplace Opens Up the Home Equity Asset Class

by · August 12, 2022

Blockchain Marketplace Opens Up the Home Equity Asset Class

A blockchain-based real estate marketplace has been launched by QuantmRE and Texture Capital that demonstrates the benefit of distributed ledger technology to unlock previously illiquid asset classes.

Richard Johnson, texture capital

Richard Johnson, CEO of Texture Capital, told Markets Media that there is huge potential in putting alternative assets on a blockchain so they can be traded. Texture Capital is one of the few digital asset brokers operating an alternative trading system registered with the US Securities and Exchange Commission, providing tools for issuance, tokenization and trading in the secondary market.

Johnson said: “We’ve been looking at real estate for a while, but other marketplaces that we’re discussing range from music royalties and film financing to Web3 strategies.”

QuantmRE offers home ownership agreements, which give homeowners a lump sum in return for a share of the current value of their property and a share of any potential price increase. A real estate asset is created and secured by a mortgage on the homeowners’ house. Homeowners do not need to take on additional debt or make monthly payments as QuantmRE becomes an investor in the property.

The firm’s partnership with Texture Capital and the launch of its blockchain-based Home Equity Marketplace allows investors, ranging from individuals to institutions, to trade tokenized fractions of the home equity deals.

Matthew Sullivan, founder and CEO of QuantmRE, told Markets Media that the real estate assets are an equity-based investment, but they provide investors with any cash flow. In addition, investors may have to wait a long time for returns if the homeowner waits 10 or 20 years to sell or refinance their home.

Sullivan said, “QuantmRE’s marketplace cuts that investment into many small pieces and then offers them so that smaller investors can buy into this interesting asset class of owner-occupied home equity, an untapped multi-trillion dollar asset class.”

Freddie Mac has estimated the housing market for equity deals to be more than $25 trillion, according to QuantmRE. Sullivan continued that QuantmRE realized that blockchain was the ideal technology to keep track of fractional equity deals.

“We’ve created a platform that enables us to create equity deals with homeowners, create the assets and put them on a marketplace,” Sullivan added. “We lacked the critical ingredient of regulatory compliance to be able to grow and scale this business across the United States and beyond.”

As a result, QuantmRE has partnered with Texture Capital, which Sullivan said brings expertise in working with digital securities in a regulated environment and can support real estate token trading.

Sullivan said: “It solves the problem of investors potentially owning a long-dated investment with no cash flow, as they can trade in and out of a digital security.”

There is a debate about the regulation of digital assets in the US and whether they should be treated as securities and regulated by the Securities and Exchange Commission, or as commodities overseen by the Commodity Futures Trading Commission. Sullivan said the real estate tokens are securities and the marketplace will operate under securities regulations.

Johnson continued that he launched Texture Capital in 2020 because he believed that digital asset tokens are securities, which is why its proprietary ATS is registered with the SEC to comply with all relevant regulations, including know-your-customer and anti-money laundering requirements money.

“We’re excited to leverage the platform we’ve built and apply it to this previously inaccessible marketplace,” Johnson added. “It goes really well, like peanut butter and jelly.”

The Home Equity Marketplace currently operates under a Regulation D exemption from the SEC that allows tokens to be sold to accredited investors. The roadmap is to receive a Regulation A exemption from the SEC to offer tokens to non-accredited investors and expand the investor base.

The two firms will immediately collaborate on new issuances and tokenization, according to Johnson. There is a one-year holding period for a Reg D issue, so secondary trading is unlikely to start before 2023.

Sullivan highlighted that there will be activity on the platform before secondary trading begins, as QuantmRE has a pipeline of home equity deals to be tokenized and issued, which will be bought up by investors in the primary market. Texture Capital is building API integration to provide QuantmRE clients with a seamless connection to ATS.

Matthew Sullivan, QuantmRE

“The most important thing for investors is the path to liquidity,” Sullivan said.

He continued that there have been two securitizations of housing share agreements, which will also increase activity in the secondary market.

In February this year, Unison, a San Francisco-based company that sells residential equity deals, announced a $443 million securitization that it said gives more access to institutional investors looking to participate in the sector.

Unison said in a statement: “This milestone transaction is the largest securitization of REAs to date and rounds off a historic year of growth for the fintech company.”

Sullivan believes the home equity sector could follow the path of the mortgage-backed securities market, but without increasing the leverage of homeowners.

“Our platform gives wider access to investors and that’s the holy grail,” he said. “We can become a wholesale marketplace for all home equity deal providers.”

Johnson also believes that the asset class will become mainstream.

“The new marketplace is a great example of the benefits of blockchain and using this technology to unlock an esoteric asset class,” Johnson added.

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