On September 7th, Kenedix disclosed an update regarding the current status of the firm’s Real Estate Security Token Offerings (STOs), strengthening the further emergence of STOs as Kenedix’s third major pillar of offerings alongside JREITs and private equity funds.
Key Takeaways:
Kenedix's real estate STOs have raised ¥40.7 billion, drawing individual investors through blockchain-based securitization.
Using blockchain technology to replace traditional fund transaction processes allows for lower participation prices that appeal to individual investors.
The real estate STO market, currently valued at ¥133.1 billion, mainly includes residential and hotel assets, differing them from JREITs.
Kenedix predicts substantial growth, targeting ¥500 billion by 2025 and ¥2.5 trillion by 2030 in Japan’s real estate STO market.
Over the past two years, Kenedix has successfully executed eight real estate STOs, pioneering a new frontier by attracting individual investors who were previously underserved by JREITs and private equity funds.
STOs, a financial instrument leveraging blockchain technology to issue digital securities known as security tokens (STs), primarily focus on real estate-backed assets.
Blockchain technology is often misunderstood to be synonymous with cryptocurrency. More accurately, crypto can be described as one of many possible applications of blockchain technology.
Regardless of the application, the game changing benefit is to replace traditional transaction clearing processes with blockchain technology.
While JREITs require a minimum portfolio size of approximately ¥300 billion to cover the costs of trading on the public market, real estate security tokens streamline transaction and settlement processes through blockchain technology, reducing operational costs and making the securitization of individual real estate properties feasible from a business and investor standpoint.
The key attributes that make real estate STOs attractive to individual investors include lower minimum buy-in limits (typically ranging from ¥500,000 to ¥1,000,000), the ability to trade on brokerage platforms with a certain level of liquidity, investor protection under Japan’s Financial Instruments and Exchange Act, and suitability for online sales, enabling swift transactions.
In July of 2021, Kenedix made history by issuing the first publicly-offered Real Estate STO in Japan, backed by a rental apartment property located in Tokyo's Shibuya Ward, raising ¥1.453 billion.
To date, Kenedix has issued a total of eight Real Estate STOs, raising approximately ¥40.7 billion and selling them through underwriting securities firms.
In August of 2023, the firm conducted another Real Estate STO backed by the high-rise rental apartment building "Riverside 21 East Towers II" (Chuo Ward, Tokyo), with an appraised value of ¥30 billion.
Riverside 21 East Towers II
This STO reached a record total issuance amount of ¥13.4 billion and sold out within a few weeks, with nearly all buyers being individual investors.
Kenedix's Executive Officer and Head of Digital Securitization, Mr. Akihiro Nakao, noted, "The purchasers consist mainly of individuals, including high-net-worth individuals and asset management companies. This trend has been consistent across all eight Real Estate STOs, representing a stark contrast to JREITs, which predominantly attract institutional investors."
Akihiro Nakao, courtesy of Kenedix
As of the end of August 2023, there have been a total of 20 real estate STOs issued in Japan, including Kenedix's offerings, with a cumulative value of approximately ¥57.8 billion and total assets under management (AUM) reaching around ¥133.1 billion.
Residential properties account for over 40 percent of the underlying real estate, followed by hotels at approximately 25 percent.
The ease of understanding residential property value is a key reason for the preference by individual investors, distinguishing these assets from JREITs, which mainly consist of office and commercial properties.
Looking ahead, Kenedix identified several challenges and opportunities for the future growth of the real estate STO market in Japan, including (1) ensuring convenience and transparency in trading, (2) improving efficiency in structuring and selling through diversification of operators, and (3) expanding investor awareness and understanding.
Mr. Nakao expressed optimism by stating, "The Osaka Digital Exchange is rumored to possibly begin handling security tokens by the end of 2023, which is expected to enhance trading convenience and transparency. As the market expands with more operators and the utilization of digital technology, we anticipate increased operational efficiency and cost reduction. While our real estate STs currently sell in increments of ¥1 million, improved efficiency could enable transactions at even lower amounts, further broadening the market."
Kenedix also indicated its intention to explore the inclusion of single-family rental properties, currently under management by the company's funds, as eligible assets for Real Estate STOs.
Kenedix sees substantial growth in Japan's real estate STO market in the coming years, with expectations of reaching ¥500 billion by 2025 and expanding to a massive ¥2.5 trillion market by 2030.
Further Reading:
Source:
R.E.Port News (September, 2023; Japanese only)
