A new real estate fractional investment and tokenization application will launch this month in the latest bid to bring the benefits of property ownership to the masses.
“The commercial real estate market was really built to keep people out, not bring people in,” Calvin Cooper, co-founder and CEO of the real estate investment startup Rhove, told The Real Deal. “But there’s a fundamental shift in how we’re doing business in America and across the world.”
Rhove, like other real estate crowdfunding and tokenization efforts to-date, represents an effort to democratize the historically cloistered commercial investment arena — a bit like what REITs were designed to do, but for direct investment.
What if the common man or woman could put money to work, a few dollars at a time, in massive commercial real estate projects and reap the same benefits of stability, diversification and return on investment as institutions, family offices and wealthy individuals?
One can already download the Rhove app, fund accounts and peruse available investments, which span the U.S. Once the SEC approves Rhove’s qualification as a series issuer — which Cooper expects to happen in the coming months — any user around the world will be able to invest dollars and crypto, beginning with Bitcoin, with a tap of the screen. Users can invest as little as $1.
It’s not exactly direct investment, however. Rhove partners with various real estate owners it has vetted and takes equity positions in their assets through a subsidiary. When a Rhove user invests, he or she buys shares in the subsidiary, not the assets themselves.
“That allows us to maintain a position in the real estate asset, and own and acquire real estate, and have a three to 10-year hold period, or longer,” Cooper said.
Once the app is fully functioning, buyers will be able to buy and sell their shares at any time. The company’s initial array of investment options will focus primarily on multifamily and mixed-use properties, but will eventually expand to other types.
Rhove will charge sourcing, broker-dealer and processing fees, but a fee schedule will not be available until the company files with the SEC. Rhove will also take a 1 percent cut annually, to be deducted from returns.
For now, any crypto investments are converted to dollars before being put to work, but Cooper eventually wants to facilitate crypto native end-to-end transactions, where all steps of the process are denominated in Bitcoin, Ethereum or so-called stablecoins — crypto assets that are pegged to fiat currency.
Crypto will bring in more of the young cohort who have adopted the technology and are building wealth in that arena, and blockchain can help remove middlemen and thereby reduce fee loads, Cooper said.
With so many individuals being priced out of the housing market, fractional ownership represents a kind of lifeline. A 2019 Harvard University study found that the average homeowner over age 65 had a net worth nearly 48 times that of a lifetime renter of the same age.
Rhove’s leadership bills its platform as the outgrowth of the new “stakeholder capitalism,” where community-building is prioritized alongside the promise of shareholder returns. Making more people stakeholders can narrow the wealth gap between renters and owners and address the housing shortage, according to Cooper.
“Property owners and developers typically have not been rewarded for things that don’t fit nicely into a spreadsheet — things that positively impact net operating income,” he said. “But in addition to ROI, retail investors today care about return on community. These things don’t have to be mutually exclusive.”
If Rhove succeeds, it will have accomplished what others have tried and failed to do. Many early efforts to streamline commercial real estate investment via blockchain have fallen through, and though hailed as a major friction-reducing breakthrough, tokenization has yet to largely take off.
Cooper, like most of Rhove’s leadership, has a venture capital background and does not have traditional real estate market experience. He describes himself as an entrepreneur and technologist frustrated by the housing market.
“Homeownership is getting further and further out of reach, even for venture capitalists,” he said, later adding, “I wanted to own a piece of the place I lived in. That’s it.”