SteelWave Debuts $500M Real Estate Fund With Digital Tokens

SteelWave has launched a $500 million commercial real estate fund with a blockchain sweetener — claiming to be among the first.

The San Mateo-based developer has created a SteelWave Digital fund to allow investors to convert their limited-partner cash stakes into digital tokens to be invested in commercial real estate buys, the San Francisco Business Times reported.

The goal is to make investing in expensive properties accessible to a wider range of investors.

“The whole goal was to create a coin — call it what you want — that was backed by commercial real estate assets,” SteelWave CEO Barry DiRaimondo told the Business Times in a question-and-answer interview.

In tokenized funds, the shares of the fund are turned into digital tokens issued on a blockchain with technology similar to cryptocurrencies like bitcoin, ether and XRP to offer fractional ownership.

Such crypto tokens are often associated with viral scams and wild price fluctuations. But financiers also see the technology as potentially lowering transaction and administrative costs.

It would allow wider access to financial instruments once exclusive to institutions and wealthy investors.

DiRaimondo said the fund is among the first of its kind in commercial real estate, which he said aims to help attract new investors and add to SteelWave’s capital sources. He also pointed to a shift from developing commercial real estate to investing in a “dislocated” market.

“We do ground-up development, we do radical transformations of buildings, and we create really cool work-play-and-live environments. We can’t create a coin around that because there’s way too much complexity. So we said, what’s a simple strategy?” DiRaimondo told the newspaper.

“Let’s just buy the stuff we’re making, and not go through all the brain damage of the making.”

SteelWave, known for building premium offices along the West Coast, plans to use the fund to buy more than a dozen office buildings with long-term tenant leases, offering investors the option to begin with either the digital security or a traditionally limited partnership stake, according to the Business Times.

The tokenized funds would lower buy-in requirements for investors and provide them more liquidity, the firm said.

With the San Francisco office market entering a reset and several buildings trading for a fraction of what they were bought for, DiRaimondo said now is the time for action.

“We’re early,” DiRaimondo told the newspaper. “Whether or not this fund works from a tokenized perspective, we think we’re on the front end of these things, and we want to be one of the groups who’s built a brand inside this ecosystem to allow us to mine that ecosystem for capital for years to come.

“Are we just going to become a digital security real estate company? No. But I do think some amount of our capital needs are going to be funded with digital securities.”

In January, SteelWave Barings surrendered a 164,400-square-foot office building in El Segundo to a lender after facing $53.1 million in troubled debt tied to the Southern California property.

— Dana Bartholomew