Tokenisation refers to the fragmentation (or securitisation) of real-world assets like art, equity, and real estate. Digital tokens representing a share of the real-world asset are held on a blockchain and governed by smart contracts that automatically manage payments, dividends, and compliance.
The first application of tokenisation in the art world was in 2018 when Andy Warhol’s painting “14 Small Electric Chairs” was tokenized with sales of 31.5 percent of shares amounting to US$1.7m.
The hotel industry can also claim to be a tokenisation pioneer. In the same year, the St. Regis Aspen Resort in Colorado was one of the earliest properties to have a portion of its equity placed on blockchain, allowing multiple investors to benefit from rental income and potential appreciation in value.
Since then, tokenisation and blockchain technology have made greater inroads into traditional financial markets. One example is asset management giant BlackRock launching its first tokenized fund (BUIDL) in March 2024.
To date, the fund has paid out more than US$17m in daily accrued dividends, says Securitize, BlackRock’s transfer agent, broker dealer and tokenisation platform.
Retail investors
Investor demand is driving the growing interest in cryptocurrencies and tokenisation. According to research published by BlackRock, 83 percent of millennial millionaires hold crypto and, in general, millennial investors are more likely to hold crypto than stocks or mutual funds. More than half of retail investors would consider changing banks or brokers if they do not have an appropriate digital asset offering.
In the hospitality space, a Dubai-registered company called Azqira is bringing the benefits of equity release via tokenisation to a target market of resort and boutique hotels.
Patrick Koch, partner manager (hotels), explained the business model behind Azqira: “We have €100M in commitments from 30,000 pre-registered investors and around 30 participating hotels in our system. Azqira typically invests €5M per hotel, positioning ourselves as a minority partner. The target hotel assets generally range between €15M and €50M in value. The funds provided to the hotels can be used for expansion, renovation, or refinancing. Our minority shares in these hotels are owned by us and held on our balance sheet.”
Participating hotels include Margaritaville Resort, Orlando; Samana Group, Touch Down Africa; Hamak Hotels, and Soneva.
Investors choose a hotel or hotels to invest in and select various packages (bronze, silver, gold etc.) with prices from €500 to €25,000. The packages include invites to events organised by Azqira taking place at the hotels.
Azqira is getting ready to launch its app for retail investors this year. Investors are buying an interest in a real-world asset (the hotel) governed by smart contracts.
Koch said: “The digital assets are essentially like buying shares in Azqira. We have a finite amount of digital assets (100m in total) tied to specific hotels. By owning the digital tokens, you hold certain rights guaranteed by a smart contract, such as the right to receive quarterly dividends from us, because we hold the equity.”
Crypto community
He added: “Tokenisation is building a bridge to smaller investors. We need to hold the equity, because the hotel owner doesn’t want to deal with thousands of people. We are the single entity, which is more attractive for the owner, and the investors as well.”
As crypto matures, it has become a fertile ground for innovation, but also plenty of scams. Koch commented: “We need to admit that there are a lot of creepy companies in the crypto space. The sector lost a lot of trust in the past and is currently rebuilding it.”
During the last crypto bull run of 2020 – 2021, when Bitcoin’s price surged, many investors lost their money to fraudulent companies. There were also groups of investors who organized themselves to pump up the price of digital tokens before selling them.
To avoid this, there will be a lock-in period of 18 months during which the Azqira tokens cannot be sold. “We need to ensure that you cannot pump and dump our assets,” said Koch. “You need to receive the dividends and if we develop everything well and the platform is successful, we are sure the majority of investors will not have a reason to sell.”
The goal is for the retail investors to become a community. “There’s the opportunity to travel to the hotels and to experience Azqira events, meet our team and community and like-minded people,” said Koch. “That’s why we chose hospitality. It’s much more interesting than fractional assets like gold or Rolexes. And that’s why hotel owners are interested in working with us too, because they understand we are not just providing capital but also managing communities for them.”
Minority share
The interest is from smaller boutique hotels and family-owned hotels that want to grow but may find it hard to access investment amounts of €3 to €10m which are too small to be of interest to private equity funds, who tend to seek full control.
“We don’t want control. We want a minority share in the equity – 5 or 10 percent. We have no say in the operations or management. We are providing community and capital,” said Koch.
Hotel owners raising capital through Azqira pay a commission of 5 to 15 percent of the funding volume, depending on the deal. Azqira takes a small management cut from the dividend payouts and receives an internal transaction fee when community members wish to sell their packages to another member.
Equity release is an established practice, although more commonly associated with retirees who use it unlock value from their homes while continuing to live in them. What’s new is tokenisation as the vehicle to unlock that real estate value.
Sabai Property is another real estate tokenisation platform, dealing with properties on Phuket, Thailand. Its website states that real estate values are determined independently, and the value of a property is then divided into real world asset (RWA) tokens each worth US$50. As the property appreciates in value, no new tokens are issued, preventing dilution of shares for existing investors. Technically, the Sabai Property tokens are indistinguishable from cryptocurrencies, except for their tethering to a real-world asset. Sabai Property did not reply to a request to take part in this article.
(This is an updated version of the story)