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Private Real Estate Shares can Trade


Dr. Kiran Garimella  00:52

Hello, good afternoon, everyone. Thanks for joining us for a very exciting and interesting session in our KoreSummit Real Estate series. And today, we have a distinguished panel of speakers with tremendous experience in the real estate markets, tokenization, and secondary market operations. And what we have here today is to really discuss and understand and listen to the experts on what private real estate shares are, and why tokenization is so critical and important. And what does it trading in these markets really mean? My name is Kiran Garimella. And I’m the Chief Scientist and CTO for KoreConX. And I’ve been in the capital markets for more than 20 years, both as a private trader myself and writing all types of algorithms and KoreConX lead strategy and development of blockchain-based solutions for the with the core for the permission, capital markets platforms. So with no further ado, I would call on Peter Daneyko, James Dowd, and Lee Saba to just say a few words of introduction, and then we’ll get right into it. Peter.


Peter Daneyko  02:16

Sure, maybe I’ll jump in. So I’m Peter Daneyko. I’m the CRO over at KoreConX. And we focus primarily on the primary marketplace. So this discussion is going to be I think, extremely invaluable when we would say what shareholders do when they move from the primary to the secondary trading side of things. And what’s involved with the regulations associated with that. So I’m looking forward to this panel, especially with Lee. Because as we segue from the primary, what are the liquidity events that are actually going to occur and transpose and I guess, what’s the state of the union? So I’m going to welcome my co-panelists here, looking forward to the session. Thanks, Kiran.


Dr. Kiran Garimella  03:02

Thanks, Peter. If you want to go, Jim, maybe.


James Dowd  03:07

Great. Thanks, Kiran. Thanks, Peter. I’m Jim Dowd. I’m the founder and chief executive officer of North Capital. We are a registered broker-dealer and fintech company. And we’re focused on the full lifecycle of exempt securities. So from primary issuance to clearing in escrow and clearing secondary trading, and custody. And as Kiran said, there’s a lot of interest in private markets, and activity in private markets is really focused on the real estate sector. And we’ve found that to be a very significant part of our overall business for the past 10 years, and very excited about some of the things that are happening with tokenization. And the potential opportunities going forward there. I should also mention we’re a partner of KoreConX and work closely with them on some of the services that we provide kind of hand-in-glove with their technology stack. So delighted to be here. Thank you for having me.


Dr. Kiran Garimella  04:16

Thanks, Jim. Appreciate it, Lee.


Lee Saba  04:19

Thanks, Kiran. Thanks, Peter. Hi, Lee Saba. I oversee market structure and technology for Rialto Markets. We’re also a FINRA broker-dealer, you know, similar to Jim. And, you know, we help on the primary side of private issuances as well as secondary trading with our alternative trading system. You know, I’ve spent I was just trying to do the math in my head I’ve forgotten so long but it’s been probably closer to 30 years, I was thinking it was 25 in financial services. And you know, I spent the bulk of my time on the buy side or the asset management side running electronic trading and in that infrastructure. I also co-chair the fixed trading community, which is a global protocol standard that allows us to trade or late create a standard for the trade lifecycle. So, from IOI to settlement and everything in between, that’s what fix stands for. So thanks to KoreConX for having me, and I look forward to the call.


Dr. Kiran Garimella  05:26

Awesome, awesome. Thank you for that introduction. What we’re seeing lately, has been over the last several years, a lot of talk and discussion and interest around tokenization in real estate, right? I mean, real estate has been around for a very long time. REITs have been around for quite a long time. So I’m kind of curious to see your viewpoint on what it is, in today’s environment, that tokenization and liquidity are becoming sort of critical and white tokenization, especially for the real estate markets, we’d love to hear a view. And, Jim, you alluded to this in your introduction, so maybe you can start this.


James Dowd 06:05

Sure. Why I think from my perspective, the big innovation in the market, that that has taken place, really since the passage of the JOBS Act in 2012. And then, you know, the regulations started to get public promulgated in 2013 2014 was the ability to, to fractionalize individual investments in a way that that previously wasn’t, you know, practical from a regulatory standpoint and a kind of a technology and logistics standpoint. So when we kind of started to engage as a wholesale provider, in 2013-2014, our earliest clients, were actually real estate platforms that were focused on taking individual projects, and then fractionalized them for retail investors, family offices, and small institutional investors. In fact, one of our clients kind of coined the term small balance real estate, to kind of describe this whole middle market part of real estate that was sort of too small for the large funds, and too big for individual investors. And so that fractionalization, you know, became a pretty significant driver of access to new capital. And just to kind of close the loop and answer your question directly on tokenization. I think tokenization is that next iteration, that next-generation technology piece, to really enable the settlement and secondary trading and kind of open standards for future activity. And that’s why it’s so exciting, we’ve never had open standards around private securities, and it really creates the possibility of doing that in the future.


Dr. Kiran Garimella  07:54

Awesome. So, Lee, you are in this unique situation of not only looking at the primary but also facilitating the secondaries, also, so I’m curious to see, you know, how you see this whole sector taking off and evolving? And what are some of the challenges that you might see for secondary market trading in tokenized real estate on the secondary market? So some views on that, if you don’t mind?


Lee Saba  08:23

Sure. Yeah. No, thanks, Kiran, for that question. And, and I think, you know, Jim, hit it on the head with you know, the fractionalization aspect of these assets is key. You know, if you have a property in Malibu, and it’s worth quite a bit and you Airbnb it, and it’s now wrapped in a Jobs Act security, like, you know, Reg CF, or Reg A, you know, possibly a Reg D. You know, the wider audience can get access to the proceeds from that they can, you know, really take advantage of unique assets and add them to their, to their portfolios. What is even in a retirement account method. So, it’s very fascinating. It’s a good time to have a front seat in this in this space because it’s evolving so rapidly. So yeah, so we’re really excited and like, like, most of you guys see, we’ve seen a lot of real estate projects come our way and, and it just seems like a nice fit for right now for leveraging JOBS Act for leveraging fractionalized assets for and then I guess tokenization. Which, you know, to me, you know, tokenization is very exciting, but it’s an operational efficiency more than anything, it allows us to move forward a little bit faster, a little bit cleaner. We still do have a little bit of a hurdle, though. As we all know, because, you know, some of the regulators aren’t, aren’t enamored with permissionless blockchains, the single source of truth, and that’s why we need partners like KoreConX to keep the cap table true and work with your technology which I know Kiran you remember the long hours we’ve spent integrating for primary, and more importantly, secondary market trading, which, which does take a long time to actually integrate. But now that we’ve, we’ve figured out that that path forward, and you know, leveraging Hyperledger, which is, you know, a core tenant of, of KCX. You know, the efficiencies are tremendous, you know, so we’re excited for the tokenization aspect of it. But you know, you have to make sure that you have an on-chain, and sometimes an off-chain representation of those assets.


Dr. Kiran Garimella  10:44

No, absolutely. Thank you for that. I mean, you know, you and I, and a few others on our team had long conversations around, you know, how to make all this happen. And you know, it’s all there, it’s already been done the bulk of the work there, right? I mean, that’s the exciting part. And you’re 100%, right, you know, what level two of chain solutions look like? So we have some interesting ideas on that front as well. But I just want to switch gears a little bit. And, Peter, you talk to a lot of issuers, a lot of clients or partners, especially in the real estate space, what is your sense of adoption of tokenization and being, you know, open to this idea that you see from real estate, you know, clients and issuers out there?


Peter Daneyko  11:32

Yeah, thanks, Kiran. So I think we’re still to a large degree of this education, educational front when it comes to even the term tokenization. And as Lee and Jim alluded to, that, there’s one thing that, hey, I can fractionalize all these assets from a token perspective, but you know, how does it how do I remain compliant? I mean, we talked, Lee just mentioned when he talked about, you know, hyper ledger fabric and a bunch of technical terms, and, okay, so that’s on a blockchain, there’s permission, and there’s permissionless. So I think from it, we’re still at that educational friends. So when it comes to real estate, they go, hey, I want to tokenize this asset, and I want to put it out on out into the to the universe ether, you know, and I want to, I want it in my wallet, and I want it in my pocket. And I think that that creates a lot of if we look backward and say, you know, if everything starts with regulations, and what are those regulations? And if I tokenize an asset, how do I tie them together with the regulation? And where do they go from there? Just a comment on that. What we’re seeing in real estate is, so a lot of companies say I want to use a Reg A, for example, and I’m dealing with the primary and I’m going to tokenize this, and as Lee alluded to, you know, we’re going to fractionalize it in smaller pieces. But at the end of the day, it’s just a security. The efficiencies of putting that security on, say a permissioned blockchain just allows fluidity and efficiency. But I think a more interesting comment I’m getting from real estate projects is if I’m doing a Reg A offering, what’s the future with this. And I’m referring to the liquidity future, and dovetailing into secondary trading and even secondary trading might be at a nascent stage, the foundation and the footprint are there from that ability to digitize them and have a ledger and understand that. Who are shareholders, who are the stakeholders, who are the custodians? But more importantly, if I get into a Reg A offering, that liquidity event exists, and that’s what we’re starting to hear some more investors are looking at, maybe I don’t have to hold this for the next 10 years. The exemption itself affords this ability to transfer, the ability to transfer, the technology, ATS platforms are now facilitating that ability for me to at least have that secondary liquidity event. So I think I think that’s creating an exciting time for that investor to at least realize that I don’t have to wait for a traditional IPO and M&A, something of that nature, especially when I’m involved in an asset class that maybe I’m not dealing with, you know. Reach where I’m not getting a quarterly or annual revenue income stream from that. So if that kind of answers your question a little bit, what I’m hearing on the street is the regulations first you know, once I’m educated, I do have a nice liquidity event, and what is the ATS? So that’s the big question. Now people are saying, when does that occur? How does it occur? And companies like Jim and Lee’s where, you know, they’re addressing that, you know, and so we go from the primary to the secondary alternative back to our other panelists in that regard. But yeah, the education and the appetite is it’s an exciting time again, the investor myself included, I go, Hey, I can I have some options in the future with these types of assets?


Dr. Kiran Garimella  15:10

No, absolutely. You know, ever since Reg A in the job sector, obviously, right, but Reg A in particular, you know, took off, you know, it took off across, you know, many, many different industries and sectors. I just want to get a view of how much more traction. Are we seeing, you know, what are the perceived advantages of Reg A in particular in real estate? And what impact is it making, both from a primary perspective if you can, you know, address that person gets to give us and share your wisdom on that one? And please, if you can, then, you know, piggyback off of that and just share with us your insights on why you think that’s so attractive, especially for Reg A.


James Dowd 15:56

I mean, I think there are two aspects to Reg A specifically that are attractive for real estate and for another kind of, let’s say, call them frontier alternative investments that have kind of individual series or individual share classes. The first is that is you, you know, as you mentioned, Reg A  has federal preemption kind of out of the box in terms of, you know, being able to, to sort of offer nationwide, you know, to most investors, not just accredited investors. And that have immediate liquidity in the sense that the restricted securities that are offered are not restricted securities. So that’s, that’s kind of uniquely available to Reg A. With Reg D, you, I mean, you still get some preemption, but you have to do notice filings. With Reg CF, you get preemption, but you have sort of investor limits, and the securities are restricted, but with Reg A securities, you can literally, you know, provide for the offering, have it set up for trading, you know, very soon thereafter, in all of the primary offerings that we have listed on our ATS are all, you know, Reg A securities that were basically designed with that in mind. So not only, you know, did the sponsors, you know, kind of take the steps to get them listed, but they actually conceived of their entire business around this idea that liquidity would be an important part of, of that exempt securities lifecycle.


Dr. Kiran Garimella  17:33

There’s one thing I want to double-click on that, Jim, with, the Reg A  itself is very good. It’s popular, we get that right. But in addition to that, are you seeing a lift in interest? And, you know, capital raising because of tokenization, in particular, in real estate?


James Dowd 17:53

It’s an interesting question, you know, we did very much in sort of the period 2017 to 2019. And then more recently, I think it’s been a little bit of a mixed bag, in part because of. I wouldn’t say it’s like regulatory uncertainty, I would say it’s more, you know, regulatory hostility, that if you have a deal, that’s a high-quality deal. If you can raise money without tokenizing, then you’re just kind of buying into a heap of trouble if you then sort of mentioned blockchain and tokenization. And even to the point where we’ve had some customers who basically took an offering took their one a two to the SEC, had extensive comments back related to the tokenization portion, and then sort of redacted that, and proceeded with a regular type offering. So you know, that’s not the fault of the regulators. It’s not the fault of the issuers. It’s kind of, I think, a byproduct of the fact that there have been so many Grifters and fraudsters kind of permeating the crypto market that it’s really, you know, pretty much destroyed, you know, a lot of the kind of enthusiasm that kind of took hold in 2017 2018. And I think now, now, we’re kind of at a point where it’s going to take some time to rebuild that trust. I mean, I, you know, when FTX first came out, I thought it was gonna be like a year now, I would say it’s sort of two years at a minimum.


Dr. Kiran Garimella  19:19

Yeah. Yeah. I


Lee Saba  19:23

Which is the new four-letter word.


Dr. Kiran Garimella  19:28

No, that’s right. That’s right. I mean, you know, in one sense, right. You know, when we talk about this internally, also, you know, we sometimes think FTX is probably the best thing that happened because it brought to the front, it’s highlighting all the issues. And then, you know, by contrast, almost in saying, you know, here are all the good guys who do these things in a very compliant way. I mean, no, and that is the right way to go about it. Right. So


Lee Saba  19:53

I think that that’s an important distinction between what’s going on, you know, with this team You know, the folks on this call, and what was happening in FTX, general crypto world. I mean, we’re in regulated markets, right? You know, there are investor protections, there are silos of what you can do and what you can’t do and what you have to hand off and what you know. So, you know, between, you know, the trading system between the payment rails, you know, it’s not our bank accounts, it’s the, it’s the investor’s bank accounts. It’s the, you know, the cap table management and the registered transfer agent that KCX handles, like, though, they’re the, you know, the, the official owners of the books and records, you know, so, you know, all of these segmented things that have been built heuristically, over, you know, 100 years, and, you know, have gotten us to this point. And, you know, you just don’t throw the baby out with the bathwater, right? It’s like, oh, we have crypto here To hell with all those old rules, it doesn’t matter anymore. No, those were built for a reason. And, and, you know, we’re figuring out ways to apply the best in the latest technology stacks, which are DLT, and blockchain. But also not forgetting how we got here and playing in a compliant way. So I think that’s where the magic is. And I think that’s where we all sit in very well, to make sure that we’re not the next FTX whatsoever, you know, this is a completely different universe, from what those guys were definitely, and some others that are still around, so.


Dr. Kiran Garimella  21:27

Well, no, absolutely. And if you look at the primary investment, you know, the intake on the capital raise side of it, right? You all, you know, obviously, you know, highly reputable, FINRA registered with highly compliant organizations such as yourself, you know, you onboard the investors in and you know, you perform your compliance activities. So, there’s a lot of attention, there’s a lot of rigor, and due diligence performed on that side, right? Now, when it comes to the secondary, especially in a tokenized world, like I pointed out, Lee, many people have this impression that, hey, it’s tokenized. Now I can do peer-to-peer, you know, transfers and trading all by myself, I don’t need anybody else. Right. 


Lee Saba  22:10

That’s our fault.


Dr. Kiran Garimella  22:12

I know, it is, I know, you’re just waiting to jump on that one. But from your secondary viewpoint, right, it just walk us through some of the protections and compliant mechanisms that you have built. And you know, we have all been together, they are very useful for people to understand why those things are in place, and why you really cannot be doing a free, you know, peer-to-peer trading all the time.


Lee Saba  22:39

Well, number one, you know, for dealing with, you know, US or North American-related securities, it’s a privilege to own securities in the US or Canada, like, you’d have to be approved to own them. And that’s number one, it’s not just a free for all crypto, you know, anybody anywhere, anything goes. So you know, running know your client, which is also known as KYC, or AML, which is anti-money laundering, those give us the protections. And by the way, not everybody passes those, as we’ve all seen, there are folks that come into the ecosystem that are just not eligible to do to participate in our private markets here, or in our markets in general, even the listed market. So, you know, that is the first and foremost, you know, the first protection. But before they get into a trading realm, you know, we also have to make sure they have, you know, tie them into a banking or payment rail. You know, make sure that, you know, you can’t pay for secondary trades with a credit card, you know, you have to have some form of, you know, wire or ACH functionality behind the scenes. And, you know, we’re always trying to assure that, you know, the trading is going to settle. So when you put your trade-in, we make sure and we and again, working with folks like Casio FX, we make sure that, that if you’re selling, you know, as a seller on the ATS, you actually have the shares to sell. If you don’t have them, you can’t put the order on. Right. So that’s actually a slight advantage to you know, maybe some of the publicly listed companies are, you know, workflows, but that’s a whole other ballgame. And then the same with the banking rails, right, we can ping and see how much money you have as a buyer to make sure you can cover the position that you’re trying to do. Once all that criteria are met, we can cross you know, and again, this is these are, you know, ATS crosses or alternative trading system crosses, which are, you know, you know, matching engines for the most part, and then we’re off to the races we start messaging back and forth. So again, you know, ATS, for example, a move from, you know, Peter to Jim, and you know, and then and then you know, make sure you pay the other side as well. So, it’s pretty efficient. It’s not brain surgery, but you know, plugging in all those wires and making sure that they sat Filing regulatory requirements is the key?


Dr. Kiran Garimella  25:03

No, absolutely. Peter brought up this question about a viewpoint that as an investor would love to see a market for liquidity market out there for tokenized real estate, you know, shares. And me too. I mean, you know, I’m an investor myself, you know, I invest in, you know, many of these things myself, and, you know, yes, that is, for us a very compelling argument. I’m just kind of curious, though, Jim, from your perspective, as you talk to issuers themselves, and, you know, how did they view the advantage of having a secondary market and, and their ability to attract more investment because of that advantage?


James Dowd 25:51

Well, I think that’s exactly the calculus that those investors, you know, consider. I mean, it, you know, the, if you think about it, from the perspective of an issuer, the issuer is really listed interested in one primary goal, which is to raise money for their offering. And so, if there are, you know, features that can help them do that, either, you know, by providing the promise of liquidity, or by creating custodial solutions to kind of expand the universe of prospective investors, by providing diligence and supporting material that might attract professional advisors that might not otherwise, you know, look at the offering. Those are all factors that are going to expand the universe of investors in the early stage of tokenization, a lot of the promise was this idea of kind of instant globalization, because, you know, you could take an offer, you know, if you think about a lot of domestic real estate deals are, you know. Originally they were sort of marketed at the country club, and then, you know, you’ve got general solicitation with, you know, the Jobs Act and Reg A plus and Reg CF. And now you can kind of, you know, sell the offerings in a very public way using traditional digital marketing. And then tokenization was sort of like taking that to the next degree, which is, you know, not only accessing, you know, investors that you kind of solicit, you know, through general marketing, but, kind of taking that to a worldwide network. And so, I think I think it’s all about how to attract more capital and make it, you know, more viable for that capital on a long-term basis. So it’s all about reducing the friction and expanding the addressable market.


Dr. Kiran Garimella  27:36

No, absolutely. Absolutely. Peter, do you have any view on this?


Peter Daneyko  27:41

Actually, I got a couple of questions that I think Jim and Lee can shed some insights. So when it comes to Jim commenting on going from the primary to secondary, and in the real estate side of it, those issuers that actually plan that upfront. Versus I’m going to do a Reg A offering. And I’m not really thinking about my secondary. So they may miss one, they may, you know, miss the opportunity to educate the audience and get them more enticed to make that investment. But the success of those is far on the buy-sell side, what’s been your experience with that, and both the gym and delay, like as far as if I plan it upfront, I’m doing a Reg A offering. My books are clean, I’ve got them. I’ve got a registered TA. And when I jump into the secondary what’s been the experience that? What was the reality check? What’s been the experience for those kinds of companies? Do they have enough to buy and sell? Or is it still nascent? Are we early adoption? Maybe both? You guys can give me your insights on that.


Lee Saba  28:47

Sure, I can take a stab if that’s okay. Jim. First Yeah, you know, I think about these markets is very simplistic in some terms is on ramps and off ramps, so the on-ramp is the primary function, you know. Folks buying into the real estate project or whatever other projects it is getting on the cap table, everything’s legit walk you through the whole AML KYC process. But then we have an off-ramp and the off-ramp which could also be an on-ramp in some ways is the alternative trading system is the matching functionality. And I think that you know, was some of the feelings that I’m getting from issuers is that it just reading the marketplace, in general, is that why wouldn’t you want to have an off-ramp, you know, for your issuer, right? It provides some form of investor protection in itself because if you get into the position and you don’t like it, you have an exit strategy. If you like the position a lot, it allows you to buy more after the primary. So it’s a very positive thing all around. You know. I guess the other thing I wanted to mention is, you know, there are liquidity profiles. And, you know, Kiran and I have talked at length about this, but, you know, not not, liquidity isn’t guaranteed for anybody, even on New York Stock Exchange, or NASDAQ, and there’s, there’s a, quite a few, if you look deep stocks that are listed, that don’t trade. They don’t have any liquidity either on those exchanges. So, you know, it’s, it doesn’t mean that you’re going to get liquidity if you just go to New York or NASDAQ. But just back to the liquidity points, if your issue had 500 investors, you only have potentially 500, you know, 499 other people that can possibly, you know, buy your asset. If you have 100,000, issuers, investors, excuse me, you have, you know, a lot more entering so that can potentially throw their shares in, you know, for to create some market. So, you got to think about it like that, you know, these are private small issuances, a lot of times with not as many investors, as you think some have a lot of investors, some have, you know, 1000 investors or less, so you have to kind of know where you’re going. Which I think gets into some of the ATS principles that we can talk about, these are not, I don’t think, you know, sometimes the Central Limit order book method where, you know, continuous markets is a good theme where people can get in and see the spot and go. Others might require more of an auction type or a point-in-time cross where, you know, you aggregate your liquidity over a period of time. So, you know, maybe you have a weekly cross or a monthly cross or a quarterly cross to aggregate that liquidity in find the buyers find the sellers, they’ll go in on the second Wednesday of every month between noon Eastern time and one at 115. Do you understand what the position what happened? And I think those are, you know, the kind of some of the profiles that you can think about when it comes to secondary in liquidity.


Dr. Kiran Garimella  32:08

Isn’t that how most of the markets actually evolved? They had this market FERS right from the time so the big cheese, they all got together at a certain time. And now, I mean, it’s fascinating, but that’s how all the public markets also evolved, right? I mean, this continuous is something it’s a new phenomenon. But to make this successful, right, you know, both on the primary issue and side and also for secondary? How do we make these? How do you make the market aware that all these listings are out there? You know, so what, what mechanisms do we have today? Unlike, you know, you look at a lot of the press and the noise out there in Wall Street, Bloomberg, you know, mad Cramer, you know, whatever you call it, most of that is in the public market. So those are well served by current traditional media outlets. So what do you think would take to get this sort of attention and awareness building up in this in our space as well?


James Dowd 33:06

I mean, I’ll take a stab at that. I think that that, that that question is really at the core of a lot of the work that we and others are trying to do so, you know, create more open architecture infrastructure. And, you know, we’ve talked with other ATS  in the past. About creating, you know, sort of ATS networks to be able to sort of, you know, exchange orders and exchange order flow and try to aggregate the size of the market. And it’s hard, because, you know, because basically, everybody’s got a slightly different system. I mean, you know, I don’t know, if, if you took it, look, you know, all the order types that Rialto has, and the types of orders that we have on the PBX ATS. If they would actually line up on our percent, you know, they probably regulated percent, but maybe not 100. And I certainly know that some of the other ETs that are out there are not, are not kind of, you know, looking at all of this in quite the same way. So, I think it kind of underscores the importance of having, you know, interoperable systems, because, you know, even in the platform markets, you know, after the Jobs Act was sort of developed as a lot of kind of siloed platforms. So you go to your real estate crowdfunding platform, you know, you go to, you know, small company, startup company platform. You go to your secondary, platform, maybe there’s a collectibles platform over here, and everybody’s kind of got their own market niche. And currently, there’s not a lot of overlap of investors, between those different platforms. And I think that until, you know, until you sort of solve that problem, you know, you’re not really going to get the kind of the crossover, that that will really lead to more robust markets and deeper markets, you know, both on the primary and the secondary side.


Dr. Kiran Garimella  34:58

Yeah, no, no, absolutely. No.


Peter Daneyko  35:00

If I may, Jim, do you think that’s a big part? I mean, we’re still at that educational stage. I mean, certainly further along. Because if we look at the raw numbers of the number of companies that have decreased when it comes to the public marketplace, I mean, there’s, I don’t know, I’ve heard numbers as low as high as 50% reduction in publicly traded companies over the last 20 years, from what they used to do be. Yet the capital influx is in the, you know, six to coming up to $10 trillion in the private marketplace. Do you think that the marketplaces and the consumer marketplaces and the awareness over time, I guess that’s what we’re all looking for, is going to evolve and say, Hey, I’m investing over here, and just through osmosis, it’s just naturally going to go to grow based on this education? And based on where, where’s the money? And how do I get out of it?


James Dowd 35:53

I do. I mean, I personally think that that, you know, the difference the main difference between, you know, kind of where private markets are today, and where public markets are, and where private markets will be in the future, is the passage of time. Because, you know, really, if you think about it, the reason it’s not like people are, or companies are leaving public markets because they think public markets are bad or inefficient, it’s because they’re incredibly expensive. And if you think about the cost of doing an initial public offering, and then maintaining a public listing, versus the cost of doing a Reg D or Reg A plus offering, and then listing it, you know, either immediately or a year later, under Rule 144, it’s a fraction of the cost. And so if you think about, like, on the one hand, you have this, you know, public market, where it’s becoming, you know, more expensive, more highly regulated, you know, more driven by, by a lot of factors that really don’t derive value. I mean, think about the number of solicitations you get from trial attorneys, you know, kind of soliciting you for lawsuits, because, you know, of an allegation that somebody, you know, did something that might have impacted the stock price. You know, think about that, versus private markets, where basically, it’s like, you know, there’s just not a lot of that sort of noise and the cost and the overhead is a lot less. So I think if we had infrastructure that basically worked, as well as in the public markets, I think then the private markets would end up supplanting a lot of the public markets except for the top, you know, maybe the top 500 companies.


Dr. Kiran Garimella  37:33

Wow. And I do have a follow-up question on that one. And that is, but before we go there, let me table there for a second, I just want to address one of the questions in the chat that has come through from Laura. And the question is this. What are your thoughts on collateralizing? Real Estate security tokens for liquidity? And are you seeing anything out there around this topic? Jim, or Lee?


Lee Saba  38:06



Dr. Kiran Garimella  38:06

Should I repeat the question?


Lee Saba  38:10

I can see it actually in the chat. I don’t let me think about it. I don’t have an immediate response.


Dr. Kiran Garimella  38:18

And the reason I stopped for that particular question is that you know, when Jim, you were talking about, you know, your views on this, it just struck me. There were private markets, supplanting the public markets, you know, specifically with real estate, is what do you think will happen as we go forward? Will the private markets not only just supplant the public markets, not eliminate them entirely, obviously, but take a much broader role? But will they also facilitate more innovation in the types of tokenization? So collateralization is one good example. And there could be, you know, many others like that, which is a lot more innovation than what is probably available in the public markets. Any thoughts about that?


James Dowd 39:10

Well, I think it’s easier to iterate and innovate in private markets than in public markets. Because because, you know, we’re in private markets or exempt markets are kind of, you know, they’re more of a disclosure market than a, you know, kind of a merit market or an approvals market. I mean, even with Reg A, plus, I mean, the SEC doesn’t actually approve an offering. They allow the offering to go forward. And, and that’s kind of the hallmark of the private markets is you can you know, you as an issuer, you can pretty much do what you want to as long as you know, comply with the general disclosure requirements under Reg D and you and you follow the rules. So, so I think that for that reason, you know, most of the interesting innovation that we see, you know, is at least kind of road-tested in private markets before, you know, before going to public markets. And the exception is if there’s some type of asset or some type of structure that really relies upon broad-based retail distribution, in which case, it’s not really practical to do that in an exempt market. So I do think we’ll continue to get more innovation and more, you know, more experimentation in the private side, but you know, there’s just the, you kind of have to understand or people, the issuers must understand there’s kind of limitations to that as well. Because there’s certain, you know, certain types of restrictions that exist that are going to, you know, kind of limit the ability to experiment and to attract the number of investors that you might want to attract, et cetera.


Dr. Kiran Garimella  40:46

Okay, very good. Lee, or Peter, do you guys have any thoughts at all?


Peter Daneyko  40:52

Just to Lee’s question on, you know, collateralizing real estate in security tokens? Is it the single biggest friction point there right now today is a land title I mean, it’s really easy to start with the clean approach if I’m doing a Reg A offering on a real estate offer, as security and but trying to how do I unencumber this asset? Both from a technology perspective? And from again, I come back to the land titles, things, how do I break this up into pieces? And if they’re if the infrastructure is in place, that is that one of the biggest holdbacks for existing real estate assets that I want to say tokenized and then even even even if I’m utilizing the regulations. Comments on that is that kind of an accurate assessment to say we’ve got this logjam there are it’s just a lot of government bodies in different jurisdictions throughout, you know, wherever there was real estate, and it resides


Dr. Kiran Garimella  41:57

On all these data log jams, is it a significant issue?


Peter Daneyko  42:00

Is it an issue? I guess the fundamental question I want to ask about Jimmy Lee’s experiences is, say, Okay, I’ve got a building, I’m gonna break up my building. And I just want to I guess, it really depends on what the ownership structure is, to begin with. Have you seen anything in that arena from a real estate perspective, Jim and Lee?


Lee Saba  42:25

I’ve seen some innovative new companies out there leveraging blockchain around you know, the authenticity of some of the reports around land titles or, you know, real estate titles around safety reports around. You know, elevator maintenance or whatever it might be, we’re the blockchain is holding the single source of truth for that particular asset at any given time. So if you’re interested in that asset, you can see that all of the, and again, I’m not a real estate developer, I don’t, I don’t know, this is just kind of what I’ve seen. But what you can validate is that that is the single source of truth, and it’s the latest updated version of everything that they have. So again, if there’s like a fire inspection, if there’s a land dispute, if there’s a lien against the property, if there’s I don’t know, maybe asbestos in the building, you know, that it would be all recorded in this, you know, attachment on a blockchain that would be tied to the asset, so you can actually understand exactly what’s going on with, with that real estate investment at any given time. And it’s kept me updated all the time.


James Dowd 43:40

I was just gonna say that I think that the issue that you raise around diligence and disclosure. Blockchain is great at sort of creating a permanent, you know, timestamp record. You know, what, a lot of times it’s referred to as immutable, you know, I prefer the term audit, you know, audit-proof. Because basically, you can make changes down the road, but all of the previous changes are reported as well. And a lot of financial systems don’t have that, you know, kind of out of the box. But I think with, you know, the actual kind of underlying information has to be accurate for the blockchain to really add a lot of value. So, I mean, any, unless you have kind of trusted gatekeepers, who you trust with providing that information in the blockchain, the fact that it is in the blockchain doesn’t make it any better than that it’s on letterhead that you created in PowerPoint, right? I mean, it’s, you know, there is a question of, of, you know, there’s authenticity. There’s value to blockchain and being able to prove authenticity, provided that you trust the source that’s then seeking that authenticity. Yeah.


Dr. Kiran Garimella  44:57

Absolutely. Yeah. Sorry


Lee Saba  44:59

for No, just emphasizing what Jim was saying, you know, junk in junk out if it’s bad data and it gets stamped into the blockchain, it’s still bad data on the blockchain.


James Dowd 45:11

And I think the same thing is true concerning, you know, tokenized securities. I mean, one of the issues that, you know, we ran into in sort of 2019, especially is that people would take these offerings, you know, deals that in the traditional securities market, you know, you wouldn’t want to go near with a 10-foot pole. And, and then they would sort of sprinkle, you know, crypto blockchain dust on it, and think that it would turn it into a, you know, high-quality offering. And, you know, the reality, the reality is, is exactly what Lee just described, it’s like, unless you, you know, blockchain can add value to an already good deal, but it’s not going to turn a good a bad deal into a good deal.


Dr. Kiran Garimella  45:52

Absolutely. I mean, you know, IT folks have a standard terminology for it’s called the giggle principle garbage in, garbage out, right? It’s a well-known thing. And, you know, surprisingly, you know, Florida seems to be at the forefront of some of these innovations, right? I mean, the SEC standard for what constitutes security as a whole we act, and that was at the orange grove real estate issue right here in Florida, of all places in my neck of the woods. And also the very first NFT for a house was done, I think, last 2021 22. in February, I forget the exact date now, but it happened in Tampa, right here. So, you know, it’s very, very interesting. Now, this is where we’re seeing a lot of innovation, we’re seeing a lot of uptake on this one. But I think one of the hallmarks, you know, people, you know, us this type of a forum is to help people educate, and really come to grips with understanding, you know, how to deal with this market, by the way, do you lay? Jim, do you guys work with any third-party reporting providers? You know, what are the requirements for that?


James Dowd 47:01

I mean, we do on the secondary side, specifically, we work with a company called Guard. And we’re in full disclosure, we’re also an investor in the company and helping to found it, but it’s a separate entity that runs independently, it works with several ATS now and that’s for the blue sky compliance and rule 140 for compliance associated with secondary trading. So Reg A plus is an example you get a federal preemption on the primary offering, but you don’t get preemption on secondary trading. And so guard helps with that blue sky compliance, and same sort of thing under Reg D. So, so that’s one group that we use in and we’re increasingly starting to kind of build out that network of, you know, data providers there, some groups are doing some really interesting work in terms of data aggregation on pricing and transactions. And we hope that, will continue because again, having that interoperability is, you know, is really key to kind of growing the overall market. 


Peter Daneyko  48:07

I can comment on that, too. You brought up a really good point, when you said, you know, there’s Guard there’s Trade Check. When it comes to that, from the primary to the secondary, I think a lot of people don’t realize that the primary exemption on a Reg A. For example, when I’m doing I’m, I’m cleared to do my offering through all the states. But when I go to that secondary market, I think people have to recognize to say, and this is what we’re talking about, you’re not covered in the blue sky, you know, you have to go through the states. And companies, trade check reports, Guard reports. Basically, it’s that extra bit of paperwork that you need to go through and make sure that you can go on the ATS. You know, in that regard, so I think it’s really, really important for the issuers to understand, hey, wait a sec, I did my primary what’s going on with my secondary? And again, the trade checks and the guards reports are to facilitate that to make sure that we can actually trade on the secondary was pretty, pretty accurate there, Jim?


James Dowd 49:15

Yeah, I think so. And, and it is, and it is one of those things where, you know, it’s, it’s definitely it’s, it’s such a new market, and it’s great to see multiple competing solutions there.


Peter Daneyko  49:27

It just shows that it’s evolving, and I think there’s some growth there, you know, that’s occurring.


Lee Saba  49:33

Now. We’re sure it is evolving, for sure. Peter. And, you know, I think, just to kind of add on to what Jim was saying, I think what you’re alluding to, but there’s also cat reporting, there’s off reporting, you know, these are all very, you know, standard, you know, securities requirements, that has to go out, you know, to the regulators in you know, various routine processes. So, you know, blue sky I like the guard product as well is a big deal in private markets. And the other thing that I think is important to this, and I don’t know, it’s kind of off to the side a little bit, but is the security IDs. So you know, if you can get a CUSIP a seed oil and ice, and a Figgy, or whatever it is, that lists this across the universe. So if you have an institutional investor and you’re playing around with a Bloomberg terminal, you’re gonna be able to look up any of these assets. You know, for a CUSIP, which is actually the number that gets traded, you know, you might throw IBM in the, in the Symbol field, but it’s actually the number in this particular tag that is unique across, you know, all the electronic venues, that that executes that order. So these private securities also get that same rigor involved. So it’s, I think, you know, and maybe even back to one of the earlier questions, this is the type of stuff that you’re going to get lift off from, from the institutions because they’re going to be able to easily plug into this, they’re gonna say, Oh, look, there’s a there’s an issue, where is it trading? Oh, it’s on reality, oh, it’s on P PAC. So it’s, you know, and then they can route directly to one or the other to get that form of liquidity,


Peter Daneyko  51:14

You hit one key difference between the private and the public marketplace. And it’s, it’s the ability to have news dissemination, it’s unified. And if you look at the public marketplace, it’s the stock symbol, I can put a stock symbol, it can be replicated through all the news, wires, etc. Nothing really exists properly in private marketplaces. You know, as far as that unique identifier, when you talk about Q sip, or whatever it might be. But the news agencies don’t pick it up the same way. It’s just, we’ve done a lot of research and homework in that category. And it’s just interesting if you had unique IDs for private companies, that the infrastructure from news dissemination would allow anybody to, hey, I’m doing a private offering, and it’s actually getting picked up. I think that’s going to create we create significant mass awareness among the public at large.


Dr. Kiran Garimella  52:10

No, absolutely, I think that was one of the final things that would have made would really make this whole market very successful, right? It’s one of those indicators, Can I punch the name of the symbol of a private company, and, you know, through whatever it is Yahoo, or anywhere else, right, you can actually see unified compared to different news sources? You’ll see the exact information. I mean, that is the Nirvana of, you know, maturity in the private markets. So, um, we went through the complete sort of the lifecycle, all the way up to the news wires and dissemination of disinformation. I’m going to be curious about the front end of the intake side, and this is sort of the final question of both Jim and Lee, who can address this one? What do insurers need to know in this real estate marketplace for offerings like this in our space? And what sort of special preparation or onboarding that they should be prepared for?


James Dowd 53:14

Well, I guess the way that I would answer that is, is that they should have a very clear idea of who they think their prospective investors are, because that will make a difference in the type of offering that they choose, and the amount of money that they have to spend to kind of access those investors. And then related to that is a plan for ongoing compliance. So if the if they’re offering under Reg D, which  is the most popular exemption, the rules are a little bit different than for Reg A plus, or Reg CF, or, you know, or other types of exemptions. And just kind of planning and budgeting for that work, I think is, is critically important. We’ve seen a lot of people in the past, try to do things and take care of cuts on, you know, our shortcuts rather on relatively important matters, like ensuring compliance on the secondary side or cutting corners on their offering documents or whatever. And, and I think, you know, kind of mapping out a plan for the offering is, is probably the most important aspect that I would suggest that issuers you know, try to do ahead of time.


Dr. Kiran Garimella  54:29

Pretty good. Thanks, Jim. Lee.


Lee Saba  54:33

Yeah, you know, I think I think the number one, you said issuer, right, what’s the number one thing for issuers to consider? You know, I, I think if you’re if you’re going out loud, you know, it’s, you know, with your issue after you’ve been, you know, compliant, you’ve got your Reg CF and Reg A paperwork in hand, you’re ready to go. I think one of the biggest determinants I’ve seen of success is your marketing in and you know, very targeted marketing. No, you’re all Audience. Jim mentioned this, like, if you’re not if your audience isn’t aware that these are available, again, these are, you know, slightly smaller security offerings, you have to attack your, your, your clients, your potential investors, and make sure that they’re very aware of this process. That, that that is huge, you know, compliance, number one, number two, know your audience and know where they lurk and know where they’re, you know, what resonates with them. And I think that usually is a sign of, you know, that’s where we see the most success in offerings, they tend to meet their minimums and beyond.


James Dowd 55:43

And just to give a plug to our hosts, I think, you know, get, get trusted partners, you know, who can help you not waste time on things that you don’t need to be an expert on? If you hire the right experts?


Dr. Kiran Garimella  55:56

Absolutely right experts and really make sure everyone is following you know, they’re 100% committed to acting in full compliance with all the regulations, right, and a code of ethics, you know, all of that great stuff. So, this has been fascinating. And I really appreciate, you know, both of you, all of you, gentlemen, take your time. To help us and our audience understand this exciting space, I’m in real estate has to be one of the most exciting and, you know, going forward, very profitable areas to be in, and what insurers can do to get ready for it. How should the, you know investors be looking into all of this? It’s, it’s great. So thank you for sharing that. James Dowd, Lee Saba, and Peter Danyeko . And let’s see if there are any closing thoughts. I believe I’m not sure if Oscar will be jumping back.


Lee Saba  57:04

Thank you very much. Yep, it was great.


Dr. Kiran Garimella  57:08

Absolutely. Pleasure. Thanks again, James. Thank you, guys. Bye bye. Thank you.

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