San Francisco-based blockchain startup Harbor has signed a deal with Seattle-based real estate investment firm iCap Equity to offer more than $100 million worth of real estate funds on the Ethereum blockchain.
The funds are managed by iCap Equity and they comprise of four funds currently holding funds from 1,100 investors and brokered by 17 placement agents. This deal marks a pivot point for Harbor which was initially seeking to sell securities to investors directly but now is focusing on developing the Harbor platform on which investors and securities issuers will be able to interact. In a press release published on Monday, the blockchain startup announced that it will work with iCap Equity to tokenize its real estate funds a move that should make the funds easier to trade between the 1,100 iCap investors.
The security tokens are not available to the public for trading and so far only iCap registered investors will be able to access and trade within each other. This move is aimed at improving liquidity while reducing securities trading costs not to mention that blockchain makes trades faster and more transparent. For instance, most of iCap’s securities are sold with lock-up period contracts. This means that any investor who wishes to sell their shares in the funds before the expiry of the lock-up period will have to look for a buyer of the shares willing to commit and hold the shares through to expiry period. This process is tedious and costly.
“iCap provides high-yield investment opportunities for investors, but those investments typically come with a 3 to 5-year lock-up period because they are based on real estate,” explained Chris Christensen, iCap Equity’s CEO. “Now, with Harbor, we are able to provide the same strong returns, but also an option for investors to more easily liquidate if desired. It provides the best of both worlds, and is a game-changer for not only real estate-based investments but the entire alternative investment industry.”
Initially, Harbor had sought to act as a seller of tokens and crowdfunding platform. For instance, last year the company offered a $20 million security token sale on shares to a dorm house to students for the University of South Carolina. The deal eventually fell apart earlier this year due to disagreement in the terms of the deal between the issuer and the mortgage lender. The premise, according to the company’s CEO Josh Stein, was that if investors were extremely interested in investing in ICOs that only sold promises, then surely there was demand for ICO-like products with actual products. It turned out that the premise was wrong.
“The overlap between investors demanding tokens and investors interested in security tokens was zero,” Stein said. “People were buying tokens but they weren’t buying it to invest, they were buying it to speculate.”
This discovery led to the development of the Harbor platform, on which security issuers would like iCap Equity would sell their securities to interested investors while investors would in turn trade the securities based on the Ethereum platform freely. This theoretically improves liquidity and increases trade of securities.