Shareholders of Tokenized SFR Get Votes as Landlords

Democratization of real estate via the blockchain tokenization of assets is being redefined by token holders as something more than owning a micro-share, for as little as $50 per token, of a property.

If the portfolio is made up of 90 single-family rental houses located in several Midwestern states, holding a token also makes you a landlord, according to an offering from proptech startup Lofty AI, a tokenized real estate platform.

According to an NBC News report, Lofty AI is part of a growing trend among new digital platforms trading shares of crypto real estate assets to encourage the creation of shareholder forums known as distributed autonomous organizations, or DAQs.

In the crowdfunding sector, DAQs are given a say—via online surveys—in investment decisions by the fund. In tokenized real estate, shareholders are being encouraged to form DAQs who “transform the business of being a landlord into a series of online polls,” NBC reports.

DAQs formed by first-time investors drawn to crypto assets require a bit of a learning curve, the report said, as token holders are told they shouldn’t call the tenant renting the house on Elm St. in Toledo to argue about an estimate for a new ceiling fan.

Lofty AI, a Delaware-based LLC, has property managers who handle direct day-to-day communications with tenants.

But for decisions about property improvements—say, whether several SFR houses in the same neighborhoods should have new roofing installed—bylaws of the DAQ for Lofty AI’s portfolio require a 60% supermajority of the owners for approval.

The platform’s online marketplace lists about 90 SFR properties, most of them in Illinois, Michigan, Missouri and Ohio. Lofty AI was launched last year with funding from Y Combinator, a Silicon Valley investment specializing in tech startups.

Blockchain token transactions move at light speed compared to the cumbersome paper records involved in the traditional escrow and settlement process, Lofty AI CEO Jerry Chu told NBC.

Chu said Lofty AI’s average blockchain transaction “takes four seconds,” noting that tokenized real estate transactions encrypted in blockchain puzzles are secure and highly transparent.

According to the NBC report, Lofty AI is not required to notify tenants that individual investors are their landlords. The startup is discouraging investors from contacting tenants directly, Chu said.

“It would be bad etiquette if a tenant was reached out to by 30, 40 different people saying, ‘Oh, I own the property,” Chu told NBC interview.