In July 2019, Fundament Group a real estate company based in Germany were given a regulatory green light by Bafin (the main financial authority regulatory body in Germany) to host an STO on the Ethereum blockchain. The agreement allowed the Fundament Group to issue tokenized bonds representing fractional ownership in the Fundament property portfolio, which is backed by German real estate. The real estate portfolio at the time was worth around 250 million Euros, around $280 million at the time.
The interesting part about this project was the scope of the potential investors who could take part, in relation to the amount that people could invest. It was described as a first ‘mass-market tokenized real-estate asset’. Normally STOs are only available to accredited investors when the cap is over a certain amount, but in this case it the Fundament Group had found a way to open up to the retail markets, whilst maintaining larger caps. This was due to Bafin approval. You can see on the Fund token FAQs that you don’t have to be an accredited investor to take part in this project.
How the company managed to get such approval is unclear, however, the use of tokenized bonds could be an indicator. We have also recently seen the EUROTZ stablecoin project make use of a bond contract and this approach could signal a path to making tokenized securities more compliant.
The project proposal also wasn’t limited to German investors, as Coindesk stated: “Announced Tuesday, the Berlin-based firm has obtained approval from Germany’s financial regulator, BaFIN, for the 250 million euro ($280 million) offering. By virtue of being regulated, the token will be open to any retail investor anywhere with no minimum investment restriction.
In other words, someone in, say, Indonesia will be able to buy 100 euros worth of ethereum tokens and thereby indirectly invest in German commercial property.“
The Ethereum Fundament token was created as an ERC-20 token and can be seen on Etherscan here. We can see that there was a total supply (so far) of 29,827, but according to Fundament, each token has a nominal value of 1 Euro at the time of issuance. Interestingly the token has a 250,000,000 total supply and there was an application put forward to MakerDAO for the FND token to be used as collateral – the first real estate to look for approval in this way.
The code for the Ethereum smart contract can be found here and was last updated on the 2nd of September 2019. The bond which shares many attributes with a traditional real estate bond is scheduled to deliver 4% p.a. (IRR) plus possible sales revenue and the repayment schedule of the bond is 100% of the nominal amount of the token-based bonds, as scheduled on 31 December 2033.
It should be stated: “…if a property is sold, the proceeds will be handed over to the investors. These proceeds are not generated annually, as the properties will only be sold if there is a good offer by other real estate investors.”
Here is a quick 2 minute video detailing how the overall Fundament project works:
In analyzing the Fundament Securities Prospectus there are two projects that come to light – ‘Projekt Hoisberg 30/32 GmbH’ and ‘Projekt D5 6 Jena GmbH’. Both of these projects are in districts of Hamburg, however, there is also thought to be another project in Frankfurt.
These projects are operated under the company Silver Lining GmbH.
Project Hoisberg 30/32 relates to a project called ‘Kita Volksdorf’, information regarding this development can be found here. Named Kita Volksdorf as it is located in the Volksdorf district of Hamburg, has a finance goal of €2,400,000 for the raise and the minimum investment is just €500. The brochure issue date for the project came on the 30th of October 2018.
Investmentcheck.de states (translated from German): “The issuer becomes the owner of the property at Hoisberg 30/32 in 22359 Hamburg with a size of approx. 2,520 m². The project property is currently built on with existing buildings that are to be demolished. It is planned to build a house with approx. 850 m² living space and a daycare center in the rear area of the project plot with approx. 637 m² usable area. Likewise, 8 parking spaces are to be created on the project site.”
A second project named Projekt DS 6 Jena, otherwise known as Dornburger Strasse had a finance goal of €2,060,000.
Projekt DS 6 Jena GmbH acquired the property at Dornburger Straße 6 in 07743 Jena. According to the Bergfuerst “It is planned to obtain the building permit for an apartment house for the 2,184 m² plot. The building specification provides for the construction of a residential property with a living space of 4,990 m², an underground car park with 65 parking spaces, and a 92 m² bike parking area.”
According to Investmentcheck.de, this project had a minimum participation rate of just €10 Euros and the raise ended on the 17th of March 2020.
There is a video showcasing this project here.
Here are just some of the projects the Fundament Group are involved with (operating through Silver Lining GmbH):
In early October 2019 it was announced that a German real estate giant, which has 400 employees – Bauwens Group, had made a strategic investment into Fundament Group. The key headline of the deal was to tokenize up to €7 billion Euros worth of real estate, in possibly one of the biggest visions in the real estate digital asset space to date.
Bauwens also appears to have another €500 million Euros worth of construction in the pipeline as of the 1st of January 2020, to add to the €7 billion Euro project development volume, including joint ventures as of 1/1/20. At the time Bauwens Group had purchased a 15% stake in Fundament Group. Bauwens stated one of the reasons that they invested in Fundament Group was because they were very interested in the tokenized real estate bonds.
Fast-forward less than a month and in late October 2019, it was announced that Fundament was to use Tezos for digital securities issuance. It had also received investment from the Tezos foundation. As part of this, a digital asset platform was to be created with Digital Asset Custody Services (DACS) based in Boat Quay, Singapore acting as the custodian.
The DACS system lead by two former Deutsche Bank executives: “…leverages IBM’s LinuxOneZ-technologies hardware, it’s Hyper Protect Virtual Servers digital asset platform and Crypto Express6S HSMs to provide the strongest possible trusted architecture.”. DACS has been working with IBM to create a first-mover custody solution utilizing IBM Hyper Protect Virtual Servers and IBM LinuxONE technologies.
You can find more information about this cooperation in this case study here, suffice to say the technology is institutional grade and designed by IBM for banks. There is also this website: https://digital-assets-custody.com/, which could be related as they use the same technologies and are based in Hamberg where the Fundament Group and a lot of their properties are based.
It was surprising how fast this announcement regarding Tezos and Fundament, came after the Bauwens investment. It is not yet clear which projects are to be tokenized using Tezos. The Projekt Jena raise ended on the 17th of March 2020 after the Tezos/Fundament announcement in October 2019. In any case, as the Tezos foundation invested in the Fundament Group, the success of these projects can only be good for Tezos.
One thing is clear at this point and that is Fundament Group are to be taken very seriously and have the know-how, experience, capital, and regulation clearance to make high-value tokenized assets on Tezos a reality. With over €7 billion real estate assets in the pipeline set to be tokenized, this project could help to bridge a first real traditional finance/blockchain finance use-case of significant value.
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