Tokenized commercial real estate

Blockchain Real Estate FAQS

If you are interested to learn more information about how RedSwan CRE works, you can check out these FAQs

Investment Process, New Investor Onboarding

Yes, entities such as Corporations, Trusts, Partnerships and LLCs can also invest in RedSwan CRE Investment opportunities.

Watch
this video
for US Investors Intro to Issuance Platform

Watch
this video
for Non-US Investors Intro to Issuance Platform

Watch
this video
for US Investors Intro to Issuance Platform

Watch
this video
for Non-US Investors Intro to Issuance Platform

The process for Deal participation is as follows:

RedSwan CRE launches marketing campaign and allows full due diligence to RedSwan CRE investors. Due diligence materials will include the Private Placement Memorandum.

  1. Pre-Sale Expression of Interest. 4-5 weeks after launch, all expressions of interest are due in which investor indicates how much she/he would like to invest. (Note:  The expression of interest allows an investor to express interest in multiples of the minimum amount, but investor is not bound to the dollar amount indicated. During the Digital Token Sale period, the investor will indicate the exact amount he/she wishes to invest)
  2. If you are extremely interested in a deal, we strongly recommend that you express your interest as early as possible to increase the chances of receiving your desired allocation.
  3. Digital Token Sale. This stage begins immediately after the end of the expression of interest and lasts 4-5 weeks. Here, the deal is upgraded to “Live” on the Marketplace.  During this period, Investment Advisor Representatives of RedSwan CRE will reach out to investors who expressed interest to complete the buy process. This includes completing an official order online, signing a subscription agreement and making payment.
  4. Investors that did not express interest during the pre-sale period can still try to make an investment. However, there is no guarantee that there will still be shares available for sale.
  5. After all subscription agreements and payments are collected and reviewed, digital shares will be allocated to the investors.  Investors may log back into their account on RedSwan CRE Marketplace to view their portfolio and holdings.

In total, from deal launch to closing, the entire process takes 8-10 weeks.

Note that an investor who is participating in his/her first deal with RedSwan CRE will first need to undergo an onboarding process within the issuance and transaction environment of the Marketplace. This consists of completing an investor profile questionnaire that will assist RedSwan CRE in serving the client, undergoing a KYC/AML (Know Your Customer/Anti-Money Laundering) check and, for US based investors, an Accredited Investor verification. Please see Accreditation FAQ section for more information about what an Accredited Investor is.

Finally, to guarantee your opportunity to invest in a deal, it is important to complete each deliverable as soon as possible.  Check your email often and whitelist@redswan.io domain in your email service to avoid any communications accidentally routed to your SPAM filter.  If you have any questions during the process, please contact support@redswan.io

Once a new investment opportunity is advertised, we encourage you to examine the investment terms and conduct due diligence as early as possible. If you are extremely interested in a deal, we strongly advise that you submit an expression of interest during the Pre-Sale Expression of Interest stage as opposed to waiting for the final Security Token Sale period. If there is strong enough interest during the pre-sale process, RedSwan CRE reserves the right to immediately close the sale process and completely bypass the Security Token Sale stage.

Once an expression of interest is submitted, it is especially important to monitor your incoming email box for invitations and reminders to complete all necessary documentation and paperwork as quickly as possible. 

For US investors:  Prepare ahead of time the documentation you plan to use to prove your Accredited Investor status and scan/save them so that you can easily upload them during the initial onboarding process and periodically thereafter when the current documentation has expired. The documentation to prove Accredited Investor status can include personal tax returns and bank and brokerage statements. Please refer to Accreditation FAQ for more information.

After an investor goes through the full onboarding process into the RedSwan CRE Marketplace issuance and transactions environment, the investor will have a link to his/her dashboard where holdings can be viewed.

Yes. Allocations are generally made based on the order in which we receive the expressions of interest and the timeliness of when we receive the official orders and the signed subscription agreement during the digital token sale period. Depending on demand, you may receive an allocation that is less than what you originally desired. In this case, you will invest in the desired opportunity but at a lower amount.

Yes, token holders can pay for RedSwan CRE digital securities in USDC stablecoin equivalent to the USD value of their allocation.

Yes. There is always a possibility for tepid pre-sale expressions of interest to cause a deal to be suspended.

All US-based investors must be considered “Accredited” to invest in a RedSwan CRE digital assets offering. Investors based outside of the US are considered Regulation S investors and there are no minimum income and net worth requirements that need to be met.    

Each investment opportunity has a minimum. Each token in digital securities is set at $1. For example, if a project has a minimum investment of $10,000, then the smallest allocation of tokens that an investor can subscribe to is 10,000 tokens.

Each investment opportunity on the Marketplace page of the RedSwan CRE website contains all the offering documents such as property condition, location, neighborhood details, competition, local geographic area demographics, financial information, sponsor bios and any other documents the sponsor deems helpful to deciding. In addition, each offering has a private placement memorandum. We encourage potential investors to read and analyze all the materials available. If you have additional questions, you can send an email to: support@redswan.io for response.

Some investment opportunities may also contain a pre-recorded video presentation, which we brand as “Digital Deals”, that gives you a chance to “meet” the sponsors and see how an actual potential investor views the attractiveness of the offering in a fireside chat format. We believe this is a unique and differentiated perspective and recommend that you view the video presentation in addition to the written materials.    

The return metrics displayed – IRR, Average Cash Yield, Equity Multiple – are all targets based on the sponsor’s projected performance of the property.  Actual results can differ from forecast and there is the possibility of principle loss. 

Generally, when a company/project wishes to issue securities to investors, the issuer must register them with the US Securities and Exchange Commission (SEC).  However, by limiting our token offerings to Regulation D Accredited US investors and Regulation S international investors, we can have our offerings exempt from full SEC registration.  This helps reduce the time and cost of raising capital for real estate sponsors and helps you get quicker access to investment opportunities.  Under Reg D and S, RedSwan CRE does have the ability to advertise offerings publicly but can only accept US Accredited Investors and any investor outside of the US. 

For US-based investors, please refer to our Accreditation FAQ for more information on what it means to be an Accredited Investor and the accreditation process.

RedSwan CRE issues the CRE tokens through a Limited Liability Company called the “Red Swan Real Estate Fund LLC” (the “Fund”), which is also a Registered Investment Advisor (“RIA”).  When you invest in a particular property, you are effectively investing in a “series” within the Fund.  RedSwan CRE, as the fund manager, selects what series (i.e., property investment opportunity) are offered within the Fund. 

The Fund also acts as its own registrar.  What this means in practice is that all the tokens that are issued are custodied on behalf of the investor in a single, secure vault at Coinbase, our partner custodian.  RedSwan CRE assigns owners to the tokens once they are allocated and paid for by investors.  On a go forward basis, RedSwan CRE manages the list of registered investors and ensures that important property information and financial updates are provided and that dividend payments are properly forwarded to token investors.

Since investors are buying into a fund when they invest in tokens for one or more investment opportunities, the Fund charges an annual management fee of 1.5% of digital assets under management.  This is an annual fee as a percent of assets and is like what one might pay for a traditional mutual fund, ETF, or hedge fund.  The management fee helps cover cost of RedSwan providing superior access to investment opportunities, conducting due diligence on potential Investment opportunity, furnishing investment recommendations based on real estate market intelligence and serving as a token registrar.       

Tokens have a mandatory holding period of 1 year.  After one year, you may post your tokens at any time for sale in RedSwan’s quotation bureau, to be launched later in 2021.  However, final execution is subject to demand and market conditions.  Upon posting, there is no guarantee that a buyer who is willing to make an acceptance or offer you find acceptable will be immediately available.  Currently, unlike the traditional stock and bond markets, there are very few firms that function as market makers for tokenized digital assets; but the market is growing.

There is no guarantee that you will be able to sell your tokens for the same or greater value than what you paid when they were issued.  As with other investments like public stocks the value can also depend on macro-economic conditions, interest rate environment, policies, and many other factors beyond the control of RedSwan CRE. 

To maintain our tokens’ compliance as securities exempt from registration under Regulation D and simultaneously managed by an RIA (the “Red Swan Real Estate Fund LLC”), a small amount of the proceeds from an offering must be invested in an unrelated asset.  In our case, we have chosen to invest the 2% portion into a Stablecoin portfolio.

The dollar offering sizes posted on the Marketplace are total, which include amounts earmarked to the RE sponsor and to the Stablecoin portfolio.  Therefore, any desired investment in a deal can be divided by the posted offering size to figure out your percentage participation. 

The portfolio is actively managed by RedSwan CRE and seeks to generate income from interest bearing stablecoin deposits with cryptocurrency financial intermediaries that offer attractive rates of interest.  The stablecoins will generally be those pegged to the US Dollar.  The Fund will continually monitor rates offered by competing financial institutions and may re-allocate assets periodically to earn the most attractive yields.  That said, counterparty soundness and creditworthiness is critical, and the Fund may not necessarily maximize potential yield to ensure the safety and preservation of principle.     

RedSwan CRE has experienced capital markets analysts who conduct an opinion of value of the underlying commercial real estate properties on a quarterly basis using a combination of internal analysis and access to proprietary third-party data sources.  The market valuation of the underlying property therefore determines the value of the tokens.  This value is consistent with similar projects in the community.

As a reminder, each token’s entire life cycle post-issuance will represent an interest in an underlying property and the Stablecoin Portfolio series.  Therefore, the value of each token can fluctuate based on changing values of the real estate and the Stablecoin Portfolio.  

The company does not allow any real estate sponsor to list projects and raise capital through us.  Real estate sponsors that are interested in raising capital through RedSwan CRE undergo a rigorous due diligence process and background check, which includes an on-site evaluation.  RedSwan CRE is uniquely positioned to do this work given the Founder and other professionals within the company collectively have many years of commercial real estate experience.  RedSwan CRE also advises the sponsor on how to structure the terms of a deal that would be attractive to potential investors.  Only after a potential deal passes due diligence and offers an attractive investment profile will it be accepted and officially offered on RedSwan CRE’s Marketplace and be included in the Red Swan Real Estate Fund LLC. 

We believe our up-front due diligence process provides an enormous benefit and advantage to investors as it saves time from you having to do the same type of analysis and incur costly travel and pursuit costs.       

The underlying property is managed by the project sponsor.  Rent is collected from tenants, from which various expenses, costs for property improvement and debt service payments are deducted.  The remaining cash flow is allocated to equity holders, like yourself.  The portion that is attributed to token holders is remitted to RedSwan CRE to allocate to the wallet/bank account of each investor in a timely manner.  Depending on the terms of the project, income is typically disbursed quarterly or annually.   

The company has expertise in multi-family residential properties given the background of the Founder and other principals.  As the company grows, we do intend to expand more into other commercial real estate types such as Industrial, Retail, Office, and Hotel.  Stay tuned!

The company does offer two managed funds for investors that don’t want to select specific properties on their own.  The funds are the “RedSwan CRE Core Fund” and the “RedSwan CRE Value-Add Fund.”  The former pursues a Core CRE strategy, which entails investing in established, high-quality properties in well known, mature markets.  The latter fund utilizes a Value-Add strategy, which entails investing in buildings where the sponsor has an opportunity to increase asset values through a combination of property renovations, increased operating efficiency and improved marketing.  In a Value-Add strategy, a property can be upgraded to a higher class from a lower class and target returns are typically higher than for Core.

The benefits of the funds include automatic diversification, professional management and low minimum investment of just $1,000.

No. At this time RedSwan CRE is focused exclusively on the equity portion of a property’s capital structure.

Any questions you have can be addressed to support@redswan.io

Accreditation
(for US investors only)

An individual is considered an “Accredited Investor” if s/he meets any of the following four criteria:

  • The individual’s net worth (individual or combined with spouse) exceeds $1 million, excluding the value of the individual’s primary residence.
  • The individual’s income exceeds $200,000 in each of the last two years and has reasonable expectation to achieve the same income level in the current year.
  • The individual’s joint income with a spouse exceeds $300,000 in each of the last two years and the couple has a reasonable expectation to achieve the same income level in the current year. 
  • The individual has knowledge and expertise to participate in private investment opportunities based on relevant professional certifications, credentials, and designations. As of today, individuals with Series 7, Series 65 and/or Series 82 security licenses are considered “Accredited” regardless of net worth and income.

A trust is accredited if it meets any one of the following criteria:

  • Possesses investments more than $5 million and was NOT formed for the specific purpose of acquiring the investment and is directed by a sophisticated person.
  • The trust utilizes a bank, insurance company, registered investment company, business development company or small business investment company as a trustee.
  • The trust is revocable, and grantor(s) are accredited individual investors.

An entity is accredited if it meets any one of the following criteria:

  • Possesses investments more than $5 million and was NOT formed for the specific purposes of acquiring the investment
  • All equity owners of the entity are accredited individual investors.

There are two ways you can demonstrate accreditation to RedSwan CRE:

  1. Have your registered financial advisor, licensed attorney, CPA, or licensed broker-dealer complete a verification letter that attests you are an Accredited Investor. This letter can then be submitted to RedSwan CRE.
  2. If you do not have a relationship with a registered financial advisor, attorney, CPA, or broker-dealer, you can have RedSwan CRE directly verify you.

Regardless of which approach you choose to become verified, you will need to submit documentation to prove that you can be considered an accredited investor.

For individuals, the documents depend on whether you are getting verified under the net worth test, one of the two income tests or the knowledgeable investor test.  For net worth verification, you would need to submit any combination of bank statements, brokerage statements, other statements of securities holdings, and appraisal reports to assess the value of your assets.  For income-based verification, evidence can be supported by tax returns, W-2, K-1, 1099 or other government documents.  For knowledgeable investor test, a copy of the unexpired Series 7, Series 65 or Series 82 securities license suffices.      

For business entities and trusts, one can show the $5 million minimum assets by furnishing a bank statement, brokerage statement and/or appraisal reports of real estate or other tangible assets held by the entity.  If a business entity does not meet the minimum assets requirement, then each owner of the business entity must be individually verified as an accredited investor, in which case the documentation requirements mentioned above for individuals applies. 

Similarly, if a trust does not meet the minimum assets threshold, then the trust documents should be submitted to determine if the trust qualifies based on the type of trustee or if the trust is revocable.  If the trust wishes to achieve accreditation under the condition that the trust is revocable, then all trust grantor(s) must be accredited individually, in which case the documentation requirements mentioned  above for individuals applies.

Unfortunately, no.  Income based proof is only good for one year and net-worth based documentation is only good for 3 months.  Therefore, as you participate in more investment opportunities over time, you may need to be repeatedly verified.        

Commercial Real Estate Basics

In addition to one’s own primary residence, investors typically hold a portfolio of stocks and bonds.  Many studies have shown that adding commercial real estate adds diversification benefits.  Historically US commercial real estate returns have offered similar returns to stocks but with less volatility.  More importantly, they exhibit low correlation to the US stock and bond markets and have proven to be an effective inflation hedge.

Publicly traded REITs typically focus on a single commercial property type and have diverse exposures across geographies and markets, some of which may not be favorable depending on the economic environment.  Moreover, as a REIT investor you are beholden to the decisions of the company’s senior management in terms of the properties they choose to invest in or dispose of.  By investing in direct CRE, you can select the property type(s) and exact locations that you feel will perform the best.  Also, you have full control, subject to any holding period requirements, of when you would like to liquidate your token investment.        

RedSwan CRE focuses exclusively on Class A and Class B commercial real estate.  Class A represents the highest quality buildings in the market.  They are typically attractive quality, good locations, well built, have good amenities, good access and are professionally managed.  As a result, they attract the highest quality tenants and command highest rents.  Class B is one notch down.  Class B buildings are generally a little older but still have good quality management and tenants and are well maintained.  Often value-add investors target these properties as they can be upgraded to Class A -through renovations and operational improvements.  

Through the application of tokenization, we can streamline and compress the time it takes for real estate sponsors to raise equity capital for their projects.  A fundraising process that typically takes many months to complete and requires many intermediaries and tedious paperwork can be shortened into weeks at lower cost.  Also, RedSwan CRE’s Accredited investor orientation means that real estate sponsors can be assured that they are attracting capital from a high-quality investor base looking to diversify their assets.   

Equity Investment opportunities offered on RedSwan CRE are diverse and include new construction, stabilized assets as well as value-add projects.  Value-add investments typically involve a real estate sponsor buying an underperforming property and applying capital improvements, and operational and marketing know-how to improve occupancy and rental rates.  Returns from value-add opportunities come from both income and price appreciation when the improved property is later sold.  For new construction, returns are derived somewhat from income as the property starts generating cash flow in later years but much more so from price appreciation when the property is sold.    

While RedSwan CRE may provide ongoing advice to the project sponsor, ultimately it is the project sponsor who is responsible for managing the properties that back the tokens issued by RedSwan CRE. 

This refers to the projected length of the investment period during which the equity holder will receive income and realize a return on the initial investment.  During the investment period, equity investors receive as income any residual cash flow left over after expenses, capital improvement spending, and debt service payments are made.  The end of the investment period is typically when an exit is planned, and the sponsor sells the property and pays off any outstanding debt.  The amount left over is then shared by the equity holders.   

IRR stands for “Internal Rate of Return”.  Once you invest in a property as an equity holder, the total return you receive corresponds to the residual cash flow left over after expenses, capital improvement spending, and debt service payments are made and then a final payment at the end of the investment period when the property is sold, and debt holders are paid off.  IRR is the common way to express this total return and is reported as a percentage. You can think of it as an annual return on investment.  Mechanically, the IRR is calculated as the discount rate that would make the projected cash flows to the investors over the target investment period equivalent to the initial investment made. 

Another metric to help investors think of the potential return to a real estate deal.  A targeted equity multiple of 2.0x, for example, simply means that over the investment period, the sponsor is looking to return $2 to the investor for every $1 invested.  Note that unlike IRR, this metric does not directly incorporate the time value of money. 

The average expected annual income to the equity holder divided by the initial investment.  A targeted cash yield of 8% means that for every $1 equity invested, the sponsor is targeting an annual payout of 8 cents.  Note that this calculation does not include the potential final payment that would occur when the property is sold at the end of the investment period.

Net Operating Income (“NOI”) is a common financial metric when analyzing a property’s financials.  It is essentially the revenues of a property less property taxes, insurance, utilities, property management fee, sales/marketing/administrative expenses, and additions to property reserves. NOI divided by revenues is the property’s profit margin.     

In most investment opportunities, the end of the target investment period assumes an exit event in which the sponsor sells the property.  To project the sales value of the property at the end of the investment period, the sponsor assumes that by then the property is stabilized, i.e., the property achieves a stable level of NOI in all future years after the disposition.   In this case, the projected value of the property is simply the expected stable annual NOI divided by a discount rate, which is referred to as an “exit cap rate”.  For example, if the projected stabilized NOI is $1,000,000 and the sponsor believes that s/he can sell the property at an exit cap rate of 5%, the sponsor therefore believes that the building can be sold for at least $20,000,000 (=$1,000,000/.05) at the conclusion of the investment period.      

Technology

A token is simply a digital representation of an asset.  A token by itself does not have any intrinsic value but is linked to an underlying asset that has value.  In addition to real estate, tokens now exist even for art and collectibles.  Tokenization allows easier and frictionless trading of assets that historically were difficult to exchange between buyers and sellers.  The tokens you invest in through RedSwan CRE represent equity ownership in actual properties and thus derive value from them.      

All tokens issued reside in a secure custodial vault at Coinbase, one of the largest digital currency exchanges in the world with over 43 million users, $90 billion in crypto in over 100 countries.  Coinbase’s custody business is a fiduciary under New York State Banking Law and regularly undergoes financial and security audits by external firms.  Coinbase’s crypto custodial business is held to the same capital requirements as traditional financial custodial firms. 

Would you like to sign up before leaving so you can browse properties, get alerts and express interest?