SteelWave launches $500 million tokenized commercial real estate fund

San Mateo-based developer SteelWave has launched a $500 million commercial real estate fund — with a blockchain-powered twist.

The fund, called SteelWave Digital, offers investors the option of converting their limited partner cash stakes into digital tokens to be invested in next-generation commercial real estate acquisitions. In tokenized funds, the shares of the fund are transformed into digital tokens that are issued on a blockchain — the same technology used in cryptocurrencies like bitcoin, ether and XRP — and offer fractional ownership.

The goal is to make investing in high-value assets more accessible to a wider range of investors. While crypto tokens are often associated with viral scams and wild price fluctuations, the same technology is widely seen in the financial world as having the potential of lowering transaction and administrative costs, and thereby widening access to certain kinds of financial instruments previously reserved to institutions and high-net-worth individuals.

SteelWave CEO Barry DiRaimondo said the fund is among the first of its kind in commercial real estate and will help attract new investors and add to SteelWave’s capital sources.

SteelWave, which is known for building amenity-rich workspaces across the West Coast, plans to purchase north of a dozen office properties with long-term tenant leases across its markets with the fund, offering investors the option to begin with either the digital security or traditionally limited partnership stake. The tokenized funds will lower buy-in requirements for investors and provide them more liquidity.

With the San Francisco office market entering a reset and several buildings trading for a fraction of what they were bought for, DiRaimondo said now is the time to take action.

The Business Times sat down with DiRaimondo to talk about SteelWave Digital and the future of the office market.

Your company recently launched SteelWave Digital, a tokenized commercial real estate fund. Why did you launch it, and why now?

The whole goal was to create a coin, call it what you want, that was backed by commercial real estate assets. Most of what we do is really complicated stuff. We do ground-up development, we do radical transformations of buildings, and we create really cool work-play-and-live environments. We can’t create a coin around that because there’s way too much complexity. So we said, what’s a simple strategy? … Let’s just buy the stuff we’re making, and not go through all the brain damage of the making.

Let’s go create a portfolio of buildings that (have in place) long-term leases, and let’s do it at a time where the markets are completely dislocated. We would never do this five years ago, just because there’s no margin in it …So we’ll do this in a dislocated market, which isn’t going to be dislocated forever, and we’re going to go raise traditional LP money where they’re going to hold their interest as a limited partner interest. But they’re going to have the option to convert it to a digital security.

What sort of assets are you looking for?

We’re focused on buildings that have really good bones, such that you can create work environments. Like if you’re buying a building (with) 8-foot ceilings, there’s nothing you can do with it. If you’re buying a building that’s got 13-foot ceilings, you can create a really cool work environment, right?

How do you see the office market today?

I don’t think the office world is dead. Everyone’s sort of written it off as done, no one needs office space. I don’t think that’s the case at all. I think there’s probably more office space that exists today than needs to exist – at least for some period of time. But it’s not like no one’s going back to the office building. All you have to do is get out of the Bay Area to realize that. If you go to London, everyone’s back to work, right? In some of these tech hubs, Seattle, San Francisco, Silicon Valley, you’ve got a very skewed perspective on who’s going back to work and who’s not. I think tech has been the last to sort of embrace the “back to the office” world, but it’s getting there.

What are your metrics for success for SteelWave Digital?

We’re early. Whether or not this fund works from a tokenized perspective, we think we’re on the front end of these things, and we want to be one of the groups who’s built a brand inside this ecosystem to allow us to mine that ecosystem for capital for years to come. Are we just going to become a digital security real estate company? No. But I do think some amount of our capital needs are going to be funded with digital securities.

I just think the digitalized world brings a lot more flexibility to the ownership structure than your traditional institutional build liquid structures that you see out here today, and we’re just trying to be at the front edge of the curve, not the back edge.