This interview is part of our new Blockchain In Real Estate series, where we interview the world's leading thought leaders on the front lines of the intersections between blockchain and real estate.
In this interview we speak with Joshua Stein, CEO of Harbor, to understand how his company is using blockchain to transform the real estate business, and what the future of the industry holds.
1. What’s the story behind Harbor? Why and how did you begin?
JS: Harbor was started to digitize traditional alternative investments – an LP interest in a fund, a share in a private REIT, a share in a fixed-income (debt) fund, etc. Through our SaaS platform and blockchain compliance protocol we are helping to bring greater access, efficiency and liquidity to traditional private investments in compliance with existing securities regulations.
The idea for Harbor came from David Sacks, the original COO of PayPal and long-time successful Silicon Valley investor and entrepreneur. He was interested in bringing greater liquidity to traditionally illiquid investment funds and recognized the potential to transform these private investments with blockchain technology.
2. Please describe your use case and how Harbor uses blockchain:
JS: Harbor’s digital platform improves the entire lifecycle of alternative investments – from streamlining investor onboarding, verification and subscription processing, to simplifying ongoing investor relations, and unlocking enhanced liquidity options with blockchain technology that give investors greater access and flexibility.
Harbor is an enabling platform for the traditional finance world – asset owners, fund managers and broker-dealers. We make it easier and more cost effective for issuers and broker-dealers to raise capital from a larger, potentially global group of investors, manage those investors over time, and enable compliant secondary transfers through private marketplaces or licensed exchanges.
In a nutshell, we allow issuers to lock up capital, without locking up investors.
3. Could you share a customer/user that benefits from what you offer? What has your service done for them?
JS: iCap Equity, an innovative real estate investment firm based in Seattle, is leveraging the Harbor platform for fundraising management (including investor onboarding, verifications and subscription processing), investor relations and to unlock liquidity for its 1,100 investors and 17 broker-dealers and placement agents through a private marketplace.
iCap Equity, through its unique preferred equity model, provides an attractive source of capital to builders and developers in the Pacific Northwest, while delivering high fixed rates of return to investors. Supported property types include multifamily, mixed-use, single family residences, light commercial (strip malls, small office buildings, retail), and condominiums. The funds pay a fixed monthly interest rate, offering a variety of yields up to 12 percent for investors, but typically include a 3 to 5 year lock-up period.
Now, with Harbor, iCap can provide an easier way for investors to exit the funds before the maturity date, if liquidity is needed. As investors exit, it provides others with greater access to existing funds that may have been previously closed as investors exit.
This is significant because traditional private securities are almost completely illiquid today, in large part because of the transfer cost, legal process, friction, and delay in the current paper-based transfer processes. A transition to digital private securities backed by blockchain technology brings efficiencies and automation to the secondary transfer process, allowing issuers to lift transfer restrictions while maintaining total compliance with laws and control of the process.
Through iCap Equity’s private marketplace, investors and placement agents can match buyers and sellers, and transfer holdings in accordance with securities regulations. Harbor’s platform enforces both regulatory requirements and rules defined by iCap Equity, allowing only compliant transfers to occur. Proactive compliance safeguards are what allow iCap Equity to unlock secondary transfers among trusted investors and broker partners. Behind the scenes, blockchain technology is used to enforce the rules and securely record transfer of ownership.
4. What other blockchain use cases in real estate are you excited about?
JS: We are seeing a lot of interest from debt and equity funds for real estate. We are excited about the private marketplace solution because it gives issuers greater control over who can access and buy/sell their securities. It’s a great way to begin driving adoption and prove out the tremendous benefits of the technology. We think you will start to see silos of liquidity around these private marketplaces and then some issuers will look for broader liquidity options over time on exchanges like OpenFinance.
Once there is a critical mass of tokenized assets, investors will be able to do things previously not possible in private capital markets. The technology makes it easy to unbundle ownership to the individual asset level and then rebundle in exciting new ways.
For example, there are technologies like Set Protocol that allow you to easily create “baskets” or “sets” of tokens. In real estate, imagine a world in which you can buy shares in individual Class A real estate throughout New York and then combine by neighborhood. You could essentially create ETFs on the fly – a midtown Class A ETF for example.
There are other technologies like dYdX that allow you to create synthetic derivatives on top of these tokenized assets. This could create interesting opportunities to speculate on real estate or allow developers to hedge their exposure in a given area. The ability to efficiently unbundle and rebundle private equity will create exciting new opportunities and tokenized securities are the foundation.
5. Where will Harbor be in 5 years?
JS: We want to be the Salesforce.com for alternative investments – a connected platform that makes it easier for the traditional finance world to raise private capital, manage investors and offer innovative liquidity options. Ultimately, we believe more accessible and liquid alternative investments will allow investors to allocate more of their portfolio to higher-return private assets.