How to Scale Commercial Real Estate

Feb 6, 2022

Neal Bawa is a technologist who is universally known in the real estate circles as the “Mad Scientist of Multifamily.” Besides being one of the most in-demand speakers in commercial real estate, Neal is a data guru, a process freak, and an outsourcing expert. Neal treats his $508+ million-dollar multifamily portfolio as an ongoing experiment in efficiency and optimization.

The Mad Scientist lives by two mantras. His first mantra is that, “We can only manage what we can measure”. His second mantra is that, “Data beats gut feel by a million miles“. These mantras and a dozen other disruptive beliefs drive profit for his 440+ investors.

[00:01 - 02:54] Opening Segment

• Let’s get to know Neal Bawa
• Where to find The Real Estate Top 10 Disruptive Trends
• • Link below

[02:55 - 15:00] What is Tokenization?

• Why tokenization matters in real estate
• What should real estate investors take note about tokenization
• Different websites where you can find tokenized real estate properties
• How to capitalize on this hundred-trillion-dollar opportunity

[15:01 - 22:42] The Cons of Tokenization

• What if tokenization becomes illegal?
• • Neal shares his thoughts
• We have an interesting exchange about reporting of tokenized real estate
• The bad side of tokenization according to Neal
• Final reminder from Neal before investing in tokenized real estate

[22:43 - 23:54] Closing Segment

• Reach out to Neal
• • See links below 
• Final words

Tweetable Quotes

“The beauty of the blockchain is once you write something to the blockchain, it can never be unwritten. No government in the world, not even all the governments put together, not even all the federal banks in the world put together can undo what is written in that block.” - Neal Bawa

“Tokenization is $100-trillion opportunity because it allows everything else in the world that is illiquid, including real estate, to now be traded like stock.” - Neal Bawa

“ I'm not saying buying tokens is a bad idea. I'm sure it's a good idea. Just buy from the source right now.” - Neal Bawa

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Email neal@grocapitus.com to reach out to Neal or follow him on LinkedIn. Visit Grocapitus Investments to create long-lasting wealth faster!

Do you want to know The Real Estate Top 10 Disruptive Trends? Visit https://multifamilyu.com/ now!

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I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.  

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Email me → sam@brickeninvestmentgroup.com

Want to read the full show notes of today's episode? Check it out below: 

Neal Bawa  00:00

The challenge is, it's extraordinarily difficult to do all of the tokenization stuff for a $100,000 property. So most people are saying, “Look, the true potential of this is like stocks because Google is a trillion-dollar company broken up into millions and millions of shares. Isn't that the value?” So a lot of people are saying, “Let's go bigger. Let's look at multifamily hotels. Let's look at offices. Let's tokenize this.” So there are now companies looking to tokenize those things. And once again, in the last six months, we're still in the first inning here. multiple companies have done that.

Intro  00:36

Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we will teach you how to scale your real estate investing business into something big.

Sam Wilson  00:48

Neal Bawa, welcome to the show.

Neal Bawa  00:50

Thanks for having me on the show, Sam. Very excited to be here.

Sam Wilson  00:53

The pleasure is mine. You know, there's three questions I ask every guest who comes on the show. Before we get to that, can you quickly give our listeners just a quick bio on who do they listening to?

Neal Bawa  01:01

Sure, I'm a technologist, geek, dork, nerd, whatever you want to call me. It's sent, you know, steeped in Silicon Valley culture, had a successful technology career, had a successful technology exit and got into real estate by sharing real estate data analytics informations with geeks all around the US. We currently have about 50,000 geeks following our analytics, which we publish three times a year, currently have 700 investors in a portfolio that this year will hit a billion. We're not quite at a billion yet. We're pushing hard for it to hit a billion. We're also pushing hard for us to hit 1,000 accredited investors in our portfolio. We follow the analytics which means that our portfolio ends up being in 10 different states, royal pain in the ass. But we go what, where the data tells us to go so had great success with it, run a company called Grocapitus, don't provide education but provide tons and tons of free insights and analytics at multifamilyu.com.

Sam Wilson  02:03

Man, that's fantastic. Neil, looking forward to jumping in today. You got to answer the three questions I normally ask: What your, where do you start? Where did you start? Where are you now? And how did you get there? So we've got that out of the way. That thing I want to talk about today, you guys put out just a comprehensive, amazing report that was called The Real Estate Top 10 Disruptive Trends that came out a couple of months ago. First off, before we even get into it, where can our listeners get a copy of that?

Neal Bawa  02:26

Multifamilyu.com. That's multifamily, followed by the letter U dot com, has all 10 trends now. Do understand not all of those are equal. So I've suggested to Sam that we talk about the one that I consider firing away to be the most important and the most actionable of those 10.

Sam Wilson  02:43

Right. Yeah. And we're gonna spend the rest of the show just talking about tokenization. Can you give us just a high-level view? What in the world is going on the blockchain? What is tokenization? How's it affecting real estate? The floor is yours. Take it away.

Neal Bawa  02:55

Sounds good. So almost everybody here knows that real estate produces more income, more revenue, more returns than the stock market, right? This is not a secret. Everyone knows. Most people are like, “Why does that consistently happen?” And if that is the case, why is it that people spend more money on stocks and bonds than they do on real estate? Why is it always in third position behind the other two, if it makes more money? And the answer is simple. It takes anybody, anybody goes to a party, Sam Wilson goes to a party and there's people talking about some company, you know, their stocks gonna go crazy, like Nvidia, you know, Sam, Sam hears it from somebody credible. He's like, this guy knows what he's talking about. What does Sam do? He whips out his phone and taps on whatever his app of choice is E-trade, Robinhood, tap, tap, tap, tap tap, and roughly two minutes later, you know, Sam owns some stock in Nvidia. Now try and think about how difficult that is to do for real estate.  Sam goes to the same party, the same credible guys talking. But this time the credible guy says, “I can tell you anything that you buy, any kind of real estate that you buy in Idaho Falls is going to make a humongous amount of money in the next three years.” That actually happens to be true, but it's an example. So Sam's like I know a vault, oh my god, I'm gonna be rich, but there's no app, there's no whip out the phone. Because what Sam now needs to do is spend hours and hours researching the real estate market in Idaho Falls whether that's single-family or multifamily then he needs to basically book a plane flight and go out there and talk to a bunch of people, brokers blah, blah blah. Repeat that process two or three more times before he puts it in his first offer. Lose his first five or six offers then win an offer and go through due diligence realize it's not what it is, go put more offers in when an offer spend three months rehabbing the property and then spend two months renting it out right. Now compare that which I would say at least and I'm being very generous is 100 hours of work. Compare that to the two minutes that it took you to whip out your phone and buy Nvidea, RobinHood or etc, right. This is why real estate even though it is a superior asset class in every way to stocks, always comes in third behind stocks and bonds, right? So as you can imagine, people much, much smarter than I am, have spent a huge amount of time in the past trying to say, “How can I turn real estate into stock? What if real estate becomes stock? What if I could whip out my phone and buy dozens of different products in Idaho Falls today, in that same two minutes, that would be nirvana, right? That would be real estate nirvana.” And it will also be bad news in some ways for those of us that basically do these projects, because it might create the same kind of Amazon effect that we have seen in retail, where less companies ended up owning a larger share of the market. In real estate, there's hundreds of 1,000s of entrepreneurs all making money for themselves and their investors. But you know, Amazonian effect cannot happen because of the illiquidity and all of the things that I just described. But people want to build a billion and trillion-dollar real estate companies. And they can't really do that without having something that turns real estate into stock, something that allows people to purchase it in a few minutes. That technology now exists. And oddly enough, the person that created that technology was not thinking about real estate. So the technology was invented in 2009. But the person that came out with Bitcoin, that technology is called blockchain. And the blockchain is basically a set of digital blocks on the web that records information, it’s like a register. The beauty of the blockchain is once you write something to the blockchain, it can never be unwritten. No government in the world, not even all the governments put together, not even all the federal banks in the world put together can undo what is written in that block, because there are trillions of copies of that block, making it absolutely impossible for anyone to fiddle with it. This makes blockchain the most secure transaction technology invented by man ever. And now people are saying, okay, Bitcoin is just one way of using the blockchain, what else can I do with it. And so people are trying to tokenize everything. Tokenization is not a trend tied to real estate. Right now, every asset class in the world is being tokenized. Timber is being tokenized. Oil is being tokenized people working on a copper mine in China are tokenizing it. Hotels are being tokenized. Every kind of product that can be tokenized that wasn't already tokenized through the stock market is now being tokenized. This isn't a trillion-dollar opportunity, because that would be, it's a trillion-dollar real estate opportunity. But tokenization is $100-trillion opportunity because it allows everything else in the world that is illiquid, including real estate, to now be traded like stock. Nothing that we've seen since the stock market, you know, kind of commoditizing in the 80s. And then commoditizing again, when the apps came out, nothing else compares to this, it is a massive, massive change in the way that real estate will be done. So that's my intro to tokenization.

Sam Wilson  08:07

Man, that's wild. I mean, just to consider the ramifications of that. I can't even I can't see the end. You know where that will go? Like, can we back up a little bit? Because I feel like the example you gave initially was from the passive investor side on buying the stock, and then where the active investor on the investing in real estate. Do you think it's going to change both the active way that we invest as sponsors, and also the passive way we invest as passive investors?

Neal Bawa  08:36

Actually, it'll, so both are underway. And I'll give you examples on both. So back in June, for the first time I told my community about tokenization. I said, you know, people say what inning of the ball game am I in you know? Am I in the seventh inning? Am I in the sixth inning? And I said in June last year, I said you're not in the first inning, the pitcher is walking out to the mound, and he's kind of just, you know, turning his arm over. But the first pitch hasn't been delivered yet in tokenization of real estate. Obviously, there's other things being tokenized. That's no longer true. The pitchers now delivered the first pitch in many different ways. And I'll give you examples both for what you asked me, your question is, you know, okay, it sounds like people can make investments. That's great. But what about sponsors? I'm going to give you both examples. So in the last six or seven months in number of companies have successfully tokenized real estate products of different kinds. So first, I'll go with the consumer. There's a company called Lofty.ai. All of these companies don't have dot-com domain so dot-ai. And lofty.ai is an Oakland-based company that is now tokenizing single-family homes in Cincinnati, in Cleveland, Detroit, St. Louis. So these are 100-year-old, you know, $100,000 properties that they're tokenizing without taking any kind of loans on them. The same sort of thing is being done by a second company called Realt. That is R-E-A-L-T, I think it's dot co. And those people are doing even larger volumes of single-family homes. Now, this is interesting to people because they can go out to the Lofty website and they can spend $50 and buy a portion of a home in Cincinnati or Cleveland. And each month, they will receive their portion of the rent, somebody else is managing the property. They're just getting their portion of the rent. So it's interesting, right? And they're also getting a piece of the upside. So that property has capital appreciation, they'll get that piece as well. But the challenge is, it's extraordinarily difficult to do all of the tokenization stuff for $100,000 property. So most people are saying, look, the true potential of this is like stocks, because, you know, Google is a trillion-dollar company broken up into millions and millions of shares. Isn't that the value? So a lot of people are saying, Let's go bigger. Let's look at multifamily hotels. Let's look at you know, offices can, let's tokenize this. So there are now companies looking to tokenize those things. And once again in the last six months, we're still in the first inning year, multiple companies have done that. So the examples are, Securitize. Securitize is now securitizing commercial assets and who are they working with the Sam Wilson's of the world. Sam wants to buy multifamily property and his $30 million and he raises $5 million of equity from his investors and he wants another two or $3 million. So he goes to Securitize and Securitize does both, securitize first builds a white label portal for Bricken Investment Group and their project with all the pictures of the property. And then the other part of Securitize and you can just choose to do the white labeling part, if all you want to do is run people through you've got more investors that you weren't investing at the 5,000, $10,000 level still have to be accredited, unfortunately, for now. And so now you can just simply say, hey, build me a white label portal for breaking for this property. And I'll send my investors there and they can invest, they're still investing dollars, but the money, the rents are coming into their wallet. And this is where things are different. Tokens, the money comes into a wallet, and that wallet is usually an Etherium wallet, and you can have that wallet on lots of different exchanges. Now, at any point in time, you can go into that wallet and say put this money in my bank, right. And whatever the value is on that day of Etherium in the wallet is going to get transferred over to your bank roughly five minutes later. So it's completely liquid, right. And at any point of time, you can also say I want to sell this token for whatever its value is today. So you can sell it. With syndication though, when you give $100,000 to Sam, you can never make an instant decision to sell your share. It's illiquid. The secondary market really doesn't exist, though. We've seen some spotty, you know, versions of it. But let's be honest, 99.999% of syndication shares are illiquid, that is not true of a token. Because the tokens not just on Sam's portal, Sam can say I want this token also to be visible on the Securitize main site, your marketplace, I want it to be visible there. So my investors can go into the portal and say I want to sell this token. And now that token is listed on the Securitize main website where there's 1000s of investors, dozens of different sponsors, and somebody can buy my token within 20 or 30 minutes. And just like with stock, you know, you can say I don't want to sell my share for less than this amount. You can say that and you can sell it, you know, it only sells if it sells for more than that amount. So now my security becomes liquid. So Securitize is doing that. Another company that's doing it is Solid Blocks. And they've then done some of this in the US there, Israel-based company. Most of the tokenization is actually occurring in Europe, Europe, Israelis are far ahead. It's coming to the US in the last three or four months. Solid Blocks, for example, just did a set of detox centers in Florida on December 22. That was considered one of the pioneering tokenization offerings in the US, hotels have been done. Even large ones have been done in Europe. And so this is on its way, there's five or six different companies now focusing on tokenizing assets for sponsors such as Sam Wilson. And those companies were not public. We're not doing this publicly back in June. So here's what I want to say. This is $100 trillion opportunity for real estate. It's a trillion dollars, that's 1000 billion, right, and we're in the first inning. So if there's anybody here, and I think that's 100% of the people listening right now, that said, I wish I could go back to 2011 knowing what I know about multifamily. You're in 2011 for real estate tokenization. You know, I'll give you an analogy. In 2011 Bitcoin was $1 Today, it's $40,000. Wouldn't you want to go back to 2011 and get involved in the Bitcoin revolution, will today and tokenization that tokens really at $1.

Sam Wilson  15:01

 That's just, I mean, mind-boggling again, I love what you're presenting here. I mean, this brings up some really just tactical questions. I mean, you know, we're kind of in the early stages of the regulatory environment of tokenization, blockchain, all of this, I mean, what are some things you might see that's a man this could really, let's say, you go through this whole process, you get paid into theory and the next thing you know that Bitcoin, Etherium, all that suddenly not legal, right? They've made fed coin now, or whatever it is, right. So now you're stuck holding something that's worthless. And I don't know, I guess I'm just thinking about the worst-case scenario. I mean, what do we see in the regulatory environment? And how does that get navigated effectively, you know, for investors?

Neal Bawa  15:39

So here's what's exciting. When you buy Etherium, tomorrow, if all the governments in the world ban Etherium, you're screwed, right? Your $4,000 Etherium token or coin is now worthless, right? Correct. But you know, what's interesting about real estate tokenization. You bought real estate with this token, you're simply using the blockchain as a back end, right? You're not dependent upon the value of blockchain or Bitcoin. If the value of Bitcoin plunges tomorrow to one-half, your real estate is still worth the same. So what we're doing is, we are jumping on a tenure bandwagon starting in 2011 of, you know, the use of blockchain, the securitization of other kinds of assets, right, such as coins, and all of the legal stuff that we've now worked through over the last 10 years. So we're actually coming into a very mature technology. But since we're using real estate to back it up, this, in my mind is a lot better than a coin, which basically has value because Elon Musk tweeted about it. Right? You see what I mean? But here, there is a fixed asset in a part of the United States. And that fixed asset is being managed by professionals and rents are going up on that asset. So I don't understand why anything happening to Etherium, or bitcoin is going to affect that asset or its value.

Sam Wilson  16:59

Right? That makes a lot of sense. How about reporting? I mean, and I don't understand even how this happens even in the stock market, to be honest with you. Who owns what stock and how you get reporting it you're in? Let's say, your purchase, you put 100 bucks in syndication and that trade hands 10 times this year? I mean, who do we as a sponsor, who we send in stuff to how do we keep track of all that?

Neal Bawa  17:18

So first is this. So let's be candid. You're a sponsor, you have 50 investors who invested $100,000 each. The truth is right now you are responsible for making sure that all of them get the right number of dollars. And let's be candid, there have been cases in our industry where people didn't get exactly what they were supposed to get many times because it was an innocent mistake, right. But now what you're doing is you're paying a company that gets paid a subscription annual fee. Bricken is paying a company, Sam's paying a company whose job it is to make sure that if there's $1,000 of rent profits, it gets divided equally. Sam can never increase the tokens. Someone can say, oh, yeah, you know, there were suppose my property was supposed to be 1,000 tokens. And now it's worth 2,000. You can't do that, because you signed a contract with a third-party organization saying there can only be 1,000 tokens for this property, right? That number can never become 1001. So you've actually added a intermediary who wants to become a public company someday, that's actually going to prevent you from making those kinds of mistakes. So all you do, all Sam does, is that each month, at the end of the month, just right now, Sam is sending checks to individual bank accounts of those 50 investors, let's say in the future, you tokenize. And now there's 5,000 People that are holding the tokens, well, your job actually gets easier, Sam, because what you're going to do is when you initially built the offering, you build a cap table on this third-party token vendors website. And because that cap table is now built, in the future, any kind of transactions that occur on any site on the web, not just their website, but any site on the web. Remember, the blockchain is universal. So even if some other website were to transact the coin, they would still know that now, X is, doesn't own this token, why does it and the money will still get to why you will simply upload the profits at the end of the month to the portal and say, this is the total amount of profit for these blockchain investors. And then the portal and the cap table send the money out, and it sends it to the wallets. It tracks their wallets. You're not responsible for any of that. This is less work than you're doing today. Not more.

Sam Wilson  19:33

Right? Yeah. The decentralization of it, I think is absolutely beautiful, especially as it pertains, I mean, in its own right, I love investor conversations, and you're gonna kind of lose some of that along the way is that getting to know the personal touch with your investors.

Neal Bawa  19:47

You re. So there's a downside to this, right? This commoditize is, things and I let me explain this. I mean, how many conversations do you think Jeff Bezos has with his individual investors buying one Amazon stock? It's commodity. There is no value of interpersonal relationships. So that's the bad side of tokenization. That commoditization is not all good. It's also bad. I can tell you that. Let's assume today there's 10,000, syndicators in the US. My prediction is 10 years from now there'll be 100 because the ones that can scale the most are the ones that will grow. Because as everyone starts to do this, people are not going to want to work with 10, individual syndicators. They will want to work with larger companies that control portals that have 10s of billions of dollars in transaction because there's higher liquidity, they can sell their token in a second for significant value. So there's bad news that in 10 years, we either have to become, Sam either has to become one of those 100 or go find something else to do. And from the perspective of the investor, also, there's good and bad news, everything that they do in real estate in 10 years will be 100% liquid. But the PE ratios that real estate has right now are much nicer, much better. You're getting more for your money on 20 years or 10 years of properties, stocks. So why would the PE ratios be any different right now stocks don't return much. You're just hoping on the appreciation? Well, 10 years from now, unfortunately, everyone will just be living on appreciation.

Sam Wilson  21:15

Yeah, that's absolutely fascinating. Neal, thank you for taking the time to break down this kind of new frontier we have in real estate and what your thoughts are on it going forward. Are there any other questions or things that I should have asked? Maybe I didn't, because, again, I'm just wrapping my head around this whole idea. So if there is anything else, I should have asked that you'd say, Hey, man, this is something I really think we should have focused on.

Neal Bawa  21:37

Yeah, one piece. Please be extremely careful. Now that I've told you the name of some of these companies be extremely careful not to buy tokens from anywhere except their websites yet. Because what's happening is that different vendors are not talking recently, one of these vendors, I'm not going to name who. Basically, somebody sold a bunch of tokens on another third-party website posing as them, these tokens were worthless, they didn't have the right numbers, but people bought them all the same, because they felt like that vendor was actually selling the tokens. So this is the first inning, the vendors are still working out how stuff can be listed. So for now, when you're buying tokens, it's best to buy from the source, don't go to T-zero and buy tokens for Bricken Investment Group, because Bricken Investment Group may not have posted the tokens there, right? So it's not as safe or as secure as stocks just yet. It took a while for stocks, for companies to communicate with each other. It's going to take a while there. I'm not saying buying tokens is a bad idea. I'm sure it's a good idea. Just buy from the source right now.

Sam Wilson  22:43

Man, that's a wise piece of advice. I appreciate that. Neal, if our listeners want to get in touch with you, Grocapitus, or learn more about you, what is the best way to do that?

Neal Bawa  22:51

So whether it's tokenization, as you can imagine, we'll be doing webinars on those or webinars in about 20 Other very important trends, you can find them all at multifamily u.com. About 30,000 people attend our webinars. In fact, we have a webinar tonight with 1,056 people signed up. So that webinar is about doctors that want to become investors. And we have a doctor that you know, does this sort of thing, providing advice today, but that's typical. We usually have one to 2,000 people that sign up for webinars, you can check them out at multifamily you.com.

Sam Wilson  23:26

Neal, thank you so much for your time today. I do appreciate it.

Neal Bawa  23:28

Thanks so much.

Sam Wilson  23:29

Hey, thanks for listening to the How to Scale Commercial Real Estate Podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen, if you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners, as well as rank higher on those directories. So I appreciate you listening. Thanks so much and hope to catch you on the next episode.