Apr 27, 2022
While the world has mostly gone
digital, key financial markets for managing, purchasing, and
selling assets remain outdated. This is particularly true in the
commercial real estate market, where the investment sector is
extremely illiquid and out of reach for the majority of the
population. Our guest expert Michael Flight, a real estate
entrepreneur and blockchain real estate evangelist that when
blockchain technology and real estate is merged, it could create an
impact and take the industry to a whole new level! It’s another
value-bomb episode in today’s show so be sure to tune in till the
end.
[00:01 - 07:05] The Basic Concept of
Blockchain
- Welcoming Michael to the show
- A quick backstory of how Michael’s real estate investment journey began
- What is a blockchain
[07:06 - 13:21] How
Blockchain Technology is Changing Real Estate
- The connection of blockchain technology with real estate property
- Bitcoin and blockchain explained
- What role does blockchain play in commercial real estate
- Why Michael favors security tokens
[13:22 - 23:06] Tokenizing Real Estate Assets on Blockchain
- Where the blockchain technology is going and
its impact on the real estate industry
- More volatile
- Liquidity
- How safe is a cryptocurrency and how could you protect yourself from the possible dangers of blockchain
[23:07 - 30:38] Closing Segment
- The future of blockchain technology and commercial real estate
- Watch out for the blockchain real estate summit this September to be held in Austin, Texas!
Tweetable Quotes
“I believe that if you take blockchain technology, which allows value transfer, and you combine that with real estate, you can open up real estate to liquidity, you can open up real estate to people that right now can't get into real estate, and you can open up, you know, just worldwide capital because real estate is the world's largest asset class, it's $280 trillion.” - Michael Flight
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Connect with Michael if you’re curious about blockchain and real estate investment: https://michaeljflight.com and https://libertyfund.io/
Connect with me:
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 the episode? Check it out below:
Michael Flight 0:00
One of the really nice things about blockchain is it's going to be better for title. Because everybody right you know, right now title records are stuck in, you know, the basement of the courthouse and you need a title company. I think you're still going to need title company to verify stuff. But at some point, all that title is going to be sitting there on a blockchain that somebody can just publicly go and verify.
Intro 0:24
Welcome to the How to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.
Sam Wilson 0:35
Michael Floyd has been a real estate professional since 1986. He founded Concordia Realty in 1990, and partner but institutional and individual investors and over $600 million worth of commercial real estate. He is also an expert on retail real estate and blockchain, which is really what we're going to get into on today's episode. So if you're looking for kind of the premier expert on blockchain and real estate, Michael is your go to guy. I've had the pleasure of meeting him at the IREC conference in Los Angeles here this past January. And I'm really just excited to jump in today. Michael, welcome to the show.
Michael Flight 1:09
Sam, I have been looking forward to this podcast ever since we met in California. And, you know, we just talked about a huge range of topics and even covered a little bit of real estate, but your other interests were just really fascinating. So I love talking to you. I'm looking forward to talking to you some more
Sam Wilson 1:29
Well, and taking the time and we were out there you were super generous. Also, you know, in the time you gave so many of us with 1000s of questions that we threw at you as it pertains to blockchain, real estate and those, you know, that topic in general, I'm outside of my league on this conversation. So I'm gonna have to really rely on you heavily on this show, not to sound like a complete idiot. I mean, you can't submit written that entirely, but maybe just a little bit. So I guess you know, there's three questions, though. Before we get into that, Michael, that I asked every guest who comes to the show in 90 seconds or less? Can you tell me where did you start? Where are you now? And how did you get there,
Michael Flight 2:02
I started at a nothing down seminar in 1984 1985, I can't remember which it was my brother and I went to a nothing down seminar. Then we went to a real estate broker, and he said, You guys can't buy anything because you don't have a job. So I went and changed from being Lutheran pastor, because Greek and Hebrew were also a sign from God that I should probably go into something else. And I switched to business and went into real estate. So I became a real estate broker. 1986 had been licensed since 1986. never sold a house because I'm in commercial real estate. And it is a long, winding path, you know, so I'm not sure that we could get it done in the amount of time we have, but went to work for a syndicator went and met a lot of people at that company, they ended up in really good positions in institutional insurance companies and publicly traded companies and all the rest of it partnered with those people that I met in the 1980s through the 1990s. And 2000s, pioneered de-malling, which is tearing down malls and creating something else in the late 1990s and hung around with a lot of smart people who are talking about Bitcoin and blockchain, you know, 2015 through 2017, and said, I want to create a real estate stable coin. So that's how I'm here.
Sam Wilson 3:32
Okay, man, that's great. I love that. That's a lot of moving pieces there. So 2015 2017, you became interested in blockchain in you know, in this whole space? So tell me, where are we today? And where do you see it going?
Michael Flight 3:47
I say we are like, at before the dot-com bubble, if you were around in you know, 1990s were before the bubble. There is all kinds of stuff in what I like to explain blockchain as is just like the internet was a way for instantaneous communications anywhere in the world. Blockchain is a way to transfer value money or assets anywhere in the world. And it's not using a banking system. So it's basically like the internet for the financial system. And so, at some point, you know, people aren't even going to know that there's a blockchain, they're just going to know that I want to send money here, or I want to, like buy a piece of property in Africa, or I want to buy a piece of a resort in El Salvador. And they're just going to like, you know, open up their phone, their phone is going to have a wallet, and they're going to use their money of choice. They're going to own all their assets. They're going to control all their money. It's not going to be in a bank, and they're just going to be able to trade hopefully frictionless worldwide. Now, a lot of things called government instead are putting up impediments to doing that. And there's things called regulations that make that a little more difficult. But that's, you know, kind of, at some point, you won't even care that there's a blockchain, you'll just do a transaction.
Sam Wilson 5:13
How is so you say, this is pre dot-com bust. I guess, do you see a bust happening in the Bitcoin Ethereum…
Michael Flight 5:24
I don't necessarily see a bust. So but saying that, you know, there was all this activity, there was all this, you know, entrepreneurial stuff, there was like, what we like to call creative destruction, there was people putting money into stuff that should have never happened. And it's the same thing, it's like, Bitcoin started out in, I'm going to, you know, lose the year, but like, 2009 2010, and people saw that this was, you know, going, and then all sudden, you know, around 2015, to 2017, there was just like, really, you know, Cambrian explosion of all these things called ICOs, which were initial coin offerings, and anybody with a website, and you know, a white paper was raising billions of dollars. And, you know, you had all these coins out there, and then everything crashed. And so, now we're back to people have been actually building out the rails of the system. And it's exactly like the 1990s, where they built out, you know, fiber optics they built out, you know, TCPIP, they built out all these data centers, and it's the same thing. Now, there's the rails of the financial system are slowly being built up, there's people putting huge amounts of capital and in banks, and, you know, governments are putting money into this. And, you know, it's where you will have digital money, and we can get into that later about, you know, how scary that is when a government, you know, controls your digital money, and why you might want something that, you know, you have more control over?
Sam Wilson 7:06
So that's kind of the where we are right now, how does this intersect with real estate commercial?
Michael Flight 7:15
That is a great question. That's why I'm here. So I asked the question of very smart people around me that now are, like, really, really wealthy, who were doing blockchain and investing in, you know, coins and things, you know, in the early years. And I kept saying to them, I don't understand why isn't Bitcoin just fiat currency? Because all that's behind it is an algorithm. And number one, I went to a public school, so I don't do math. So I didn't understand, you know, how that whole but I'm like, isn't it just basically a software project? And why wouldn't you just take it and tie it to gold or real estate, that way, you get a stable coin that was actually based on a tangible asset, that, you know, like, I always tell people, it's like, real estate has the world's most proven track record, you know, it's been around, you know, and they've been trading it, they've been fighting over it. And people generationally have, you know, stored wealth in real estate. And that's, you know, not going to go anywhere. The only way they're making new stuff is they're either doing it in Dubai with, you know, pumping sand into the ocean, or volcanoes. So, I believe that if you take blockchain technology, which allows value transfer, and you combine that with real estate, you can open up real estate to liquidity, you can open up real estate to people that right now can't get into real estate, and you can open up, you know, just worldwide capital, because real estate is the world's largest asset class, it's $280 trillion.
Sam Wilson 8:59
That's really I mean, I love the idea conceptually, I love the concept. But what does that mean, practically? How does this get built out how to real estate investors get in front of this? This is 1997 for email, how do we get in front of it?
Michael Flight 9:15
Right. Well, that is an excellent question. And that's why it's taken me and our company so long to get you know, things launched because the technology can do certain things, but they didn't built it. So But conceptually, the technology can do certain things. And then the technology can do certain things, which are illegal, like, you know, it ends up being money laundering, or, you know, it ends up being a security which is regulated by the Securities and Exchange Commission. Right now, though, if you're doing normal syndications, or you're doing private real estate investment, you can do a normal real estate syndication and just buy Adding language to your offering memorandum or requesting that your general partner who you're investing with, say to them, you know, is there the language in here that makes this number one, you can issue it to a blockchain in number two, makes it tradable. So just by having that in the offering memorandum, it doesn't ever have to be issued to a blockchain, but it's at least ready to go. And then when the trading systems and a lot more of the technology is built out, which has been happening, and we'll be happening within the next few years, your particular you know, investment will have another opportunity, you can either refinance it, or you can sell the property or you can issue the you know, the tokens and then your investors have the opportunity to trade out of the deal.
Sam Wilson 10:55
Right? Can you just for our listeners sake, maybe they haven't listened or studied this as much break down differences between say, a Bitcoin and blockchain?
Michael Flight 11:05
Sure. So a bitcoin is issued on a blockchain. So the Bitcoin each individual bitcoin is part of the blockchain, so it makes a blockchain, there are other blockchains out there that are just set up so that they do have, you know, a monetary unit like a Bitcoin, but they are more set up to do transactions, whereas bitcoin is kind of like a store of value. And because it's, I'm gonna get into some things, it's mined by proof of work. So the computers have to solve these algorithms, and you have to expend energy to solve the problems. That's called Proof of Work mining, there's other blockchains out there that are much faster, and, you know, much less energy intensive. And that's called Proof of stake. So just like if you're in a poker game, you put up your stake, if you're going to validate on these chains, you need to put up so these blockchain, you know, things they're basically I like to call the layer one blockchains, a combination of the AT&T telephone company, and, you know, a banking system or, you know, like a actual communications network. So, but it's communications network for financial systems. But in order to validate that the transactions went through, people put up money, and if they're a bad actor, or they come up with the wrong, you know, the wrong answer, they actually lose their money. That's why it's proof of stake. So they have something at risk. So the incentive is to do it correctly, and then you get, you know, money for validating the transaction. And those transactions end up being less expensive, then sending a wire transfer, and they end up being confirmed within a minute or two, versus if a bank sends a wire, you don't know that the wire has gone through, especially internationally, you know, for seven days.
Sam Wilson 13:14
Right? Right, which is just astoundingly slow. Right? How is blockchain currently being leveraged in commercial real estate?
Michael Flight 13:22
Blockchain is currently being leveraged in commercial real estate in a number of ways. So there's the low hanging fruit and you would initially when we are offline, you'd ask about, you know, NFT's and security tokens. I'm more interested in security tokens, which are tradable, you know, legal securities in the United States, and they're tradable legal securities, you know, in different parts of the worlds that have, you know, regulatory. So securities everyone, you know, the difference between a non-fungible token is every one is unique securities, they're all pretty much the same. So, if you have 10 shares of, you know, you do self-storage, correct.
Sam Wilson 14:09
I have done some of that. Yeah, I do. Okay, my hands a lot of an asset classes, but it doesn't matter.
Michael Flight 14:13
Yeah. So if you do 10 shares of, you know, a self storage, you know, partnership, those shares are all basically the same, except if there's different classes on a non-fungible token. Each one is unique. So I like to say, you can invest in shares in a commercial real estate project, or each individual house in the United States could each be its own individual non-fungible token. So because each one is a little bit different, a little bit unique. So that's, you know, how we like to differentiate there. I think, you know, one of the things that's going to happen in surprisingly here in Chicago Cook County is doing an experiment where they're putting titles on a blockchain because blockchains are kinda like a fly in amber type of thing. You can't go back and change it. So it's, you know, distributed ledger. And there's a lot of people verifying it. So if you go back and try to change that one block that's already backup 100 blocks. It's kind of like a jigsaw puzzle fitting together, it has to fit together. Exactly. And if it doesn't fit together, exactly, then everybody else that's validating on the blockchain realizes that somebody's trying to commit fraud or do something bad. So one of the really nice things about blockchain is it's going to be better for title. Because everybody, right, you know, right now, title records are stuck in, you know, the basement of the courthouse, and you need a title company, I think you're still going to need title company to verify stuff. But at some point, all that title is going to be sitting there on a blockchain that somebody can just publicly go and verify.
Sam Wilson 15:57
Right and access to information on that side. I mean, the archaic, it's so county by county, the archaic title system. I mean, that's one of things. I'm excited about my cut my teeth in this business in the foreclosure markets. Right. And I knew the county title office really, really well. I mean, every county we had our own system for getting in and going, Okay, what is because we were reviewing hundreds of deals a week, and it's like, oh, my gosh, yeah, just a very clustered up. So it's good to, you know, think in the future that this will be so easy, you know, to access. What about so you're talking about security tokens, which I think is really interesting. So if I understand this correctly, you're taking, you're gonna put this language in your offering memorandum says, hey, you know, this can be issued to the blockchain, in the future, this will become a security token, I mean, everybody sets their own dollar amount for what you know, a share is worth, it's either $1 or 1000 bucks or 50,000 bucks. I mean, it doesn't really matter. One of the things that has been that's interesting to look at in this space is that potentially, you can now trade fractions of those shares, you know, to where you're not necessarily finding a replacement buyer for 50 grand to take your spot, you could sell it for 100 bucks, I mean, is that kind of where we're going with this is a really…
Michael Flight 17:08
Theoretically, but it really also depends on the issuer. So if you are the issuer, or I'm the issuer, and I'm issuing shares and in our funds, so, for example, in our fund, the minimum investment is $50,000. And we made the shares $10,000 of piece, because it just, you know, makes it easier to do. But the really cool thing is after one year from being issued to a blockchain, they become fully tradable. And so, for example, our fund is a 506-C, but you could also do this with a 506-B, but it'd be a lot more difficult because you could, you'd have to have a pre existing relationship, I don't really want to get into securities laws, but our fund is a 506-C. And after one year lockup period, those shares can trade. So let's say a person buys $100,000. And they want to divide up like myself, I've got two sons, so I'm gonna give 30,000 to one son 30,000, to the other son, and keep 40,000 for myself. So one of my sons decides that he's going to trade those after a one year lockup period, those shares can trade to an accredited or non accredited investor. So it can get non accredited investors into quality real estate that's already been seasoned for a year. So they can see that there's a one year track record.
Sam Wilson 18:36
That's interesting. I hadn't really thought about that. I mean, the thing is, for most of us, though, when we get in a deal, we get in a deal with the intention of writing it out, most of us actually really want to trade I mean, you get, I've got plenty of deals I'm in right now. And you asked me to exit I'm like, No,
Michael Flight 18:51
Right. So there's like several really cool things about security tokens. So number one, you've got the ability to potentially access it if you have a life situation that you need to, or otherwise you just stay in it like your normal, you know, three, five or seven or 10 year, you know, real estate syndication. But the other really cool thing is that and this is really going to depend on who the issuer is. But for example, in our token, you can get paid in not only dollars with a ACH payment directly into your bank account, but you could also take your money in what's called a USD stable coin. So it's US dollar denominated, so it's one for one with the dollar, but it's actually cryptocurrency, so you're actually not getting it into a bank account. You're getting it into your own wallet, so you can control that. And number two, you can also take your money in Ethereum or another cryptocurrency and so you're actually dollar cost averaging out of the dollar banking system, and then you control your own and assets. So let's say you're still invested in our deal, but you decide that you're gonna like winter in Costa Rica, you don't have to worry about, you know, trying to like get the money out of your bank and transferring and everything else because your wallet is right on your phone or your wallet is right with you all the time. So your money is with you crossing international borders and stuff. So that's one really cool thing. The other really cool thing is, and we've talked to different companies like Blockfi and Compound and Aave, if they get comfortable with the net asset value of the fund, instead of you having to sell your shares, you can actually borrow against your shares. So you can actually open up some liquidity and some leverage on something that you normally can't do with a normal syndication.
Sam Wilson 20:53
That is a game changer. I mean, it's kind of bringing it out of my league a little bit here. But bringing the ability to leverage against stocks and bonds is kind of like go into your exactly, Hey, man, you know, whatever they call that buying on margin.
Michael Flight 21:07
Right, you know, borrowing on margin, and but it's, you know, it's exactly the same thing. And then that's where the third part, when I said that, Blockchain is probably going to change data, there's companies out there right now, that are putting large institutional portfolios, I was just at a conference down in Miami last week, within Inveniam, and Inveniam them is taking large institutional portfolios, these are some of the biggest portfolios in the world. And they're taking all the data and putting them onto the blockchain. So that not only is the data feeding into what, so for example, I'm just going to back way up when we started out partnering with institutional investors. And we were doing we had to go out and buy this giant mainframe to do the, you know all the bookkeeping on it. And then we had to print out every month, a three ring binder, that was the literal either two or three inch, three ring binders, of you know, rent rolls of balance sheets of all the rest of this stuff. And so now we're not doing that we're just sending it electronically in a PDF, but at some point invenio them and there's another company called earn.re, they are feeding that information onto a blockchain. So that is building up onto the blockchain so that you know tracks with the portfolio or tracks with the individual property. And then they've actually got data. So all they have to do when they update their net asset values, it's much easier to do it on a quarterly basis. And at some point, they'll be able to update the values of the properties, perhaps on a weekly or daily basis, which is a huge game changer for all this illiquid private real estate because you're going to have better data out there that certified data because it's going into the blockchain and it's you know, for it can't be tampered with once it's there.
Sam Wilson 23:07
That'll be really interesting to see what that does to the ultimate pricing, that real estate, where do you think that goes?
Michael Flight 23:14
it could make real estate a little bit more volatile than it is right now. Because you know, right now, you only get a real number, if I mean, because even you know, an appraisal from an MA appraiser, it's not a real number, it really depends on you know, if you're financing it, it's going to be one number, if you're doing a net asset value on it, it's another number. And if you you know, you're doing it for an estate, it's gonna be a very low number, or if you're, you know, appraising it for your real estate taxes. So you might actually end up paying more in real estate taxes, because you know, the numbers will be more bigger, verifiable, and you might have more volatile real estate, because you've got better data, but you're also going to have more liquidity, because people will trust the data more. And so they'll be able to say, Yeah, that's a good number, you know, let's do it. So I'll just, you know, take my $10 and buy this piece of, you know, London office building, because I know that, you know, all the buildings around it, you know, are valued at this.
Sam Wilson 24:19
I think what that will ultimately do with a further you know, with a higher liquidity, more transparency, it'll function more like the stock market, which would be, you know, in the sense that you can trade it, you know, in and out, but that would also typically be a compression of returns, as you know…
Michael Flight 24:36
I also look at it as an opening up of these liquidity pools that are just like right now, just locked in. So I look at it like, and I use this example all the time since 1990. Because of free markets, and because of, you know, people investing in things, they have come out of abject Poverty living on $1 a day to there's billions of people that are now in the middle class, right? How did those billions of people in the middle class, they're not all going to invest in the stock market? So how do they get, you know, generational wealth that they can transfer onto their kids? I mean, that's going to be the biggest thing out there. So I believe it's going to be an opportunity for a lot of those people, those billions of people to get into assets that you know, because there's only so many stocks to go around, but there's a ton of real estate to go around.
Sam Wilson 25:33
That's true. That's a very, very valid point. Yeah, I think it's gonna be this will be an interesting, you know, next wave to really watch and see how this affects real estate as a whole. Are there any security concerns you have with this are there things people should be looking out for, you know, you have coins getting stolen, your wallets getting taken, you hear of, you know, lots of things going on, but talk to us on the security is a great.
Michael Flight 25:58
so cryptocurrency, there is a real issue, if you lose your passwords, you've lost your passwords, or I had a friend who, you know, he had this Dogecoin, he had like 30,000, Dogecoin. And then all sudden Doge took off because Elon Musk was like pumping it. And you know, he went to get it, but it was on a laptop that was broken. So get the Dogecoin off the you know, the laptop so, but with security tokens, since they are securities and since you do have to go through a KYC, which is a no your customer and anti money laundering checks, and you have to be verified, the security token, if it is lost, or stolen, can be you know, brought back by the issuer and in re in, you know, what they call burned, and then reissued. So as long as you can prove that you are who you are, which you already had to do that when you did you know the KYC. So they know who you are your you know, registered. And so if something does happen, where somebody steals your stuff, or you know, it's basically probably more secure than even stocks, because most of the time, if you're in the stock market, you never actually have your stock, your broker controls your stock, or it's with a custodian, or all the rest of it. So you never actually have the stock physically or electronically anywhere. So this is actually a much better and more secure system than that.
Sam Wilson 27:34
I absolutely love it. Michael, thank you for taking the time to come on the show today and just give us a brief I mean, glimpse into where we are going with, you know, blockchain technology, commercial real estate, I think this is gonna be a fun thing to watch. You guys have a conference, I think here later this year, do you want to talk about that.
Michael Flight 27:54
Yes, started it for the very reason that we realized we had to do a lot of education on this, especially with real estate investors. They're typically a little more conservative. And real estate sponsors are also like, I know real estate. But you know, there's this scary thing out there called cryptocurrency. And what we wanted to do is do a lot more education on security tokens and say, this is potentially and we firmly believe that this is a better way to issue syndications and to do syndications with real estate, and all kinds of other private assets that aren't really, you know, easy to get into. So what we did was the blockchain real estate summit in Austin, Texas, the first one was in September of last year, we're going to do it again September of this year in Austin, Texas. And the reason why we put it together is we are putting together from beginning to end it's like how do you like you know, so we brought on in the attorneys we brought in the accountants we brought in, you know, the people that do the legal stuff so that it can legally trade we bought it brought in the tokenization platforms from beginning to end, you get this education as to you know, what this is and how do I do this? And so you can start really, you know, it gets your gears clicking as to, you know, okay, so I know these people are doing this, this and this, and I can see how this happens. And now I'm ready to like you know, dip my toe in the water or move forward full on with, you know, issuing a security token offering.
Sam Wilson 29:31
Absolutely awesome. Michael, thank you for your time today have learned an absolute ton. If our listeners want to get in touch with you or learn more about you what is the best way to do that?
Michael Flight 29:39
They can contact me at our website, which is Libertyfund.io, or they can if they're interested in the blockchain real estate summit go to blockchain realestate summit.com If they go to our website, Libertyfund.io They can go and click on the report and they can get an actual information And as to blockchain real estate 2022. So it just gives a pretty good overview of you know what it is, how it happens and how it works.
Sam Wilson 30:09
Michael, thank you again for your time. Have a great rest of your day.
Michael Flight
Thanks, Sam.
Outro
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