With its basic advantages of decentralization, immutability, security, and transparency, it’s no surprise that the blockchain technology has taken off exponentially since it first materialized. Companies are harnessing the power of global blockchain through banking, messaging apps, hedge funds, ride sharing, internet advertising, and even real estate! On today’s podcast, Andy Strott, the Founder and CEO of Resolute Fund, joins Monika Proffitt to discuss how they’re tokenizing real estate and bringing blockchain to the space. Resolute Fund is a real estate investment management firm focused on opportunistic real estate investments and the first in the market to offer a blockchain-based fund product incorporating their investment strategy.
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Bringing Blockchain To Real Estate With Andy Strott
I’m here with Andy Strott, the Founder and CEO of Resolute.Fund. Welcome, Andy. Thank you for joining us.
Thanks, Monika. I’m glad to be here.
This is exciting because we’re in similar spaces and we’ve been overlapping for a long time. I feel like I’ve seen you around for years now. That’s like dog years in the blockchain space. It’s like one year equals about seven. You’re based in New York City just like I am. You’ve been tokenizing real estate bringing blockchain to real estate for a while. I want to hear about what strides you’ve been making. Not that I’m a blockchain real estate nerd, but even to normal people who don’t live and breathe this stuff. What have been your most exciting new projects?
We’re, first and foremost, real estate investors, who’ve been involved in real estate for the past 10, 12 plus years. I’ll get into a little bit about our focus in general. Now, as we get into blockchain and technology coming into the real estate space, the most interesting thing is that people I’ve met not only here in New York, a big tech hub here, but everywhere. From China to the Middle East to Latin America, it’s amazing how much this blockchain industry has taken off. Especially after that change from the ICO phase about a few years ago. It’s amazing and very encouraging as well. We’re excited about the prospects.
A lot of people that know anything about tokens or blockchain, they do know used to be the buzzword ICO. I could do this, but I feel like it would be better in your words. Could you describe how the ICO craze was its own unique animal and how this is different from that? They still involve digital currencies, but it’s an important distinction. How are you different than an ICO?
To back up a little bit, it’s still a new industry. I came into this and was invited into it at the end of the ICO part of the cycle here. The ICOs were, in many ways unregulated offerings, not totally, but a lot of them were more catered and focused on utility tokens. Different types of companies launching almost an IPO type craze back in the day. There was a correction in that part of the industry in the cycle. For good reason, US regulators came in and across the world as well to regulate the industry and these types of offerings. We refer to them as either digital securities offering or a securities token offering, the operative word there are securities. Meaning they are securities offerings and need to be regulated. That’s what ours is. We’re a real estate fund. We’re offering a digital share class of our fund. There are many more “STOs” and DSOs in the marketplace, not just in real estate. All of them are done on a regulated basis now, which is great for the industry.
If someone wanted to go shopping for STOs, where would they go to see some of these offerings?
There are tons of different types of websites and media types of companies that cover the blockchain industry that does ratings on STOs. We’re seeing more and more digital exchanges launching, not just here in the US. Singapore as a big hub for exchanges being launched and other places as well. It’s interesting because the majority of people, who are involved in the blockchain space, see it as the overriding theme is to recreate the financial system and the economy. We’re small parts of a small hub of this, but there’s a reason for creating more efficiency, inviting more different types of investors into the economy to take advantage of capitalism and to believe that blockchain is a way of doing that. That’s why we’re doing that with a real estate fund in particular.
This is a high level. We were talking about bringing in efficiencies and bringing in transparencies, but can you take me through as an accredited investor? You’re only dealing with accredited investors and institutional investors, which are the big money players. As these things get played out and proven out, it seems like it’s a natural progression that we’re going to see more and more things for retail investors. It’s an early time, but we’re teeing it up well for everybody to participate. Can you walk me through this fund offering, for example, or if you have one specific asset offering, can you walk me through what that process is like? How it’s any different from the traditional investment?
Traditional alternative investment funds, whether they’re venture capital, private equity or real estate funds are generally structured more or less in a similar manner. They have a term life generally 7, 10 years or so. It’s done strategically because a lot of the investments take that long to realize particularly in VC investments as well. With blockchain and the idea behind of what SPiCE VC, one of the first tokenized funds out there has done and others are essentially to create a share class by using blockchain technology, a digital share class that represents unlimited partnership share in the fund.
The concept idea behind that is that you, as a fund investor, can invest in fund and stay the full-term life of the fund like any other PE investor. With this digital share class, the ability to be traded on an exchange, digital exchange gives you the opportunity to potentially buy, sell and trade your share class sooner than that 7 or 10-year life term. The thesis is that it provides a bit of liquidity into the otherwise liquid asset class. That’s probably one of the main ideas. There are many more benefits to that itself. To start from there, that’s why we’re doing this.
I’m going to ask you questions that I know the answer to. It’s better coming from you. We see a lot of real estate things. We see a lot of blockchain things. We see a lot of technology investments. Private equity is a part of our lives. When you talk about some of the liquidity and the opportunity to resell something, a lot of investors that I know are concerned about their lockup periods, their lockups. Either for tax reasons or for the agreement purposes, they have to keep their money in something for that long. What is the typical lockup period and why for any one of these particular digital investments that you’re looking at?
Thanks for asking that because a lot of people get confused about can I trade my shares day one or day two after I received them, the digital shares that are from the blockchain offering. That’s not the case. You have to hold them for twelve months after the offering is finished before you can “exchange them” or trade your shares. That’s a good thing. If you’re investing in a venture capital fund, real estate fund or even private equity fund, I don’t think there’s that much need to sell within the first twelve months. I may be wrong, but that’s a more institutional type investor would take that same slant as we would on that. That’s my thoughts behind that.
You have been raising a $250 million fund for a while. I am glad I’m on your mailing list because I got this little ping. It was like, “Good afternoon. Here is the biggest news ever,” which is you’re tied up with a new capital group. Can you talk about MAS?
In this space in particular, there’s a lot going on behind the scenes with a lot of different companies that you don’t hear so much about. You hear a lot about Bitcoin all the time, some of the big names into space, but there are many other groups that are doing many interesting things in blockchain for the past 12 to 24 months. Since the beginning of 2018, it’s formed this strong infrastructure for the industry. For us in particular, we realized that it’s a very new structure for an asset class that’s old. You have this traditional set of investors that are used to investing in private equity real estate, but maybe not so with the blockchain structure and the way we have it set up.
We need to broaden our reach around the world through our partnership here with MAS Capital Group, based in Taiwan, who has essentially built their own exchange called MASEx, which is in Taiwan as well. Through that network, they’re also owned by an entity in the Middle East called Gawah Holdings. They have invested in quite a number of blockchain type companies. We’re the only and the first real company that they are partnering with us on.
With MAS and the resources through Gawah in the Middle East, we use essentially are reaching a massive number of investors to bring into our offering here. The $250 million, you may think we’re crazy for putting such a big number in such a new type of structure out there. I’ve got to believe that we’re a part of the cycle now where not only is the opportunity in the real estate market prime for launching this. The knowledge in the blockchain industry from institutional investors, family offices is right there as well.
Raising a fund is raising a fund. People want to go out. They want to find their investors. Who’s going to buy it is of utmost importance, but being able to reach them is the missing piece in the blockchain space. You’ve either got people that are deep into crypto and they understand digital. They’re like, “Real estate, how is that getting in here? It doesn’t seem as volatile. It doesn’t seem as exciting,” or there are real estate people that are like, “Blockchain, I don’t know. Is that like Bitcoin? That means volatility. I don’t want that.”
That’s exactly what we found. It’s the process. Private equity fund, raising money in general takes time. Most of these funds that are out there, it’s a 6, 9, 12-month process. Ours is working to be about the same. It’s getting investors comfortable and teaching them more or less about how the blockchain works without getting too deep into things. Our structure is not that detailed. We’re at a good time to be able to go back out into the marketplace and raise some good money here for some investors who are interested in this space.
We’re talking about people raising big amounts of money at a time when the economy has never been more unsettling and unsettled for many people. For me as a normal person walking around the streets of New York, to also be in the private equity world, which seems completely oddly untouched by COVID and all of the craziness that’s happened.
Encouraging about blockchain in particular too, you see a lot of names you probably wouldn’t recognize that our new companies involved in developing new technologies within the space. You also see JP Morgan. Goldman Sachs made some key hires within the space. They’re starting to see that the digital blockchain space is something that they believe in for the future. To me, a small boutique shop is highly encouraging. We’ve had some meetings with some bigger real estate investment companies that are now following us and tracking us as well, and to see how we do here.
You guys have not been doing real estate too. You’ve been talking with people doing all kinds of things. The UN was involved in social impact initiatives. Is that what I remember?
Resolute.Fund, this is our core offering, which is a traditional real estate fund. We’re focused on distressed mortgage debt in particular. We have a lot of other things going on. We think are going to play out more into the future. We’d love to start tokenizing individual mortgage loans, mortgage bonds, pools of mortgages. We also work with another investor consortium of wealthy families here and across the world in China and Asia as well to use blockchain technology for social purposes for good and still involved in real estate. For example, as you and I have discussed, one of the ideas is to create coins or create digital currencies that reflect the value of land that indigenous people habituate and live on. We think that’s a way for them to be able to monetize the land that they’ve lived on for generations.
This is a forward-looking technology that they might not be used to, but it’s something in the services that we can provide for them to be able to take advantage of capitalism, the economy and where they’re based. We’re also thinking about and working on creating derivative tokens, which is to me is fascinating. We’re not quite there yet a sexually implementing this. The idea is if you have land anything, that’s either under the land or on top of that land itself, you can create a derivative coin or derivative currency that reflects the value of whatever that is, whether it’s minerals, water, clean energy, whatever it may be. Down the road, the applications for blockchain in spaces like that and those types of opportunities to not only provide a profit, but also help improve the world is something we’re phenomenally excited about. There are some interesting people, smart people, powerful people behind a lot of what we’re involved with. We’re thrilled to be part of it.
The derivative coin thing was interesting to me because the first thing I think of as a derivative coin is something more like, can you pull the cashflow off of an apartment building and say the rents are its own thing and the underlying asset is another. It’s odd because when you think about it. Baltimore is a good example. You have all the assets in the world. If you don’t have a community that’s functioning in it, not to say all in Baltimore is as functional. As a real estate market, it’s a unique animal. It’s another version of what Detroit was in many people’s eyes. It’s a place where the cashflow doesn’t keep up with the underlying assets. Therefore, they depress them and the assets lose value.
How is that even impossible? It’s the same bricks and mortar. When you look at this, it’s also soft science. One person described to me that the derivative assets as it relates to raw materials in the ground, as saying, “A lot of times that material is worth more in the ground than out of the ground.” Why bother extracting it to then physically separate it, to then be able to trade it? Why not leave it where it is and call that its value-add? It’s an interesting perspective. Not everybody looks at it that way. I’m sure plenty of people in the energy sector wouldn’t necessarily think that. The people that are thinking in terms of the conservancy, they think it’s worth more in the ground than out of the ground.
You think about that worldwide again, whether it’s here in the US or whether it’s in Africa, there are tons of opportunities there to do some good with this type of technology and these types of ideas. All the way to Asia as well. The underlying technology behind it as well, the blockchain, it keeps evolving and getting more and more institutional quality and fascinating tech advancements that will allow us to do all of this. It’s a new era. It’s a new phenomenon that is slowly catching on. As you see more and more of these institutional groups, these names like a JP Morgan or Goldman behind it, even if it’s a small percentage of the business, that’s such a huge positive.
When you talk about this $250 million fund, that’s a huge number to many people. Even $25 million is a huge number to many people. Even $2 million is a huge number. When you take these giant numbers, these giant fund ideas and you break them down, ultimately what would this mean? You said there was, in the crypto terms would be like a soft cap. What’s the amount that you need to raise to be able to start doing the work you want to do with this money?
We focus primarily on distressed mortgages and non-performing mortgage debts, when a challenging time across the country economically in many ways in the real estate market. They start to reflect that. Whether it’s New York city here where we’re based or California, wherever it may be. The only place where it doesn’t seem to be affecting it too much is in single-family home resales. As you can see around here in the Metro area and other parts of the country, that’s not to say that we don’t expect a lot of defaulted mortgages into single-family home space, which we in fact do. We’ve seen numbers that are pretty staggering. Give you an idea of the sense of our investment strategy.
We try and work with the borrowers first. We take over these loans, for example, from banks, we try and work with the borrowers first to get them on a regular payment plan. Rather than going directly to a foreclosure taking somebody’s home away from them or property away from a small business, whatever it may be. We try and start with the borrower first. They’re able and they’re willing if that works out fantastic. They can stay in their home. They can stay in the real estate that they’ve owned and operated for many years. It doesn’t always work out. If you have to foreclose, that is. With the number you mentioned, from a percentage of the total amount of distress we’re going to see out there. It’s small. You and I have talked about the numbers that the big-name groups have raised for distress it’s over $1 trillion. It’s an interesting challenging time, but not too long, we’ll see.
The blockchain angle here is an interesting one in terms of bringing the level needed to be able to participate down. Once we see more of this activity happened and this isn’t such a nascent space, we’re going to see more opportunities for the average person to engage. That’ll be helpful. Soon people won’t have to go all-in with a huge amount of debt that they potentially could lose everything rather than buying pieces and shares and building wealth over time. It could be a game-changer for the way people can, can build up their personal wealth from the small guy to the top guy. With all of the different things that you’ve been involved, it seems like you’re quite a generalist. How did you first get hooked into this world? What brought you to it?
Traditional real estate investor in finance, my entire career, advised a couple of startups here and there for the past several years. One of the biggest landlords here in New York City in Brooklyn was working on a project of tokenizing a building here on the Upper East Side a few years ago. I was invited to come into the partnership to run it, take over CEO and see the whole offering to fruition. As that happened, it was towards the end of 2017, early 2018. Things came to a halt as far as the ICO and any offerings were happening. We held off ourselves. We said, “Let’s wait to see what happens with the regular TORI bodies.” In the meantime, let’s broaden this from a building to a fund, where we have more opportunities to put more capital to work and entertain the same type structure.
You learned about it because you’d already been raising money for buildings for a long time?
Coming into the digital space, the blockchain space, there are some incredibly smart people in this space. It has been a very collaborative space as well. Any new technology where people try to build up the industry and make it work, other real estate funds, groups and others, I’ve talked to many others on a regular basis because we all want to try and make blockchain a big success.
Speaking of other players and stuff, what are some of the biggest challenges that you’re seeing that you need solved? If somebody was out there reading, who do you wish was reading this that would fill in the perfect piece to help this type of initiative along?
From an investor perspective and raising capital for an offering like this, it’s making sure those end investors are comfortable enough with what we’re doing. MAS Capital as well as our partners in the Middle East, they’re blockchain experts. SWARM, who is our blockchain technology provider, one on the industry as well, is phenomenal and excellent. They’ve been great. Themselves promoting the industry and making people aware and more understanding of how the extra technology works, so it’s not overbearing. Normal investors can come in and see that it’s something they can participate in without being too worried about the technology side of it.
Those technology partners are so key especially on the backend of these blockchain offerings that you have to have that all done. That’s been like the first building block towards. The second one is people that know how to bring assets such as real estate. The next part is focusing on how to bring investors or building this thing bit by bit. You can’t build something that’s big out of nothing quickly, but it feels like it’s taking forever.
To bring the institutional groups on board, you need them to be comfortable with custodianship, the legal side of things, the technology side of things. We work with a company called Copper for custodianship, it’s a military-grade technology. Things like that from an institutional perspective, even from office perspective, they’ve got to be comfortable with all of that, that they’re traditionally comfortable within the non-blockchain types of investments. We’re getting there and it’s moving.
It’s wonderful to hear about the strides the Resolute Fund is doing. Outside of Resolute Fund, is everything falling under the resolute umbrella? Do you have other things that are outside that you’re stretching further from your core mission?
This is our main focus. We’re traditional real estate investors. We have our regular real estate investments on the side, apart from blockchain, we have different types of structures. We use more traditional for investing in distressed mortgage debt and other types of opportunities.
If someone was a little bit freaked out by all this Bitcoin blockchain stuff, but they still liked what you were talking about, they could do it. They don’t have to sign on to digital assets right away.
Not at all. This is one of our offerings. We began as a traditional investment boutique, traditional shop, like everybody else in the space. We’re one of the leaders here now and probably one of the few that are offering this new technology for investors. It’s all there and available for anyone.
We’re going to make sure that there are links for where people can find you, not only like in LinkedIn and whatnot, but also Resolute Fund and everything that you’re up to. If there are an accredited investor or institutional, or they want to learn more, we’ve got all the links ready for people to click on and see that. We’RE also going to have you pushed out through our Twitter feeds and all of that. Are you on Twitter? Is there a Twitter feed for distressed mortgages?
I don’t know. Resolute has its own Twitter handle. You can go and see some of our postings there. I have my own as well as the CEO, mostly related to our work in Resolute and distressed mortgages, but it’s all related to everything we’ve talked about here.
Thank you. I appreciate you taking the time to explain what you’ve been up to. I feel like we’re probably going to have a follow up here in a few months. You’re going to be like, “We’re taking over. We have $250 million. It’s going to happen.”
Thanks, Monika. I appreciate being on.
Thanks a lot, Andy. I’ll talk to you soon.
Important Links:
- Resolute.Fund
- SPiCE VC
- MAS Capital Group
- MASEx
- Gawah Holdings
- Twitter – Resolute Fund