One of my predictions for this year was that we would see the mainstream adoption of tokenized real-world assets. More specifically, I said that we'd see some noteworthy office building or apartment building get tokenized on the Ethereum blockchain.
Maybe. I'm not sure that we'll see a singular event this year or that we'll be able to call it "mainstream" just yet. According to this recent article by Chris Lehman, co-founder of a tokenized REIT called Groma, it's still early days.
Real estate is the world's largest asset class, with an estimated global value of around $400 trillion. But only about $500 million of it has been tokenized, which is a relatively small amount, though it's not nothing. So, what is it going to take for us to say it's "mainstream"?
Some of the obvious benefits of tokenization are that it makes transactions cheap and efficient, and it allows for composability, meaning the various smart contracts on a blockchain can then be combined and interconnected with other protocols and applications to unlock additional use cases.
Lehman gives the specific example of being able to split yield and appreciation for tokenized real estate. My mind always goes to codifying the financial terms of something like a Limited Partnership Agreement such that all of the cash flows get automatically distributed as per the agreed-upon deal.
Importantly, though, and this is mentioned in the article, the fractionalization of real assets is unlikely to be the killer feature of tokenization. Notwithstanding that it does bring some additional benefits, we've already figured out how to "democratize" the ownership of large and expensive real estate assets through REITs and other vehicles.
Instead, Lehman argues that "improving real estate's utility as collateral is likely to be the most significant improvement tokenization can offer."
I don't have a strong opinion on what will serve as the primary adoption catalyst, but I have little doubt in my mind that this is where the ownership of real estate (and other assets) is heading. If any of you are working in this space, and especially if you're based in Toronto or elsewhere in Canada, I'd love to connect with you for a coffee.
The WSJ recently published a pair of articles (here and here) talking about where the US is growing and shrinking — through charts. The three components of this are domestic migration, international migration, and births minus deaths.
One of the key themes for the year ending in June 2025 is that the country is seeing significantly less international migration. According to the WSJ, more people moved out of the US than moved in last year for the first time since the Great Depression.
In the olden days here in Toronto, approved development land used to sell for a premium compared to unapproved land. This was true because approved land meant you could start construction much sooner. And since time has value, this was worth something.
Today, this is far less valuable to developers (if at all) because, in most cases, the market does not support new construction. So, the land may be approved, but what does one do with it?
Rather than speed, I would say that the most valuable feature right now is the ability to be patient. Developers need to be able to stay solvent long enough for the market to return. But this does not mean that there isn't a cost to permitting, approvals, and lengthy pre-construction periods.
Here is a recent paper (that I discovered via Thesis Driven) by economists Evan Soltas (Princeton) and Jonathan Gruber (MIT) that asks: "How Costly Is Permitting in Housing Development?" What they discovered in the Los Angeles market is the following:
Developers have been willing to pay roughly 50% more for pre-approved development land (averaging about $48 per square foot).
The permitting process in Los Angeles accounts for about 40% of the time required to develop and construct a new housing project.
Approximately one-third of the gap between home prices and construction costs can be explained by permitting costs and delays.
This last point is an interesting one to focus on because it tells you how much regulatory fat there is in the system. In a perfectly free and efficient market, the market price of a home should, in theory, be roughly equal to the cost of the land, construction costs, and the developer's margin.
When you have a massive gap between the cost of the physical materials and labour required to build the home and the price of the home, it means that there are other costs being shouldered. The paper refers to some of these as "pure wait" (time) and "capitalized hassle" (dealing with bullshit).
One of my predictions for this year was that we would see the mainstream adoption of tokenized real-world assets. More specifically, I said that we'd see some noteworthy office building or apartment building get tokenized on the Ethereum blockchain.
Maybe. I'm not sure that we'll see a singular event this year or that we'll be able to call it "mainstream" just yet. According to this recent article by Chris Lehman, co-founder of a tokenized REIT called Groma, it's still early days.
Real estate is the world's largest asset class, with an estimated global value of around $400 trillion. But only about $500 million of it has been tokenized, which is a relatively small amount, though it's not nothing. So, what is it going to take for us to say it's "mainstream"?
Some of the obvious benefits of tokenization are that it makes transactions cheap and efficient, and it allows for composability, meaning the various smart contracts on a blockchain can then be combined and interconnected with other protocols and applications to unlock additional use cases.
Lehman gives the specific example of being able to split yield and appreciation for tokenized real estate. My mind always goes to codifying the financial terms of something like a Limited Partnership Agreement such that all of the cash flows get automatically distributed as per the agreed-upon deal.
Importantly, though, and this is mentioned in the article, the fractionalization of real assets is unlikely to be the killer feature of tokenization. Notwithstanding that it does bring some additional benefits, we've already figured out how to "democratize" the ownership of large and expensive real estate assets through REITs and other vehicles.
Instead, Lehman argues that "improving real estate's utility as collateral is likely to be the most significant improvement tokenization can offer."
I don't have a strong opinion on what will serve as the primary adoption catalyst, but I have little doubt in my mind that this is where the ownership of real estate (and other assets) is heading. If any of you are working in this space, and especially if you're based in Toronto or elsewhere in Canada, I'd love to connect with you for a coffee.
The WSJ recently published a pair of articles (here and here) talking about where the US is growing and shrinking — through charts. The three components of this are domestic migration, international migration, and births minus deaths.
One of the key themes for the year ending in June 2025 is that the country is seeing significantly less international migration. According to the WSJ, more people moved out of the US than moved in last year for the first time since the Great Depression.
In the olden days here in Toronto, approved development land used to sell for a premium compared to unapproved land. This was true because approved land meant you could start construction much sooner. And since time has value, this was worth something.
Today, this is far less valuable to developers (if at all) because, in most cases, the market does not support new construction. So, the land may be approved, but what does one do with it?
Rather than speed, I would say that the most valuable feature right now is the ability to be patient. Developers need to be able to stay solvent long enough for the market to return. But this does not mean that there isn't a cost to permitting, approvals, and lengthy pre-construction periods.
Here is a recent paper (that I discovered via Thesis Driven) by economists Evan Soltas (Princeton) and Jonathan Gruber (MIT) that asks: "How Costly Is Permitting in Housing Development?" What they discovered in the Los Angeles market is the following:
Developers have been willing to pay roughly 50% more for pre-approved development land (averaging about $48 per square foot).
The permitting process in Los Angeles accounts for about 40% of the time required to develop and construct a new housing project.
Approximately one-third of the gap between home prices and construction costs can be explained by permitting costs and delays.
This last point is an interesting one to focus on because it tells you how much regulatory fat there is in the system. In a perfectly free and efficient market, the market price of a home should, in theory, be roughly equal to the cost of the land, construction costs, and the developer's margin.
When you have a massive gap between the cost of the physical materials and labour required to build the home and the price of the home, it means that there are other costs being shouldered. The paper refers to some of these as "pure wait" (time) and "capitalized hassle" (dealing with bullshit).
International migration is critical because around 65% of all counties in the US are now experiencing more deaths than births, meaning the fertility rate is declining. This is an increase from around 34% of all counties as recently as 2010.
On the domestic front, one interesting finding is that, for the first time in many years, the Midwest added more domestic migrants than it lost. As expected, the growth region for domestic migration remains the South, though it has slowed.
Also interesting is the extent to which San Francisco has rebounded. During the depths of the pandemic, things appeared dire for the city. Nobody was more untethered than tech workers, and the feeling was that they'd never return. Nope. The city has grown for the last three years.
The decline in international migrants is not unique to the US. The same thing is true in Canada. But we (Canada) remain in the business of attracting the smartest and most ambitious people from around the world. I have no clue what's going on in the US these days — it changes hour by hour — but maybe they'd like to remain in this business as well.
Cover photo by Austin Neill on Unsplash
Charts from The Wall Street Journal
This is an important way to think about the efficiency of housing markets, because minimizing the gap is a clear way to make housing more affordable.
Cover photo by Josh Miller on Unsplash
International migration is critical because around 65% of all counties in the US are now experiencing more deaths than births, meaning the fertility rate is declining. This is an increase from around 34% of all counties as recently as 2010.
On the domestic front, one interesting finding is that, for the first time in many years, the Midwest added more domestic migrants than it lost. As expected, the growth region for domestic migration remains the South, though it has slowed.
Also interesting is the extent to which San Francisco has rebounded. During the depths of the pandemic, things appeared dire for the city. Nobody was more untethered than tech workers, and the feeling was that they'd never return. Nope. The city has grown for the last three years.
The decline in international migrants is not unique to the US. The same thing is true in Canada. But we (Canada) remain in the business of attracting the smartest and most ambitious people from around the world. I have no clue what's going on in the US these days — it changes hour by hour — but maybe they'd like to remain in this business as well.
Cover photo by Austin Neill on Unsplash
Charts from The Wall Street Journal
This is an important way to think about the efficiency of housing markets, because minimizing the gap is a clear way to make housing more affordable.
Cover photo by Josh Miller on Unsplash
Brandon Donnelly
Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly.
Brandon Donnelly
Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly.
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