Regularly, Assas Legal Innovation meet experts to discuss about innovation and its application to the law.
Niels Kirst met Miguel Linera Alperi, founder of Arex Blockchain Real Estate, a Blockchain startup from Madrid, which is ready to disrupt the world of real estate trading. Version française ici.
Can you explain me the concept of Arex Blockchain Real Estate in one sentence?
AREX can be defined in one sentence as a real estate exchange with asset management optimization via Blockchain.
Where do you see Arex Blockchain Real Estate in five years?
In five years I see AREX as a global platform in which everybody, including corporates and individuals, can list and trade their assets in a market as liquid as the stock markets are nowadays. Coinvestment in real estate and more flexible ownership structures operated by tokens will allow us to fulfill what is nowadays the main goal of AREX, democratizing the access to real estate.
What are the main legal challenges for Arex Blockchain Real Estate?
Legally speaking we face two big challenges: Coinvestment in individualized real estate assets through tokens and the simplification of the legal procedures when transferring property or investing abroad.
Almost all co-investing nowadays in real estate is done through private or public corporations. Co-investing in individual assets is difficult, costly and not flexible at all for the owners with today´s existing investing models.
We can see in the Proptech environment that there are companies that have already tokenized debt, but with assets its different. In no western country a real estate asset has been legally tokenized for coinvestment and transferred. Even when STOs become regulated, real estate assets will still be a complete different issue to tackle compared to other kinds of assets due to its historical complexity.
Another important issue to address is the legal procedures regarding property transference in real estate assets. In most western countries it is mandatory to physically go to a notary or registrar or both in order for the transaction to be legally binding. We have already our systems designed to solve this issue, so the more transactions that go through our platform, the easier it is going to be, to adapt existing structures and automate all this process.
What is you personal background, did you worked in the Blockchain environment before?
I started, with other two colleagues, conceptualizing the project one year and a half ago while working in London at an investment bank. I started getting interest in the Blockchain environment like 2 years ago, thanks to all the hype concerning investing and mining crypto, but it wasn´t until August last year, when we really decided that we wanted to get more expertise in everything related to Blockchain.
That is also why in the same month we created, what in that moment was just a LinkedIn and Facebook group called The Blockchain Society, to put together thoughts and to share ideas with people from different backgrounds that could see the potential impact in the society of using Blockchain technology. We wanted to mix people with outstanding ideas with people that could make them a reality.
After a short period of time with the Blockchain society, I joined Blockchain España with one of my initial colleagues, with which I worked in all the conceptualization. From that moment, we started giving conferences about Blockchain in different places, like Impact Hub, IE University or Universidad Politécnica de Madrid.
In the meantime we presented our project to the CBRE Proptech Challenge and we had the luck to make it to the finals and finally to win the contest with AREX’s idea, so it was quite an intense and exciting year in everything related to learning more about the technology.
You have worked in banking, consulting and in the Blockchain environment. Further you’ve founded a Blockchain society, what drives your motivation to take the risk with a Blockchain start-up (when you could have a safe job in banking)?
Our biggest motivation with AREX has absolutely nothing to do with the money, our motivation is that we can see the potential impact that this can have in society and we want to be part of it. When we talk to a lot of different professionals with expertise in the field they tell us that they can see clearly that this is going to be the future of the real estate markets, but they always ask the ask the same question: “Are you going to be the ones that are going to make this change happen?”
I don’t know if we are, but what I know for sure is that me and Francisco Hernández, my partner, quitted our jobs in extraordinary companies to fight for this dream. If it was for money we would have stayed where we have been. Money comes with success and success has to be built over a strong team and corporate foundations, and that is where we are now.
There are much news about the legal uncertainty of blockchain. Lately most of the international exchange commissions decided to classify tokens as securities. How will the real estate exchange, that you want to build, be regulated?
That is a question that we are always asked. We always say that we see three main problems: the first related to low liquidity in the market, the second as the price of the assets, and the amount of paperwork and bureaucracy when transacting and the third, as the international barriers to investment. Solving the first means coinvesting directly and trading tokenized assets, what nowadays seems impossible regarding how the investment in real estate assets is conceived in the civil and common law systems.
The good news is that the other two problems will be progressively solved thanks to the use of Blockchain. We consider Blockchain as a tool, an enabler, rather than as a solution itself. By following this structure we want to progress at the same time as the regulator does, so I think that how AREX or any other exchange will be regulated is a matter of time, because nowadays nobody knows.
In the past, many Blockchain banks have been robbed by hackers. How can you make sure that Arex Blockchain Real Estate is safe for the people trading on the platform?
By working strongly in everything related to cybersecurity. It is not going to be until the exchange is fully working and the tokens are tradable that this is going to be an important issue, but from day 1, we want to make sure that the only thing that worries the investor will be whether the exchange deserves or not to make the investment. We will have control over all legal and regulatory issues regarding investors, vendors and assets, in order to be able to create and develop the first global 0 trust real estate market.
The property market is very much dominated by big real estate agencies, how do you want to break their dominance?
By aligning our interests with them. Our aim is not to eliminate this companies, but to give them a tool to gain liquidity. We will allow corporates and individuals to trade their assets in AREX platform, so that is why we encourage agencies to be part of our network.
The transfer of property is heavily regulated by national legislation, how do you want to circumvent these hurdles?
Our idea is to start progressively, changing how the ownership transference process is done. Of course, the first transactions are going to be done manually, but registered on the Blockchain, but if we are able to perform a recurrent significant amount of transactions per month, we are confident, based also on our experts opinions, that the institutions will start changing progressively. For example, by having small departments specialized in Blockchain. In 2 years we expect a significant percentage of the total transactions made in Europe to be done through Blockchain and the national regulators will have to adapt for that.
There are many startup cities like Barcelona, Berlin or Paris. Where do you think does technology and Blockchain startups like yours have the best environment to grow?
Our idea is to be global in the shortest amount of time possible, but in order to do that, we want to build strong foundations in the European Union, starting with Spain. Spain, and more concretely Madrid, is the best possible scenario, as Spain is a country where everything related to property registry and transaction works best, legally speaking. In Spain there is so much bureaucracy, paperwork and legal security around any real estate transaction that if we are able to standardize the investment process here, scaling it to other European countries or even to Latin America, where the process is similar, is going to be a much easier task.
Where do you see the risks and challenges of Blockchain in the future?
I see the risks in how the implementation is going to be made and how the actual procedures in big corporations and public institutions are going to be adapted to this technology. I think one of the biggest issues, to study and be concerned about, is how a tokenized economy will change how investment is made in the future. With Blockchain we move to the next step in globalization, so different jurisdictions will have to cooperate more and more in order to ensure and guarantee that the system doesn’t collapse. But again, as the internet changed how the world worked, with this it will happen more or less the same. Blockchain is just part of the progress of humanity and as any progress it comes with changes in society and regulation adapted to the new situation.
Will Blockchain be a lasting technology in the future?
Yes, no doubt it will. Again, as the internet allowed people to connect without borders, Blockchain will allow people to trust and transact with each other without knowing them personally on a global scale. There are big challenges ahead of us, but I think nobody doubts nowadays the potential positive impact that a technology such as Blockchain can have in today’s society. We now have to work all together in order to make all this changes as smooth as possible so that the world doesn’t stop working.