The rise of crypto currency has been slowed by the lack of physical assets into which to invest one’s digital assets. Wildly shifting sands have all too often made crypto investments a roller coaster. The entire crypto ecosystem (Sam Bankman-Fried comes to mind) has been a total free-for-all in which picking winners and losers is a crapshoot.
But what if you were able to tie crypto to underlying assets that have a relatively stable cash flow value? Is it possible today to connect tech-oriented real estate with crypto capital?
Mitch DiRaimondo, whose father founded the west coast commercial real estate company Steelwave Inc., has been testing that market for the past few years. He started Steelwave Digital with the idea of moderating the craziness of the crypto world with the institutional governance of the commercial real estate world.
Steelwave and its predecessor companies have a long history of creating highly innovative work environments for high-growth industries – high-tech, life sciences, and media and defense tech. With operations in the Bay Area, Los Angeles and Orange County, San Diego, Seattle, Portland, Denver, and now Austin, Steelwave has developed relationships and created office parks for such industry giants as Google, Apple, Netflix, Lockheed-Martin, Microsoft, Merck, and Intel.
DiRaimondo says his organization has about $17 to $19 billion in total acquisitions and development and has acquired or developed over 125 million square feet of assets in its market areas. The company’s expertise is creating “cool, inspired” work environments that attract high-skilled people to work in teams.
As the life sciences and data science fields began to merge a few years back, DiRaimondo says his firm believed this merger would transform how investors thought about drug discovery and gene therapy investments because of the resultant lower cost, and lower risk profile, from this nascent industry. In earlier years, the life sciences field was doing core discovery science, had few products ready for market, and thus tiny revenue streams. Today, all that has changed.
Typically, the companies with which Steelwave works have real estate costs that are a small fraction of their total operating expenses, which are dominated by employee salaries. This makes it easier for these firms to have high operating margins. Yet in today’s tech world, the work-from-home wave that grew exponentially during the COVID lockdowns has led to tenants moving into and out of large office spaces that are not encumbered by debt.
As these unencumbered properties become available, often at discounted prices, an asset firm tied to digital investors can acquire properties in which holders of bitcoin and other digital assets can buy into. As the properties are restocked with tenants in long-term leases, these digital currency holders gain very stable cash flows that lower their overall risks from investing only in digital currencies.
DiRaimondo acknowledged that until this market develops further, it is wiser and safer to attract large-scale investors. Fortunately, there are plenty of foreign investors in places like Dubai and Singapore (to name a couple) eager to invest in American commercial real estate, especially when properties are anchored by high-recognition high-tech firms.
Investors in these financially progressive nations understand the tech and the opportunity, whereas having that same conversation with New York-based capital funds or state pension fund managers, says DiRaimondo, “is like trying to teach calculus with a crayon.”
This new approach enables digital investors to buy and sell slices of a building or an office campus – beginning at the $1 million to $50 million level but potentially open to much smaller investments, say, from small startups in developing nations with unstable local currencies. Compared with the New York-centered real estate investment trusts (REITs), this concept offers lower fees, easier entry and exit (and thus liquidity) – and none of the inherent biases from stodgy old institutions.
DiRaimondo admits that other firms are also taking an interest in this emerging investment field, but that, he says, is a good thing, especially for lower level investors down the road. This merger of the digital and corporeal world has the potential to create a far more democratic marketplace in which even the not-so-rich can generate stable profits that undergird their own entrepreneurial endeavors.
Will the digital ecosystem supplant the current financial system? No, says DiRaimondo, “but we do think that it will augment the current system.” Digital currencies can create more frictionless transactional environments for trading interests in a wide variety of assets – not just hard assets. Moreover, it opens the door for a much broader global investor base.
And, DiRaimondo mused, it ought to be good for his business.
