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San Jose high-rise project appeals to everyday investors with crowd-sourced, token-based funding approach

San Jose high-rise project appeals to everyday investors with crowd-sourced, token-based funding approach
Photo Credit: Alterra Worldwide
By Wesley Severson - Published on September 30, 2021.

The developers of a 24-story building approved for downtown San Jose are now bringing to the table a new approach to attract smaller investors who want to dive into real estate. Alterra Worldwide is going to build what's currently being called "Tower 27" at 27 South First Street. According to the Mercury News, It will be home to 374 residential units and more than 35,000 square feet of retail space on the lower floors. The interesting part is not the fancy building, it’s how the developer intends to raise capital. 

Starting Saturday, Alterra Worldwide is expected to launch what it is calling a “security token offering” with the hopes of raising $100 million which will help cover construction costs of the estimated $240 million dollar building. The offering is essentially a digital system that allows people to invest in the real estate venture in small, medium, or larger blocks. 

Alterra Worldwide would then use a blockchain system to track all the activity of the buyers and sellers. “Especially in the real estate market, which is highly illiquid, tokenization offers improved liquidity to investors. In addition, fractionalization provides investors the opportunity to invest in small amounts in real estate,” Ali Tuzmen with Alterra Worldwide told Mercury News. 

Experts are quick to point out that there are big risks involved. “The developer is attempting a crowd-sourced, Go Fund Me-style investment strategy, which is risky and unlikely to pass muster with any commercial lenders or insurance company in the U.S.,” Kelly Snider, urban planning professor at San Jose State told Mercury News. “The construction cost will be $200 million-plus. That’s a lot of Main Street investors and it’s hard to manage that way,” Snider says.

“T27 Silicon Security Token” is the name Alterra Worldwide has given the investment opportunity. It’s expected to be available starting October 1st. According to the Mercury News, it’s the largest single real estate security token offering currently in the U.S. “[The] Real estate security token is a brand-new concept, and we are one of the first adopters. We believe that digitalization is the future of finance with the convenience, speed, and global participation it provides,” Tuzman says.

Alterra Worldwide is trying to start construction on Tower 27 in the early to middle part of next year. The goal is to have it finished by 2024 and full of tenants by 2025.