Capital raising through cryptocurrency is making inroads into the local real estate market as Queensland’s Daydream Island becomes the latest asset to be considered for tokenisation or a digital coin offering.
Following in the footsteps of the first cryptocurrency-backed deal at Great Keppel Island last year – which did not proceed – the owner of Daydream Island, China Capital Investment Group (CCIG) is understood to be in early-stage discussions with technology group Lakeba to flesh out the idea of raising capital to revitalise the island through the issue of digital coins.
Lakeba was part of the team trying to raise between $US95 to to US$200 million through an initial coin offering – akin to initial public offering for shares – for the owner of Great Keppel Island, Tower Holdings backed by Terry Agnew, last September.
It was building the blockchain solution to support the coins/tokens issued.
The money raised would be used to fund the $300 million redevelopment of the island.
Facelift and renovations
Shanghai-based CCIG, an investment firm, has been toying with the idea of a facelift for Daydream before having to fork out nearly $100 million on renovating the island, part of the Whitsundays, after Tropical Cyclone Debbie last year.
As the cost of managing and upkeeping Daydream Island and its resort, the 296-room Daydream Island Resort and Spa rose, CCIG is understood to have considered selling it or de-risking future development through introducing investors or raising cash through a coin offering.
Tokenisation or a digital coin offering is an emerging trend in the US and Europe, and like traditional securitisation, transforms illiquid large assets like real estate into tradeable stocks. In Australia, it is almost non-existent.
“When the idea was flagged to me, I thought it was a bit crazy,” a private fund manager told The Australian Financial Review.
Risks for owners
“This is because it means the actual owners of the asset assume all the development risks but have no real ownership of the asset.
“Tokenisation can also result in a real over-inflation in the asset’s value given the volatile nature of the token market.
“I think there is future to this in Australia once the cryptocurrency sector becomes more rational.”
In the case of Great Keppel Island, the sale price of $50 million was significantly under the proposed $US220 million raising through the issue of 500 million tokens tradeable on existing cryptocurrency exchanges.
CCIG bought Daydream Island for about $30 million in 2015.