Kevin O’Leary, a TV personality from America’s Shark Tank version of Dragons’ Den with a net worth of around half a billion dollars, said a prestigious New York City hotel has received SEC approval to launch an Initial Coin Offering (ICO) for 1/3rd ownership of a hotel.
O’Leary doesn’t name the hotel itself due to non-disclosure agreements, but he said it might launch in the next three weeks.
“I’m a big believer that eventually asset based coins will replace small cap stocks. The SEC has built some platforms they’ve allowed to be dealer-brokers to issue these,” O’Leary said before adding:
“There’s a big deal coming in New York in the next three weeks. I’m involved in it. It’s under NDA, but it’s a $400 million coin issuance for a real estate asset that you’ve heard of.
The idea is that an owner of a very prestigious brand hotel in this city is going to internationally issue an asset based coin for ownership and you’ll participate in the distribution. We’ll have a smart contact from the blockchain, you will be an owner of a third of this hotel.
If this works, it’s going to be the first of its kind. I’m real excited about it, and it’s SEC approved. This is the issuance… instead of a stock, a share, it’s a coin with a smart contract approved by the SEC… that’s where we going with this coin based stuff…
It’s completely liquid, completely transparent, and the smart contract gives you ownership in perpetuity. You can sell the coin to somebody. The blockchain, smart contract, discloses that…
And the issuers, instead of paying 5%-7% commission, they may get millions of people buying $20 or $50 worth of this asset, so the cost of the issuance is very low…
I’ve been working on it for two months… the key is to go to the regulator and say I want to work with you… I don’t want to destroy any government, I want to make money… There’s a prospectus for this…”
In effect this is tokenizing part ownership of a hotel though an initial coin offering public sale that has been approved by the SEC and has been registered as a security furnished with a prospectus.
The general idea is not new as there have been many other projects that tokenize property, but this is the first of its kind as the hotel seems to be established and O’Leary says it has been approved by the SEC.
This, therefore, won’t be limited to only rich accredited investors, with it all seemingly open to everyone through presumably a broker-dealer platform that specializes in ICOs.
Details are very sparse at this stage, but it looks very likely this will be an Ethereum based token, making it easily tradable and exchangeable.
The hotel is seemingly worth $1.2 billion considering their valuation of 1/3rd ownership at $400 million. With the token sale thus potentially distributing ownership from a few rich billionaires to the many who can own a fraction of it.
Although what is described has similarities with Initial Public Offerings (IPOs), hotels usually do not IPO, making it a new asset class.
Whether token holders will be entitled to profits remains to be seen, but the SEC apparently has given the green light, which might suggest other projects may simply register with the SEC.
The Securities and Exchanges Commission requires a fee of $124 per million, making the SEC’s fee for the above offering a $40,000 cost.
Lawyers fees on top can range, from $25,000 and up, so a regulated ICO might cost around $100,000. There are exemptions for up to $1 million as far as we are aware, but the cost overall, while fairly high, is not prohibitive.
Especially compared to an IPO, which usually costs around $5 million due to numerous fees for investment bankers, issuers and so on. Moreover, it costs around $2 million to maintain the IPO.
ICOs therefore might now simply opt to go through the process and hope SEC is timely in approving applications considering their handsome fees.