The Future of Real Estate: How Blockchain is Changing the Game - Lee Bratcher

00:00:14 - Mike Mills

Hello, everybody. How we doing today? So, in a real estate market brimming with sky high prices and rates, where does the forward thinking vest return? Well, enter the groundbreaking world of tokenization and fractionalization. Today, we're going to be chatting with a trailblazer in this new innovative technology that will forever change how assets are bought and sold. And if you've ever wondered how blockchain technology might revolutionize the way we invest in properties, making it accessible and diversified, then this is the episode that you've been waiting for. So, whether you're a seasoned investor or just venturing into real estate, the future is here. And my next guest is going to help us navigate it. But first, my name is Mike Mills, and this is Mike Mills Mortgage and Finance. I have 13 years under my belt as a mortgage loan originator, and I've seen just about everything you can imagine when it comes to all things real estate and finance. And every week, I want to bring you perspectives, from leading professionals in the real estate space, from spotlight interviews, to top tier agents, to new innovations coming down the pipe that will potentially revolutionize the way we do business. If you tune in each week, whether you're a seasoned pro or someone who's simply fascinated by the real estate market, this podcast will ensure that you stay informed, innovative, and always a step ahead of your competition. But before we dive in, quick little reminder to all my listeners. If you're finding value in these episodes, please hit the follow or subscribe button on Spotify or Apple so you never miss a new podcast. And for all the full episode experience, make sure you check out and subscribe to my YouTube page at Mike Mills Mortgage and Finance. And your support kind of keeps this thing going and helps me bring more enriching content. I can't speak today week after week. All right, so let's get started. So today we're honored to have a pioneer at the intersection of blockchain, crypto, and the state of Texas. Lee Bratcher is the driving force behind the Texas Blockchain Council and association, championing the interest of its members and striving to position Texas at the forefront of bitcoin blockchain and digital assets globally. Lee doesn't just talk the walk. He actively advocates at the Texas legislature, ensuring interests of the blockchain and crypto community are represented. And today, he's here to shed light on the latest legislative moves and their potential ripple effects on real estate and its investors. So welcome to the show, Mr. Lee. How you doing, sir?

00:02:30 - Lee Bratcher

I'm doing well, Mike. Thanks for having me on.

00:02:32 - Mike Mills

Sorry you got to go through all that intro stuff, getting into it, so it's just the way this stuff works, but I really appreciate you stopping by. This is a topic that I have a lot of interest in, simply because the world's changing and I'm a big believer in. You got to adapt with it. Or kind of get left behind. So that's what we're kind of trying to do here. But before we get into everything about the texas blockchain council, I want to start with just you. My question is, how does A-U-S. Army captain and former police officer find himself as a leading advocate for blockchain technology in the state of texas? How did we get here?

00:03:09 - Lee Bratcher

Man, that's a great question. Jack of all trades, master of none, right?

00:03:13 - Mike Mills

There you go.

00:03:14 - Lee Bratcher

So I was in the military. I still am an army reservist serve as an innovation officer for the 75th innovation command, which supports army futures command. But my full time job and the thing that I did the longest in my career was as a political science professor. I researched property rights and taught here in the DFW area at dallas baptist university.

00:03:38 - Mike Mills

Okay.

00:03:39 - Lee Bratcher

And it was in my research. So about 2015, I was up at the army war college, actually, there on an academic assignment studying property rights. And I discovered the bitcoin white paper and discovered blockchain and property rights. And the combination of those two, there's a lot of research out there that shows if people are secure in their property rights, their physical property rights, their real property, then those communities will flourish. They're less likely to join insurgencies or other kind of conflict. It's been an institution that has served the west well for centuries, and we've got incredible institutions of property rights in the US. And the rest of the western democracies. And so when I discovered digital property rights and how bitcoin was the first, really, iteration of solidifying digital property rights in the way that it does, and how we can use the technology that was built with the bitcoin white paper blockchain technology to secure property rights in other areas, both digitally and in the real world, that's when I got hooked. And so I started the texas blockchain council a few years after that while I was still a political science professor, and then very quickly thereafter realized, this is going to take a lot of work, and I need to leave my job as a political science professor and run the Texas blockchain council full time.

00:05:05 - Mike Mills

Yeah, it's certainly a full time gig. You're not just doing things from time to time with that. I see you're pretty involved all across the state for different advocacy groups, talking to different people. Obviously, you're spending some time to chat with me for a little bit, so I appreciate, um, okay, so on the blockchain council itself, so in your own words, basically, what role is the texas blockchain council playing in helping spread the word about blockchain and what it's capable of? What are you guys doing on a day to day, month to month, year to year basis? Really kind of getting the word out so everybody understands, because I think the big separation, especially right now, is from the general public, at least understanding the technology and what it's actually capable of. So what are you guys doing to promote that?

00:05:52 - Lee Bratcher

Yeah, it's really tough. You're right, because there are so many different nuances here and there's different verticals within blockchain technology. You have bitcoin and other permissionless cryptocurrencies, you have enterprise blockchain, you have tokenization of Real world Assets, which typically runs on public blockchains, permissionless blockchains. So it's really not something that is easily grasped with just a phrase or a meme or something. You really have to do a lot of education. So we end up doing exactly that, a lot of education for elected officials and staffers. And that's typically down at the capitol in Austin, webinars in person lunch and learns. Then we put on networking events throughout Texas, Dallas, Houston, and know, we had you out at tokenization of real estate event recently up in Frisco, and that was a great time. So we end up doing a lot of education, and it's mostly because everybody has heard of blockchain or they heard of crypto, or they've heard of these different things, but very few people have actually took the time to understand the nuances there. And so because some of these things are quite different, like even bitcoin and ethereum are quite different, but most people would just say, oh yeah, those are cryptocurrencies, but in our world they're totally different. Bitcoin and ethereum are solving completely different problems. Right, but then you have other verticals like tokenization of real world assets, including real estate, that's different from those. So that is the challenge. Yeah, go ahead.

00:07:36 - Mike Mills

So there's been a couple of things, something that I don't know if I'm sure you saw this, but just day before yesterday, I believe Citigroup came out and announced that they were doing digital deposits, essentially so they could take your deposits and convert them into tokens on their internal blockchain, essentially allowing for transfers globally with very little costs and very quickly, which is primarily the biggest advantage when it comes to finance. On the side, is the amount of time that it takes. It doesn't take any time at all, and the cost is minimal for this type of stuff. And then, you know, companies like BlackRock and Investco and Fidelity getting into applying for spot ETFs for bitcoin as well. So just within the last month or so, there's been a lot of movement in this area. Why do you think within the past twelve months you've seen so much, what I would call like institutional entities really kind of getting into the game. Now, this technology has been around since, what was it, 2008, when Satoshi wrote his paper? Is that when it was?

00:08:41 - Lee Bratcher

That's when it was, yeah, the first transaction was January 2009, but the paper was written in 2008. You're correct. And I think it's really around the institutions. First of all, a lot of the brand risk that was there several years ago is no longer there, unfortunately.

00:09:00 - Mike Mills

You say brand risk. Do you mean because of the stigma attached to the crypto Bros or whatever?

00:09:06 - Lee Bratcher

Yeah, yeah. And unfortunately Sam bankman Fried and FTX did not help us. There was a big reputational hit to the, you know, just like we didn't stop trading energy derivatives when Enron went down, we're not going to stop with this technology because there was a bad actor who did something that was complete theft and inexcusable. We are seeing the fact that institutions are understanding the differences here. So point in case the Citigroup thing that you mentioned and also they both, they both use internal blockchains for internal settlement and those are private permission blockchains. That's a totally different thing than a Bitcoin ETF. So you could have BlackRock which has applied for a Bitcoin spot ETF and we'll probably get it within the next couple of months along with all the other ETF applications. The SEC is going to prove them all at the same time. In all is they're capable of holding that in one hand but then also on the other hand grasping an internal blockchain that increases their transaction speed on the back end of these banking ledgers which really those can't be public and permissionless because they don't function the same way as a public permission blockchain like Bitcoin. So you're really just using that in a consortium of banks or even within one really big bank like Citigroup. For them to settle all of their internal transactions with zero friction is a pretty interesting concept. Or then a consortium of banks to settle all of their transactions is sort of similar to like Fed now. Sort of a step beyond Fed now. Fed now is like real time ACH. So a step beyond Fed now would be like banks using an internal stablecoin if you will, or tokenized deposits to settle. And then a step beyond that is a central bank digital currency where the federal government is then issuing digital dollars on blockchain rails to banks for them to utilize.

00:11:24 - Mike Mills

Now on that real quick in the crypto world, there is a ton of people on both sides of the fence there on the CBDC. So how do you feel about that? What are the positives and negatives? Because essentially you're talking about a digital currency controlled by the central bank which depending on how you look at it can have some positives and negatives. So where do you kind of fall on that?

00:11:49 - Lee Bratcher

We are firmly opposed at the Texas Blockchain Council and we think most people that we interact with are also opposed. It is not the right direction for the US, for any country really that believes in privacy and freedom, the principles that our nation has been built on. It works great for China and for authoritarian regimes and it's unfortunate for the people that are being forced to use it there because their freedoms are being inhibited. Their social credit scores are being dinged whenever they spend digital. Yuan on some product that the government doesn't deem as a worthwhile investment. So we're opposed. But I will say here's some more nuance. Unfortunately, I hate to be bringing in all this nuance, but there is definitely a need for tokenized US. Dollar deposits. So we would say that for the Federal Reserve, for a central bank digital currency, that is privacy problematic. So for them to issue that directly to the US. Citizen and to a consumer, that's a problem for privacy and freedom. Right. That's the Chinese model. For a bank to tokenize US. Deposits, that is no different than what we have today, and only using blockchain rails for quicker movement. So we're not opposed to that because.

00:13:22 - Mike Mills

Just your bank deposits are basically digital as it is right now. I mean, you're not walking around with the exact cash. Yeah.

00:13:28 - Lee Bratcher

And there are enough firewalls in place currently between the end user, the bank, before you get to complete surveillance by the Fed. Yes. So we're supportive of that. We're certainly supportive of privately issued stablecoins like USDC, which is issued by Circle. There's $120,000,000,000 of us. Dollars locked up in stablecoins. Globally. 99% of dollars are backed by US. Dollars. The other 1% are backed by gold or euros. Right. So this is a way for the dollar to prolong itself as the world's reserve currency. What if there's $10 trillion worth of stablecoins five years from now? Right. It's grown from zero to 120,000,000,000 in like three, four years.

00:14:17 - Mike Mills

Right.

00:14:17 - Lee Bratcher

So it's grown quite rapidly. And we think that this is really healthy for the US. Dollar, really healthy for honestly, US. Debt because these stablecoin issuers are forced buyers of US. Treasuries, because what they do is for your listeners that aren't familiar with stablecoins, if I want Circle USDC, I'll take my dollar, say I'm taking a thousand US. Dollars, and I'm going to send that to Circle. They're going to put that money in bank of New York Mellon or somewhere, some institution or some sort of money market fund, and they're going to issue me an equivalent number of USDC. So if I ever need to redeem that USDC for those US. Dollars, I can do that at a later date. But then I have $10,000 of USDC that I can use on the Internet to close a transaction in Italy, maybe a banking transaction with a business partner that normally I would have to send a wire for. That cost $30. That takes X amount of days. ACHS are much cheaper, but those don't work as well internationally. So you can actually clear those transactions in seconds for just pennies of a transaction cost on the back end. Those dollars are being invested in US. Treasuries while it's either held in cash US. Dollars or in treasury bills. So that way, when I come to redeem it, there is enough dollars there to redeem the 10,000 that I put in. And so, long story short, it makes them a forced buyer of US. Treasuries well, we want people buying US. Debt right now because our debt servicing costs in this country are ballooning out of control.

00:16:03 - Mike Mills

Yes.

00:16:04 - Lee Bratcher

So that's a long rant about the stablecoin issue. I think it is important that we have tokenized deposits. It's just unfortunately, it's not as easy as they're good or bad. It's just you have to dig into these different areas. So it's sort of on a spectrum like central bank digital currency on the far end. Is that's concerning from a privacy and freedom perspective and surveillance. And then you get to tokenized deposits, you get to privately issued stablecoins, and then you get to Bitcoin on the other end, which is completely permissionless and privacy enhancing, but it may be, and I'm a big believer in Bitcoin, but it's not necessarily the only thing, the only digital asset. We have to have tokenized dollar deposits too, because the dollar remains the primary currency for certainly us as Americans but also the world. And we want to make sure that it stays that way because if it doesn't, our debt servicing costs will go from really bad to catastrophic because if we can't borrow in mean, the US. Would go bankrupt almost immediately, within months.

00:17:10 - Mike Mills

Yeah, well, we're having issues. I mean, obviously I'm in the mortgage world, so especially within the last day or so when the Fed came out and basically said they were pausing on the rates. But they also were very hawkish going forward, saying that they're expecting one more possibly this year, which has caused the bond market to go crazy. With the amount of debt we've been issuing lately, the ten year treasury yields are way up. So there's all kinds of issues that are affecting all walks of the economy. And one of the, I think big benefits right now, especially when you look at stablecoins like you brought up, is that with the rates being so high as they are, there's lots of incentives now for banks to hold your money. So if you want to deposit your cash with, say, like a coinbase or somebody like that and hold your cash in USDC versus dollars, they're offering 5% on your money right now. So if you're holding your cash there versus holding it in your savings account with bank of America who's offering you nothing, then you can get a rate of return on that money in somewhere else. That's a little less risky than say, sticking it in the stock market and embedding on something that could come tumbling down here in the near future. So I think there's a lot of avenues for people to start educating themselves and getting involved with this. Because the thing that I've been harping on for the last several months is whether or not you understand this technology or whether or not you think it's something that is going to be a long term beneficial thing for you or anybody else. It's coming. I mean it's here and you have to really get into it because this is what is going to be the driving force behind how finance is handled going into the future until something else changes. So the old days of doing things are kind of past us and people need to start really figuring out how this stuff works, where it's going to affect them and how it's going to benefit them or affect them negatively, depending on how you look at it. Just like with any other issue, like you said, there's a spectrum of you've got the far side of CBDCs, which I'm right there with you. The privacy of that issue is a big concern for me. And then you've got the far side of it, which is Bitcoin, which is completely open, that has an immutable ledger that anybody can see that's very secure. So it's nuanced just like any other topic when it comes to anything in this country. So getting on the topic of real estate specifically, from your point of view, what's some of the most significant benefits that we can ultimately bring to real estate transactions when it comes to blockchain and everything behind it?

00:19:38 - Lee Bratcher

Yeah, I think in the real estate world there's really two areas of promise and one I think is on us now and one is going to be years out. Right. So the one that's on us now is Tokenized equity. So that's with LPs being able to enter and leave positions in real estate with the same kind of liquidity that we see in public markets, like the same kind of liquidity that we see with Apple or Google stock, we will soon be able to do that with real estate projects that are tokenized. So you'll be able to buy a portion of an asset that's been tokenized. The cap table is tokenized. All the LPs or interests are tokenized and therefore they can trade these tokenized securities on securities exchanges, either a national securities exchange or an ATS, otherwise known as an alternative trading system. So that's here and there's already buildings in Texas that are being tokenized and many throughout the world, it really won't make a big dent into, I think, your listeners lives until some meaningful percentage of buildings or commercial real estate and residential real estate is Tokenized. Right now it's far less than 1%. Right, it's a percentage of a percent. But if we get to 5% of all real estate globally being Tokenized, that makes a big difference. And if people are able to say, hey, I've got a 10% position, I'm one of the LPs into this development over here and it's halfway built, it's going great. Maybe I invested when it was a high risk, now it's just moderate risk and my assets appreciated. There's real time price discovery because there's trading in and out of these positions and I needed some liquidity. I could sell some portion of my ownership on a secondary market, use that money to do what I needed to and then maybe I come back into it. Maybe I don't.

00:21:36 - Mike Mills

You don't have to unload an entire property. You can unload a piece of it because you only own a piece of it.

00:21:41 - Lee Bratcher

Exactly right. And there's also a lot of interesting instruments, like on the debt side, when you had that kind of collateralizability for an asset. Real estate is the best collateral as you know of any asset in the world.

00:21:56 - Mike Mills

Right.

00:21:58 - Lee Bratcher

With tokenized real estate, you have an additional layer of ease when it comes to using that as collateral. So you could even, instead of sell it, maybe you have a capital gains and you're like, hey, I was an early investor in this development. It's now an income producing property. The property, it's been completed, there's tenants and my investment has appreciated X percentage. I have a pretty big capital gains liability. I'm sure a lot of your listeners have great tax strategies. There's a million different great real estate tax strategies. But how much easier would it be if you could just immediately use that token to get collateral for your investment without selling it, without incurring a capital gains liability? But that happens on some sort of automated liquidity pool where someone's able to instantly recognize that collateral ability and give you a flash loan within like five minutes.

00:23:03 - Mike Mills

So you're basically saying that not only do we have the actual asset, the hard asset itself as the building as part of the collateral, but then the token itself that you own related to the equity or the cash. Flow of that can also be some sort of collateralized asset to where you can borrow against that token too. If you need quick cash to do anything right.

00:23:24 - Lee Bratcher

That's right.

00:23:25 - Mike Mills

So there's different yeah.

00:23:27 - Lee Bratcher

And essentially it would be the same thing. You're just borrowing against the equity that you own. And I guess that does include holding a stock.

00:23:35 - Mike Mills

You're borrowing against a stock in a company. The company is the collateral part of the stock. But then if you want to borrow against your shares in that company, it's the same idea. Right?

00:23:46 - Lee Bratcher

Yeah. And certainly that happens now. But what we're talking about is a much more granular scale. Like a small time investor, maybe one of the smaller LPs in this project is able to get that kind of liquidity in like five minutes. Where they're on a platform, the algorithm automatically recognizes the value of this asset. They can verify it instantaneously on the blockchain and it's programmed to provide some sort of loan at a certain percentage within just a few minutes.

00:24:23 - Mike Mills

There's a lot of concern right now in the commercial real estate space because you have and I think it's only in one sector specifically with the retail office space because warehouses are doing great apartments and that kind of thing are doing well. They've kind of slowed some of the construction because I think they're under the idea that they're almost overbuilding at this point, which is not a bad thing. We could use a little oversupply on housing to bring some of the costs down. But when you look at commercial real estate on the retail side with these big buildings, especially in large metropolitan areas, california is having a really hard time with things right now. I know New York's dealing with some issues with downtown office space. Could you ever see a situation or do you think there's a mechanism where the debt, because you're looking at these small banks, these small regional banks that are holding these loans and they're going to reset because commercial real estate typically turns over every few years and resets the rate. Is there a place where this fractionalization could become a liquidity solution for some of these? Either small banks or investors that are holding these big loans at these low rates that are going to reset, that they're not going to be able to really handle the cash flow, at least in the short term because just like anything else, the market's going to turn around. I mean, we're in a bad spot right now to some degree, but I think there's a lot of hope for the future. But do you think that there's a place where the fractionalization could bridge a gap between these financing situations where these small banks aren't willing or maybe aren't able to hold those and then the investors are also looking for a place to park that debt at a more reasonable cost?

00:26:03 - Lee Bratcher

I'd probably defer to real estate professionals on that question, but I will say just from studying economics, that when there is inefficient allocation of capital, if you're able to get more granular, the market will it's like water flowing downstream, right? The market will flow and provide opportunities for people seeking yield in that way. And I think the only thing that's going to perhaps be sort of an obstacle or hindrance there is you're going to have higher interest rates on those kinds of in the near term, right? So it might require the debtor to swallow a larger or a higher interest rate in the near term for them to be comfortable there. But I think if there's a market to be made and this technology allows for more fractionalization and granularity there, I do think it could be a potential bridge. And not to say that that would be detrimental to institutional lenders like regional banks that do have a significant part of their portfolio in real estate debt that's probably going to remain like the gold standard for decades, right? It's just another option that provides a little bit more competition in the lending space.

00:27:40 - Mike Mills

So let's look at now with blockchain associated to title and actually you and I kind of briefly chatted about this before, but do you think that blockchain has the capability of streamlining the title transfer process and then how do you think that would look in practice if it actually did get to that point. I know regulation is a big piece of know. It just plays a role in all of this, which is what you guys are fighting the good fight on every but but what do you see as far as the benefits of the technology when it comes to title transfers?

00:28:11 - Lee Bratcher

Yeah, Mike, that was the other thing that I was going to know. I said two things. One, that's market driven and the other so the other use case for blockchain and real estate is exactly that. It's ownership transfer, it's title transfer. But that one's, the one that I think is a long ways out and it's for the reason that you mentioned governments are not incentivized to innovate. And that's okay. The private sector innovates and the government. That's just not what the government's built to do. Government solves other collective action problems. So I don't think we're going to see title, especially here in Texas, just because of the way that title has evolved here. It's highly regulated. The 254 counties in Texas, the county clerks and the land Administration offices at the counties really have a lot of control over that process. And I just don't see enough political momentum.

00:29:20 - Mike Mills

Money.

00:29:21 - Lee Bratcher

Yeah, money. Political momentum building. And I also see the title industry sort of resisting it. And if the title industry resists it, then probably not going to happen anytime soon. I think what we will see, I think the only reason that we will eventually get to a parallel system where title is also on blockchain, because you're going to have to run a parallel system for years before you move fully to a blockchain title system. So you'll have your existing software title plants, the way they do it now, they may have an imaging system, they may have a hard copy, they probably have different counties do it different ways and different title plants do it different ways. But you have definitely duplicate multiple sources of validity or multiple sources of truth. And so you've got to run a parallel blockchain. So you add on a little expense in the short term before you can drop off some of those duplicative efforts on the back end. And so the title companies, the title plants that adopt this technology, I think will eventually gain market share. But that's probably ten years off.

00:30:38 - Mike Mills

Will you explain, just so everybody would be aware, what does that actually look like? Why is blockchain a useful technology when it comes to title transfers?

00:30:47 - Lee Bratcher

Sure. It's really, truly what a blockchain is designed to do. So at its very core, blockchains are distributed digital ledgers. They're ledgers that track asset ownership. So title systems have developed for centuries around this idea that you have to have surety of title. And we have a really great title system here in Texas and in the US as a whole. It may not be as efficient as it could. Be, but that doesn't mean that it's not been an absolutely transformative and beneficial thing for us as a nation. So what blockchain can come alongside Tidal and do is provide the ledger by which assets move. So the way that it works, you would have say a title is hashed onto the blockchain and when that hash is complete, it's added to all of the other transactions in the chain. And that new hash is verifiable in such a way that if you were to try to even change one comma, one longitudinal line on any sort of survey or any sort of title document, any pixel actually even that is changed on this document would actually break the Hash. And so if you've done that, then it's rejected and not added to the chain. So the only documents pertaining to title on the chain are ones that are verifiably true and accurate to all the other actors in the blockchain, whether it's permission blockchain or a permissionless one. So you can have title transfer and then the next time that title is transferred you really wouldn't need an insurance policy to insurance policy is the ledger ledger and you can instantly verify that. Okay, a pixel, a comma, a zero. Nothing has changed on this document from the last time that it was entered and we're going to update it now with public private key cryptography such that the seller is going to verify this transaction with their private key. That asset is then going to be transitioned over to a buyer probably through some sort of escrow process or county governmental entity and then the buyer then holds the private key to that title that demonstrates ownership in that property. So again, lots of different things would need to happen between where we are now and where we're going. And I also want to reassert that. I don't think this means that title insurance is going away anytime soon, right? Maybe by the time that I have grandkids, right?

00:33:51 - Mike Mills

Yeah, we're a long way.

00:33:53 - Lee Bratcher

My kids are like in elementary school right now, so listener that's not watching. Right. We are decades away from not needing title insurance, if ever. I mean, maybe we even still have title insurance but the policy premiums are cheaper. Yeah, they're cheaper and obviously we have regulated title based on a formula right now. I think that's got to change personally.

00:34:18 - Mike Mills

What do you mean? Because you don't think it should be based off title companies expenses, right?

00:34:23 - Lee Bratcher

Yeah, we've got to let the market act a little bit more. For example, I think it was in Ohio or Indiana or something, they were averaging a title insurance policy, a $250,000 home for less than $1,000. It was just a few hundred dollars for the liability, I guess, to the broker that the underwriter was negligible. Right. It was like $80 worth of their liability as an underwriter. So it is pretty out of whack.

00:35:01 - Mike Mills

Yeah, it's antiquated, but I'm sure with all your experience being working with the legislature in Texas, you understand better than anybody how slow things move and how difficult it is to usurp a current method of doing something. It's very challenging, especially when there's good money to be made, it makes it even know, and that's kind of the situation. But are you aware of any other specific real estate projects or pilot programs in Texas that are using blockchains or that they're doing something new that we're not aware of right now?

00:35:37 - Lee Bratcher

Yeah, well, I know market space capital Tokenized, commercial real estate. Property off of 635. And where is that? It's in Dallas off of 635. And I want to say near Marsh Lane.

00:35:53 - Mike Mills

Okay.

00:35:55 - Lee Bratcher

Red Swan has tokenized, some properties in Houston, some of these other there's a few properties trading on some of these ATSs. The real challenge for the vision of tokenized real estate is liquidity.

00:36:08 - Mike Mills

Right.

00:36:10 - Lee Bratcher

And that's because there are multiple ATS and there's not enough liquidity on any of them individually.

00:36:17 - Mike Mills

Right. Because you don't have enough people bought in yet. So if you don't have enough people bought in, then you're not going to have a big pool of money spread around.

00:36:23 - Lee Bratcher

Correct?

00:36:24 - Mike Mills

Right.

00:36:24 - Lee Bratcher

Yeah. There's not enough liquidity on any of these platforms to really create an efficient market. So if we had some sort of national securities exchange for real estate similar to that would act in a similar way to say, the New York Stock Exchange or Nasdaq, that is really I think where we need to go is one national securities exchange where real estate security tokens trade.

00:36:57 - Mike Mills

Right.

00:36:59 - Lee Bratcher

And maybe other kinds of private equity can trade there as well. Right. It's just non public security tokens.

00:37:05 - Mike Mills

I don't know the history of it specifically, but obviously they had that nasdaq came along after the New York Stock Exchange was up and running, and then they started do you know how they went from basically nonexisting to is there certain types of licenses they have to acquire? Do you know how that works?

00:37:29 - Lee Bratcher

Not exactly. I do know there are a lot of licenses, and I do know that there are more than 15 national securities exchanges in the public markets.

00:37:38 - Mike Mills

Okay.

00:37:40 - Lee Bratcher

So I think what will be required is one of those, like New York Stock Exchange or Nasdaq or some of the smaller ones, right. Those are the two that we know the most. Some of the smaller ones to retrain their licenses and acquire additional licenses for private market securities exchanges. And right now there are ATS that I mentioned that do sort of serve that function in a more limited way. But you're only allowed to trade on that platform with those assets that are listed on that platform. And some assets are restricted to accredited investors only if it's a reg d exemption. Some assets maybe there's like a reg a exemption, and it could be for not accredited investors. But you have to do a ton of investor education on the Reg A offerings. It's clunky, and so it is all regulatory challenges that are slowing it down. But I think it's taking the natural course. Right? We can't just jump into this too quickly because there are investor protections for a reason.

00:38:52 - Mike Mills

Sure.

00:38:53 - Lee Bratcher

So I would expect either one of these ATS acquires the licenses required for a national securities exchange for private equity, mainly real estate, or you see one of the public exchanges dive into it.

00:39:12 - Mike Mills

So if you're looking long term at this now, at least right now, I think there are currently options where from individual homeownership where if you have crypto assets, you can actually leverage those. There are companies that are doing lending based off of whatever assets you own. Obviously, it's a percentage of it, just like anything else. And the regular Mike Mills Mortgage and Finance FHA type loans that we do every day, we can use crypto assets as verifiable assets to be used in the transaction. They have to convert them just like anything else. But so the wheels are starting to move in that direction. Now, I don't know of anything right now that's going to solve the issue that we have with the cost of buying a home right now. Interest rates aside. Somebody told me the other day I was living when they were selling interest rates at 18%, and I said, yes, that's true. But in 1982, when that was, the average price of a home was $70,000. Nowadays, the average price of a home in the US is somewhere around $350,000. So it's substantially higher, which makes the cost of homeownership kind of out of reach for a lot of people, at least right now. So we're not going to solve that problem, at least not in any way that I'm aware of. With Blockchain, however, the idea of investing in real estate is something that for a very long time was only left to those who had the cash. If you had money, a lot of money, if you want to get into a syndicate and do investment in commercial properties, you had to have 100,000, 50,000 or whatever. Do you think that this fractionalization change in how real estate investing is happening? Is that going to more democratize at the lower level for investors to be able to get into the game? I always equate it to kind of what Robinhood did with stocks, because that's essentially what they did. One Apple stock price might be $350, and maybe you don't have enough money to buy one, but you could buy 5% of that one stock, and that's what kind of Robin Hood did. And then you saw, obviously, during COVID for a lot of different reasons, but then you see the stock market explode because now there's all this other money that's coming in from the smaller guys, maybe 100, 200, $400 here or there, instead of hundreds of thousands. But how long do you think it would take for that shift to start occurring when you look at commercial real estate or just real estate investing in general. Because I do know there are a few platforms out there that are doing investing on single family homes as either rental properties or a rental portfolio and that kind of thing. So what are your thoughts on that?

00:41:56 - Lee Bratcher

I think we're seeing it fundrise has an offering like that. I don't know what their minimum investment is, but it's quite low. There are challenges with securities law there around non accredited investors. But you can create reg a offerings for non accredited investors and you can have a certain percentage of your investor class be non accredited. So I do think know it is the goal of several of these companies like Proppy, like Peter Rex's company, Rex down in Austin. They want to get a minimum investment in a real estate asset down to a dollar. So similar to what Robinhood did for stocks. Your example is very poignant. I think it is very expensive and cost prohibitive to do Reggae securities offerings. So you have to have a large enough asset or the cost of capital has to be high enough, which it is right now.

00:42:59 - Mike Mills

Right.

00:42:59 - Lee Bratcher

Cost of capital is really high right now to really make the business model work to do something like that rather than just take a big syndication with accredited investors and do a Reg D and just have very low compliance cost and all that stuff. So it doesn't pencil out on those projects and it certainly doesn't pencil out on like a residential home. But I do think that we are moving in a direction where it will. And so, as I said on the title side, I do think we'll get down to a dollar minimum investment for accredited and non accredited investors. You probably have to have an interesting strategy where you have like a parent Reggae that has subsidiary Reggaes under it. And that's how you make it economical to have smaller lower dollar value assets that are available to not accredited investors.

00:44:02 - Mike Mills

It'd be almost something like investing in like a REIT or something along those lines where it's multiple properties that are held under one entity. And then you've tokenized that well, it.

00:44:11 - Lee Bratcher

Would be similar to a REIT, but different in two ways. One, the fees would be much lower, right? Because REITs already exist and people can already invest in REITs. So you'd have to have lower fees to compete away the dollars that are investing in REITs currently. Two, you'd actually have ownership. So correct me if I'm wrong, but if I own like I go to my Charles Swab account, I own a REIT in own, I'm not like one of the owners of that asset in the truest sense of the word, right? I own a REIT that owns the asset, right? So I couldn't take out that's not mine to dispose of as I see fit. That's the REITs. So it would be different in that sense, in that in this case you would actually own x percentage of the asset, you could use it as collateral, you could sell it, you have capital gains, liabilities, all that stuff, and you can participate in the ownership of it. So one of the interesting things about this is most of these properties are not tokenizing all of the asset because then you have to have a very creative operating agreement for the investors and if the GP doesn't control sufficient amount of the property, then the operating agreement gets a little bit funky. So either they tokenize 49% of it or you have a smart contract based system where when you buy into the asset, you agree to the property management operating agreement all in one and then you just vote with your share. Right. If you own 10% of the property, you have 10% of the voting rights or however that operating agreement is drawn up. And then the property management is conducted in the same way that it is now on the back end, but on the front end the LPs have voted on who the GP uses for.

00:46:16 - Mike Mills

You get a say in the asset when you're looking at it from that direction versus doing it as a REIT, because as a REIT you're just a paper holder of some company essentially. But when you're actually owning a token of a property you have some say based on the operating agreement, but you would have some say on maybe how the assets handled and managed.

00:46:34 - Lee Bratcher

Yeah, different investors or different companies are going to wrap up those operating agreements in different ways. So maybe in some options you don't have any say, but that's just going to be priced into the token. Right. If that's less attractive, then maybe that's a 2% cheaper token.

00:46:51 - Mike Mills

Right? Exactly. So kind of last thing on this, but if you were talking to real estate professionals, realtors mortgage people, title, what would you say they need to be doing at this point to kind of prepare themselves or be familiar with what's coming? Because again, one of the things that you guys spend the most time doing, which it sounds like you're doing it in the right place because you're educating the politicians that are making the decisions, which is where it needs to happen first. But then when you get down to the general consumer or just the professional in the industry, what would you tell them to be paying attention to? Or how would they go about trying to learn or what should they get familiar with to make sure that they're ready to be operating in this market in the future?

00:47:33 - Lee Bratcher

I would say, and I need to do this myself, which is just be read up on the different experimentation that's taking place in the marketplace. Right, look and see what your peers are doing. Not necessarily what I'm saying, but what are the innovative companies that are tokenizing assets. What are their lessons learned? Right? What does Red Swan learn? What does market space capital learn? What does Vertolo learn as a registered transfer agent? They're not tokenizing, but they're actually helping these companies, these funds with their cap table management. So what are the lessons learned? Where are we going to actually achieve this vision of liquidity and visibility and public market liquidity for real estate assets is not going to just pop up out of nowhere and no one's going to build that overnight. I would just say learn from all of the pilots that are going on right now and be prepared to take your company. Learn from others. Take them in that direction. Increase your market share and be ready to take advantage of more eyeballs, more business development opportunities. Growing your portfolio based upon these trends, because it's very similar to how retail businesses were like in the 90s, right? There was a lot of great retail businesses in the 90s that struggled in the ecommerce transition. Now many of them remained large, some of them went bankrupt, but many of them remained large entities. But there's ones that really dominated that ecommerce transition and there's ones that didn't. And so I think there'll be real estate companies that dominate the transition to tokenization and greater liquidity and more transparency and there'll be ones that want to stick their heads in the sand and don't want to do anything.

00:49:38 - Mike Mills

Yeah, well, I mean, from a mortgage point of view, I think where it's going to hit us first, I think is and it's already starting to to some extent is on the secondary side where the loans that we're taking and packaging up and selling to investors and purchasing just the rails like you're talking about, of being able to transfer assets from one or a note, whatever in this case, from one bank to another in a quick. Inexpensive fashion, which the sooner that companies get on board with that the cost of operating go down. And then therefore, ideally, the cost to some degree gets passed to the consumer. Because whoever can do things the fastest and the cheapest is going to have an advantage in the market. And then on the real estate side, I've heard of a few things, but I haven't really seen much yet because again, the regulation side of it. But there is some work being done with real estate contracts themselves, being converted into smart contracts and also being held on the blockchain itself, being recorded that way. Now, again, these are all, like you said, running alongside with what they have to do on the regulatory end right now. But there are some things that are going to start, I think, bLeeding into our market a little bit in the next year or so or next five years or so. It may happen faster than we think. I don't know. These things kind of move quickly sometimes as long as you don't have the regulation side to get passed. But before we go, wanted to ask you about the Blockchain Summit because that is coming up soon and it's here in the Metroplex. So tell us a little bit about that. Let me know what's going on there, how we get tickets, who are all the speakers? I mean, in the past you've had Andrew Yang and Ted Cruz and you know, all kinds of folks at this. Did I see that you just changed the name to the Global Summit or something? Explain that.

00:51:30 - Lee Bratcher

Yeah, we did. So it's been the Texas Blockchain Summit the last couple of years. The name change this year is the North American Blockchain Summit. So we're partnering. Yeah, we're expanding partnering. We've always had an audience from across the country, and so it just made sense to change the name. And we're partnering with other state associations from across the country for this event. So it's November 15 through 17th. We will have some tokenization of real world assets, conversations and panels going on and some sponsors in that arena. We have speakers, elected officials from Texas and from across the country. Congresswoman van Dyne will be there. Congressman Warren Davidson, who's a big advocate for digital assets. Senator Cruz, as you mentioned, has come every year. He'll be there again this year. Senator, alumnus from Wyoming, senator Wyden from Oregon, who chairs Mike Mills Mortgage and Finance, he's a Democrat advocate for the space. So we try to stay bipartisan and grab elected officials from both sides of the aisle. And then a lot of industry leaders, a lot of executives from Finance, from capital, allocator perspective from Bitcoin, mining world exchanges like Coinbase. Coinbase will be there. They're a sponsor. And so we're really excited about this event. On that Wednesday, we're going to have continuing education workshops for professionals, right? Accountants, lawyers, bankers, energy professionals, registered investment advisors, so you name it. Continuing education options for all of those except for the banking panel may or may not have continuing ed. It may just be workshops because it's difficult to get those hours accredited, but all the other panels, those will be accredited.

00:53:25 - Mike Mills

So this year is going to be a big year for crypto in politics, especially, I feel like, because I think I just saw either yesterday or the day before, was it the House that passed a or maybe it was the House Republicans or it was a committee. I get lost in all the minutiae of it. But that put through a ban on CBDCs. Now, obviously it's got to go through all the other places to get passed. But can you explain that, what happened there?

00:53:51 - Lee Bratcher

Yeah. So the House Financial Services Committee has been doing a great job. They passed the Fit Act, which is a market structure bill for cryptocurrencies and digital assets out of that committee a few weeks ago. And then you're right. Two days ago, the ban on central bank digital currencies which was championed by Representative Emmer who's the majority whip in the House. Both of those bills will struggle in the Senate. Unfortunately, the Senate Banking chairman is Sherrod Brown from Ohio. And there are allies on the Democratic side for this, like Senator Wyden and others. But Sherry Brown is not one of those democratic allies. So he is likely to be a real stumbling block for those pieces of legislation to get passed in the Senate. But one day they'll get through. Whether that's because there's a change in Senate leadership or whatever the mean, just.

00:54:48 - Mike Mills

Have to it'll get through eventually.

00:54:50 - Lee Bratcher

We're not sure how, but whether that's in this Congress or the next we do expect some movement on the federal level.

00:54:57 - Mike Mills

So then my last question to you is so you're on know, talking to senators, talking to congressmen, you're talking to state legislators. When are you going to throw your hat in the political arena? Is that anything in the near future?

00:55:13 - Lee Bratcher

No, certainly not. Yeah, I've got three young kids all under the age of eight so will not be throwing my hat in the ring just because I'm with them so much. I see how much time they put in. They're just always going, always at events, always out there in the community and I just don't have that kind of bandwidth right now.

00:55:36 - Mike Mills

You got too much advocacy on your part. Well, I'm thrilled and being obviously a Texan and living here and having somebody like you and the Blockchain Council be out there really trying to make Texas at the forefront of all this I think is great. With all the great things that comes along with our state, the idea that most of us hold where the freedom of what we can do with our money, with our voices, with our bodies, with everything that we have the ability to decide on. It's great to see groups like you guys really out there advocating for this technology that is going to revolutionize how we do everything. I made a video about this the other day, just it's like the.com era back in the 90s. There was a clip from I think it was like Bryant Gumble and he was trying to describe the at sign for email and this was like in 1995 and he couldn't even really he was like what's that called? How do we even describe that? And here we fast forward 25 years later and our entire way of life has changed. So I do think that this is going to have that kind of impact. And I think the more people that understand it and the more people that come familiar with it and don't get lost in the Sam Bankman Frieds of the world and the Crypto Bros of the dogecoins and all the stuff that goes along with that. But when you really look at what the technology is and what it represents and what it can do for security, for transparency, all those types of things, Imagine if we had the federal budget on the blockchain and how they spent their money. That'd be nice, right? It'd be nice to see where all that money went. So I really appreciate you coming on and spending some time with me, going through all this. I think it's great what you guys are doing, and I hope you continue to do it, keep pushing out there. And I know it takes up a lot of your time, and having young kids really makes it a stretch to get away from time to time. But I'm glad that you're out there fighting for everybody, and I really appreciate you coming on board and talking to me today.

00:57:36 - Lee Bratcher

Yeah, thanks for having me, Mike. Fun.

00:57:38 - Mike Mills

All right, guys, that's it for today. We'll be back next week. I'll be talking to another local realtor to tell us about how the market's actually treating her. Because as everybody likes to think that everything's going great, sometimes it's a little bit of a struggle. So we'll be great to hear from her. But thank you again, Lee, for joining me. And I'll let you get back to your day, and we'll see you guys next week. Bye