Tag Archives: blockchain

Tokenized Residential Real Estate

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I am excited that Who Controls the Block? How States Can Regulate Tokenized Residential Real Estate (co-authored with Bizub & Peralta) is forthcoming in the Texas A&M Law Review. The abstract reads,

In July 2025, the City of Detroit filed a major nuisance abatement action against RealT, a fintech that had sold blockchain-based fractional interests in more than four hundred Detroit rental properties to some 22,000 investors around the world. Within a year, a court had ordered the company’s rents into escrow, the company had conceded to its investors that its “model no longer works,” and it had announced the liquidation of its portfolio  —  leaving tenants without basic services and token holders facing steep losses.

This article uses the rise and collapse of RealT, together with case studies of the other leading real estate tokenization business models, to evaluate the claims made for tokenized real estate as a new asset class for individual investors. Measured against the publicly-traded REIT, tokenization offers only one advantage to investors —  a bespoke level of diversification  —  and it does so while shedding the investor protections that registration and exchange listing provide. More fundamentally, the leading business models rest on skirting the state and local legal infrastructure of real property: recording regimes, transfer and property taxation, and homeowner and tenant protections. Like the mortgage industry’s Mortgage Electronic Registration Systems, Inc. (“MERS”) a generation ago, tokenization externalizes the costs of that end-run onto the parties least able to bear them.

Real estate tokenization is still in its infancy, and state and local governments have a window of opportunity to shape how these fintechs operate within their borders. Some have begun to use it: Maine’s first-in-the-nation statute regulating shared appreciation agreements supplies one template, and Detroit’s enforcement campaign another. This article maps the gaps that remain  —  most notably in transfer taxation and tenant protection  —  and offers an agenda for closing them before tokenization scales.

Who Controls the Block? How States Can Regulate Tokenized Residential Real Estate

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I have posted Who Controls the Block? How States Can Regulate Tokenized Residential Real Estate to SSRN (with Bizub & Peralta). The abstract reads,

In July 2025, the City of Detroit filed a major nuisance abatement action against RealT, a fintech that had sold blockchain-based fractional interests in more than four hundred Detroit rental properties to some 22,000 investors around the world. Within a year, a court had ordered the company’s rents into escrow, the company had conceded to its investors that its “model no longer works,” and it had announced the liquidation of its portfolio  —  leaving tenants without basic services and token holders facing steep losses.

This article uses the rise and collapse of RealT, together with case studies of the other leading real estate tokenization business models, to evaluate the claims made for tokenized real estate as a new asset class for individual investors. Measured against the publicly-traded REIT, tokenization offers only one advantage to investors —  a bespoke level of diversification  —  and it does so while shedding the investor protections that registration and exchange listing provide. More fundamentally, the leading business models rest on skirting the state and local legal infrastructure of real property: recording regimes, transfer and property taxation, and homeowner and tenant protections. Like the mortgage industry’s Mortgage Electronic Registration Systems, Inc. (“MERS”) a generation ago, tokenization externalizes the costs of that end-run onto the parties least able to bear them.

Real estate tokenization is still in its infancy, and state and local governments have a window of opportunity to shape how these fintechs operate within their borders. Some have begun to use it: Maine’s first-in-the-nation statute regulating shared appreciation agreements supplies one template, and Detroit’s enforcement campaign another. This article maps the gaps that remain  —  most notably in transfer taxation and tenant protection  —  and offers an agenda for closing them before tokenization scales.

 

AI and Legal Education

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I was interviewed in the Forum (Cornell Law School’s Alumni Magazine) about AI and Legal Education. It reads, in part:

When she first began her legal studies at Cornell, [Jessica Rosberger ’26] says many students didn’t want to disclose they were using AI (“it felt like academic dishonesty”) but now it is “explicitly discussed” and used as a tool in studies and research. “I feel confident now going into practice to understand how the technology is evolving. I don’t know where it’s going, but I want to keep up with it,” says Rosberger, who joins the Manhattan District Attorney’s office after graduation. “In my view, Cornell is maintaining its integrity as a top law school by integrating AI into coursework and clinics. We have a professional responsibility to keep up with the technology and the platforms available to us.”

This sense of responsibility is especially evident at Cornell Tech, which offers courses and programs—including a Master of Laws (LL.M.) in Law, Technology, and Entrepreneurship degree—bringing together experts in engineering, computer science, design, business, and law “to build the foundations for new digital technologies—especially AI.”

“Our faculty are thought leaders in artificial intelligence and machine learning,” says David Reiss, clinical professor of law and research director of the Blassberg-Rice Center for Entrepreneurship Law. “The Law School has always been committed to ensuring that our graduates are practice ready. The integration of AI into the curriculum provides them with better tools. It will make them better lawyers and give them a leg up in practice.”

Reiss co-authored an article in Bloomberg Law explaining why law schools should teach how to integrate AI into practice. “Different AI products lead to wildly different results. Just demonstrating this to law students is very valuable, as it dispels the notion that AI responses can replace their independent judgment,” writes Reiss. Simulations were designed in which students were asked to complete the same transactional tasks, like drafting a contract or creating a client email, using different AI tools. The results were different because each platform drew from different sources or used different algorithms to interpret language—some provided a helpful first draft, while others did not, or even hallucinated.

“Our goal is student learning. It was for this reason that we like to deploy the AI tools at the end of our exercises: You do the work and then interrogate it with the AI tools of your choice,” explains Reiss. Just recognizing the capacity for different platforms to produce different results is critical. “AI is not a replacement for lawyers. We want our students to understand how it can be an enhancement for lawyers. It can increase efficiency and help meet tighter deadlines. The lawyers who adapt to AI will succeed and those who put their heads in the sand will fall behind.”

    *     *     *

Some law students are already trying to improve AI for practical usage. When Biying Cheng ’25 was at Cornell Tech’s Entrepreneurship Clinic, she assisted a client who designed an AI chatbot to help tenants deal with landlord issues and housing court. “We devised questions to test what level of detail the chatbot could and should provide, considering legal liability and jurisdictional issues,” says Cheng, who was already comfortable with AI. “I’m not a native speaker, and ChatGPT helped me draft emails, outline memos, and find resources. I called it Professor G and asked it to explains words I was unfamiliar with.”

Cheng’s pursuit of a J.D. came after receiving a master’s in international finance from Columbia University and a B.A. from The Chinese University of Hong Kong. Her work with the AI chatbot was a full-circle moment for someone who had witnessed Chinese students in Hong Kong participating in protests because of a serious housing problem. She saw how the law and AI could help New York City tenants facing housing issues. Cheng also co-authored an article with Professor Reiss on the real world impact of crypto and blockchain on tenants and real estate investors.

“The legal industry tends to be pretty conservative,” says Cheng, who now clerks for the U.S. District Court, Eastern District [of New York]. “But lawyers should want to become fluent in AI as a way to understand how it can impact lives in better ways.”

“We’re going to look to our younger colleagues to move us forward,” says Reiss. He believes that AI can help “refine legal judgment” with the right kind of prompting and critical review. AI can help lawyers “stress test” their own reasoning , identify blind spots, and learn about novel issues.

When Tokenized Real-World Assets Collide With The Real World

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Biying Cheng and I have a column in Law 360, When Tokenized Real-World Assets Collide With Real World. It reads,

The city of Detroit filed a public nuisance lawsuit in July of last year in the Michigan Circuit Court for the Third Judicial Circuit against Real Token, its co-founders and 165 affiliated entities, alleging building code and safety violations across over 400 Detroit residential properties.[1] RealT is a blockchain real estate platform that sells fractional interests in individual U.S. rental properties through the issuance of crypto security tokens.

On July 22, the judge issued a temporary restraining order — later converted into a preliminary injunction on Nov. 4 — barring RealT from collecting rent, pursuing evictions without a certificate of compliance and directing future rent into escrow until properties are brought up to code.

Detroit v. Jacobson is ongoing, with a trial scheduled to begin in May. The case highlights the brave new world we face when real estate assets are tokenized via blockchain technology.

The facts surrounding the case raise three pressing questions. First, are these real estate tokens securities? Second, assuming they are, do investors know what they are getting into when they purchase them? Third, and most importantly, are the very human tenants in these properties being provided with habitable housing by their decentralized finance landlords?

Are real estate tokens securities?

Until the Trump administration indicated that it might be taking a new approach to crypto more generally, it seemed clear that tokens like those issued by RealT were securities. Gary Gensler, chair of the U.S. Securities and Exchange Commission under the Biden administration, had stated that security tokens were generally securities under the long-standing Howey test, derived from the U.S. Supreme Court’s 1946 decision in SEC v. W.J. Howey Co.[2]

Trump administration officials have not, however, spoken in one voice on the issue. While SEC Commissioner Hester M. Peirce, the head of the SEC cryptocurrency task force, stated in July last year that “tokenized securities are still securities,” SEC Chairman Paul Atkins stated that “most crypto assets are not securities” a few weeks afterwards.[3]

Further muddying the waters, President Donald Trump’s Working Group on Digital Asset Markets released a report around the same time that distinguished between tokenized securities and tokenized nonsecurities, such as “commercial real estate.”[4]

On July 31, Atkins also announced the Project Crypto initiative to aid “President Trump in his historic efforts to make America the ‘crypto capital of the world.'” Under the aegis of Project Crypto, the SEC intends to develop “clear guidelines that market participants can use to determine whether a crypto asset is a security or subject to an investment contract” to slot crypto-assets into various categories.

The initiative also contemplates “an innovation exemption that would allow registrants and non-registrants to quickly go to market with new business models and services,” with no need to comply with burdensome regulatory requirements.[5]

It remains to be seen which types of real estate tokens will be deemed by the Trump administration to be securities and which will be deemed interests in real estate. It is important to acknowledge, however, that it would be a radical change to deem real estate tokens like RealT’s not to be securities, and it would upend decades of settled law relating to the Howey test.[6]

Indeed, the U.S. Court of Appeals for the Ninth Circuit on Aug. 11 reaffirmed a broad interpretation of the Howey test in SEC v. Barry.[7] To determine whether a security token is a security, the starting point is to decide whether it is an “investment contract” for the purposes of the Securities Act. Courts have found that the Howey test requires four elements to be met to determine whether something is an investment contract: (1) there must be an investment by the investor (2) in a common enterprise (3) with an expectation of profit (4) derived primarily from the efforts of others.

The Ninth Circuit in Barry found that sales of fractional interests in life settlements were investment contracts under the Howey test, and thus are securities. A life settlement is a transaction in which someone sells a policy insuring their own life to investors for an agreed-upon price, and the investors then take over the payment of the premiums and collect the death benefit after the insured dies. The defendants were sales agents for Pacific West Capital Group, a firm that buys life insurance policies from seniors and then sells fractional interests in those policies to investors.

Applying Howey, the court held that investors’ expected profits depended on PWCG’s managerial and ongoing efforts, including its policy selection, operation of the premium-reserve mechanism and the fractionalized structure that left investors reliant on PWCG’s management. The life settlements were thus found to be investment contracts.

Although this case does not address the tokenization issue, it demonstrates that the Howey test is generally applicable to transactions that fall under the broad category of “investment contracts.” So, while recent regulatory announcements impose some uncertainty regarding the applicability of the test, the Ninth Circuit’s decision in Barry shows that the Howey test is still alive and well, at least for now.

Are investors protected?

Promoters of real-world asset tokenization claim that they can lower barriers to real estate investing by allowing retail investors into the types of deals that once required high investment minimums and limited access to accredited investors. While the low cost and ease of entry into the real estate tokenization market are real, major challenges remain for retail investors to understand the risks posed by the tokens, as well as those posed by the underlying properties themselves.

Under the current regulatory framework, if a real estate token offering meets the Howey test, it is an investment contract and thus a security. The transaction then must be registered with the SEC or exempted.

Real estate token issuers typically rely on exemptions such as Regulation A, Regulation Crowdfunding, Regulation D and Regulation S. Each of those exemptions has various limitations on solicitation, investor accreditation and amounts raised, as well as other aspects of the offering.

States such as New York and California also have their own regulations that tokens must comply with. State securities regulators have identified schemes tied to digital assets as a top threat for retail investors.[8] It is far from clear whether real estate tokens generally comply with all of the federal and state investor protection regimes that apply to them.

In addition to being exposed to fraud and misrepresentation by token issuers, retail investors are also exposed to real-world problems relating to their investments that can rapidly interrupt cash flows and investor distributions.

Are tenants protected?

The Detroit RealT lawsuit clearly demonstrates how digital assets and their underlying real-world assets interact in a way that an investor pitch deck cannot. As alleged in the lawsuit, tenants in their properties have suffered for months from lack of heat, leaky roofs and other unsafe conditions. Investors are suffering — albeit only financially — for owning such poorly maintained properties.

Tenants are not without remedies. Many local governments, including Detroit, have significant statutory protections in place for residential tenants. Residential rentals in Detroit must obtain and maintain a certificate of compliance, and courts can effectively halt rent payments or consider noncompliance against landlords in  cases. When units are out of compliance, tenants may be directed to escrow rent until code issues are fixed, as the judge in the RealT case has ordered.

What’s next?

We are just beginning to live in a world of tokenized real estate. The RealT case in Detroit should provide some guidance as to how we should navigate this new world.

But the regulatory environment is not yet clear. Investors do not yet understand what they are investing in. And tenants may be suffering real-world consequences until a whole host of regulatory and business issues are worked out.

The sooner we figure it out, the better for all.

[1] City of Detroit, City of Detroit Announces Major Lawsuit Against Real Token And 165 Related Corporate Entities for Widespread Nuisance Abatement Violations (July 24, 2025), https://detroitmi.gov/news/city-detroit-announces-major-lawsuit-against-real-token-and-165-related-corporate-entities.

[2] Gary Gensler, Chair, U.S. Sec. & Exch. Comm’n, Remarks on the Importance of Oversight and Investor Protection in Our Crypto Markets (Apr. 4, 2022), Securities and Exchange Commission, https://www.sec.gov/news/speech/gensler-remarks-crypto-markets-040422. , 328 U.S. 293 (1946).

[3] Hester Peirce, Comm’r, U.S. Sec. & Exch. Comm’n, Statement on Tokenized Securities, (July 9, 2025), https://www.sec.gov/newsroom/speeches-statements/peirce-statement-tokenized-securities-070925; Paul Atkins, American Leadership in the Digital Finance Revolution (July 31, 2025), https://www.sec.gov/newsroom/speeches-statements/atkins-digital-finance-revolution-073125.

[4] President’s Working Group on Digital Asset Markets, Strengthening American Leadership In Digital Financial Technology 37 (July 2025), https://www.whitehouse.gov/fact-sheets/2025/07/fact-sheet-the-presidents-working-group-on-digital-asset-markets-releases-recommendations-to-strengthen-american-leadership-in-digital-financial-technology/.

[5] Paul Atkins, Chair, U.S. Sec. & Exch. Comm’n, American Leadership in the Digital Finance Revolution (July 31, 2025), https://www.sec.gov/newsroom/speeches-statements/atkins-digital-finance-revolution-073125.

[6] SEC v. W.J. Howey Co., 328 U.S. 293 (1946).

[7] SEC v. Barry, 146 F.4th 1242 (9th Cir. 2025).

[8] NASAA Highlights Top Investor Threats, North American Securities Administrators Association (Mar. 6, 2025), https://www.nasaa.org/75001/nasaa-highlights-top-investor-threats-for-2025/.

The DAO of Real Estate

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Joseph Bizub and I posted The DAO of Real Estate to SSRN (and BePress). The abstract reads,

Real Estate Investment Trusts (REITs) have long proven their worth as liquid securities that give investors access to many real estate asset classes. Decentralized Autonomous Organizations (“DAOs”) are one of several blockchain real estate innovations seeking to provide a new path to those searching to invest in real estate. While the success of the DAO model of real estate investment is far from assured, these new investment options could offer real competition to REITs one day.

 

Blockchain Coming To Your Block

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Joseph Bizub, Justin Peralta and I wrote the lead story for latest issue of N.Y. Real Property Law Journal, Blockchain Coming to a Block Near You: How FinTech is Changing Real Estate Investing. You can find it on page 5: bit.ly/BlockchainStory. It argues,

Until recently, real estate with a small footprint – one-to-four-family homes as well as small retail, office, and industrial buildings – were generally within the purview of small investors who invested locally. Today, because of technological advances, these owner-occupants and investors face competition from an emerging class of decentralized finance (DeFi) investors. Fintech companies are presenting DeFi investors with new approaches to the challenges that real estate investing traditionally poses: illiquidity, high capital requirements, lack of diversification, and opaque markets. This article focuses on how fintech companies are meeting those challenges and suggests that while much of their vaunted innovation is simply old wine in new bottles, there is good reason to think that they will be driving a lot of investment in small real estate transactions in the future, in no small part because people like shiny new bottles.

You can also find the draft on SSRN and BePress.

How Fintech Is Changing Real Estate Investing

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Joseph Bizub, Justin Peralta and I have posted a short article, Blockchain Coming to a Block Near You: How Fintech Is Changing Real Estate Investing (also available on SSRN here). It opens,

Until recently, real estate with a small footprint – one-to-four-family homes as well as small retail, office, and industrial buildings – were generally within the purview of small investors who invested locally. Today, because of technological advances, these owner-occupants and investors face competition from an emerging class of decentralized finance (DeFi) investors. Fintech companies are presenting DeFi investors with new approaches to the challenges that real estate investing traditionally poses: illiquidity, high capital requirements, lack of diversification, and opaque markets. This article focuses on how fintech companies are meeting those challenges and suggests that while much of their vaunted innovation is simply old wine in new bottles, there is good reason to think that they will be driving a lot of investment in small real estate transactions in the future, in no small part because people like shiny new bottles.