Using Crypto Currency in MF Syndications

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This post is not intended to spur debate on whether bitcoin, etc will change the world or is just internet funny money that will go away in a few years.

I'm curious to know if there are any syndicators who have accepted or would accept contributions in Bitcoin (or other crypto currency) for membership in a MF syndication? This assumes an investor would send the sponsor their contribution as BTC which would then immediately be converted into USD at an agreed upon value. Theoretically the sponsor could issue distributions back in Bitcoin the same way. 

The reason I ask is because I have met so many investors investing in MF who also invest in crypto as well as crypto investors who love the idea of finding ways to actually use their crypto. This has lead our team to investigate the feasibility of doing so.

We've also been exploring the concept of holding some reserves in a MF project in Bitcoin instead of USD. The idea being that Bitcoin will hold value better than the USD over time. We would over capitalize the raise to have adequate USD cash reserves in addition to bitcoin reserves. The idea being that if bitcoin goes to 0, you have a defined loss and you still have cash reserves. The loss will add headwind to the investment but not materially. On the flip side if Bitcoin appreciates significantly compared to the USD, you could generate serious alpha.

Companies in the US are already doing this, right now there is over $20B in company reserves held in btc including Square Inc and MicroStrategy to name a few. 

We are in the process of discussing this with our CPA and legal teams (it may not be feasible, or too cumbersome), but wanted to throw the concepts out to the BP community to get your valuable opinion. 

Personally for my passive investments I would never invest into a MF syndication that had operating reserves in the form of crypto. If it went down then not only am I losing those reserves but I am putting my entire MF deal at risk too. The upside, however, is only the extra value from the crypto. There is no upside to the MF portion of the deal itself. So in that sense I only see downside risk.

@Spencer Gray  It is only a matter of time before it becomes commonplace.  The reality @Michael Le just because you accepted crypto to get into the deal does not mean you need to leave it in crypto.  YOu could sell off the BTC day one or as in the current market let it ride for a bit and know that as the developer/sponsor you might need to cover some losses or you might make a really nice GP gain on the deal.  I personally love the idea and would welcome them in my developments Spencer!

Originally posted by @Shannon Robnett :

@Spencer Gray  It is only a matter of time before it becomes commonplace.  The reality @Michael Le just because you accepted crypto to get into the deal does not mean you need to leave it in crypto.  YOu could sell off the BTC day one or as in the current market let it ride for a bit and know that as the developer/sponsor you might need to cover some losses or you might make a really nice GP gain on the deal.  I personally love the idea and would welcome them in my developments Spencer!


Well, yeah, I know I could sell it day one but I was just responding to his entire paragraph dedicated to how he would leave his reserves in BTC. 

@Michael Le I agree the downside risk may outweigh the benefits. However I could also argue that keeping reserves in USD may be riskier than BTC, but maybe that thesis doesn't need to be combined with a traditional MF syndication. It certainly wouldn't be an investment strategy for everyone.

We're primarily focused on the acceptance of crypto in one of our next projects at this point and will see how that goes. 

Interesting concepts and good to be thinking outside the box a bit. Personally I am not ready to put my investors money into Bitcoin, but I do see that as a good option for the right investors. Right now, we put out reserve fund into a money market account for some minor added interest. 

You could also put it into a mutual fund, stocks, bitcoin, etc, but then you are playing investment broker with the investors funds that are supposed to be rainy day funds. 

@Spencer Gray Great question. This proves that you are thinking outside the box and what the future for multifamily investing will look like in the near future. Very impressive you will be attempting to accept crypto in your next opportunity. Keep us posted on Linkedln about that!

I like your thinking.  I used much of my cash flow and reserves to build my crypto portfolio over the last 3-4 years.  I will be looking to cash out of much of it over the next 12-18 months throughout this current (crypto) bull market and will be looking to put it back into more real estate.  Further, I believe I am not alone in this thinking.  Many of the younger crypto investors are interested in getting into real estate - many for the first time - and it could bring a new class of money into the space.