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Blockchain startup sees potential for growth beyond property fund market

Jakob Drzazga is co-founder and CEO of Brickblock Ltd., a real estate-focused blockchain startup based in Germany. The company's software is behind what it claims to be the world's first blockchain-powered real estate fund, launched by Peakside Capital.

SNL Image

Jakob Drzazga, co-founder and
CEO, Brickblock
Source: Brickblock Ltd.

Peakside Income Fund 1 aims to raise €200 million to invest in core and core-plus office properties in first- and second-tier German cities, with a focus on assets ranging from €15 million to €75 million. The fund employs Brickblock's ScalingFunds platform to allow investors to make their investments online on a self-checkout basis, permitting trading of fund shares nearly instantly, according to Brickblock.

S&P Global Market Intelligence spoke with Drzazga following the launch of the fund about why he established the company and what it plans to do next.

S&P Global Market Intelligence: What inspired you to set up Brickblock?

Jakob Drzazga: I started the company with co-founder Martin Mischke in 2017 out of a real need, because when I was a real estate developer, I wanted to raise my own real estate fund and encountered many, many problems. These included the very complex, paper-based process, and also the lack of liquidity for investors when they buy a fund share that they cannot really trade out of. And I said, there needs to be a way to make the process more efficient and attractive for investors and fund managers. This is how it was triggered. Now we are a great company with over 22 people.

It has taken two years for Brickblock to see a client launch a fund using its technology. What were the challenges encountered in getting to this point?

We put a lot of work into really making a stable system. The fund area is not easy because you have to arrange a lot of services with regulated entities. We are working with solarisBank AG, with JTC PLC, which are regulated entities. You have to explain things repeatedly to make sure that everything is compliant, that everything is cleared from all parties, and also make sure that the tech works exactly like it should. It took a long time, there was a lot of work that went into it, but finally we are done and we are live.

The technology Brickblock uses is obviously the most intriguing part of the business for investors. Can you explain some of the challenges you've faced with the technology Brickblock's ScalingFunds platform is based on?

The most important part of our tech, which we have been devoting a lot of time to, is the blockchain technology because it is rather new, having only existed for around 10 years. We wanted to make sure that everything there is executed in the right way, and we spent a lot of time engaging our auditors — our auditors are the best in the industry — to verify that our tech is safe. This is a very important part of what we have been building.

We had to build three portals or entry points for users of our software. One for the investor, who goes through the investor journey and does the know-your-customer process, identification, digital contract signing, and also receiving the digital share. On the other side, you have the fund manager, who can then track to make sure that all of the investors are getting through the process, and can review where they are and see if they need any help. And then the third party ... is the central administrator, in this case, Sanne Group PLC, [which] also needs its own way in so they can see who the investors are and if they are cleared for anti-money laundering.

Brickblock used the blockchain technology it developed to tokenize a number of real estate assets in the months prior to the launch of Peakside's fund on the ScalingFunds platform? Is this an area Brickblock is interested in growing its business?

The tokenization of these assets was a kind of pre-step to making the Peakside fund actually work. You cannot go from zero to 100; you have to take some steps in between because otherwise, it wouldn't work.

We have decided internally that the funds are the ultimate goal and we should have our sole focus on this in 2019 and 2020. We are here for real estate funds and also in the future for other funds, but primarily for real estate funds and we don't want to be distracted with anything else. If there are some other projects which are interesting that would allow us to build relationships, then we would consider it. Because building relationships is a big part of what we do. We're building trust structures so people can actually see how it works with single real estate assets and then get convinced to do something bigger.

So you don't foresee the tokenization of real estate assets becoming a big part of Brickblock's business?

Maybe in the future when we have [standardized] everything and we know everything inside out about how people want their fund to be structured, and we have run through 30, 40, 50 customers, then we might want to focus on another part of the real estate sector and move this forward. But this is future talk. Currently, we are just for the tokenization of funds.