This story was first published by Aaron Mondry of Outlier Media. WXYZ is a proud partner of Outlier. It is also part of The Speculators of Detroit, which looks at how bad actors have destabilized neighborhoods, left many residents without safe housing and cost the city hundreds of millions.
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One of the world’s largest cryptocurrency real estate marketplaces has bet big on Detroit. But the anything-goes ethos of crypto investing has created chaos for tenants in its properties and is at odds with Detroiters’ need for responsible landlords who know what they’re doing.
For months, the firm’s property managers have done little to no repair work on hundreds of the approximately 1,000 rental properties it claims to oversee. It doesn’t have leases for many of its tenants, some of whom said they don’t even know who to pay rent to. But that hasn’t kept the company from threatening eviction. County records show that hundreds of its properties are in danger of tax foreclosure.
The source of this chaos is RealT, a Florida-based company with an experimental — and controversial — business model. It runs an online marketplace that sells what it calls “fractional ownership” of its properties to overseas investors. There are typically hundreds of investors in each property.
RealT outsources property management to local companies. But remote oversight in Detroit has so far been a disaster.
Shirquera Ayers had been homeless before moving into her eastside Detroit home in 2018. She’s been grateful for the state-subsidized rent that’s provided stability for her and her two children.
But the problems with Ayers’ home are piling up, and she said the property manager RealT hired has been unresponsive. She can’t use the shower because the knobs don’t work, and in 2023 her toilet overflowed, ruining the carpet. Black mold started growing on the walls. Ayers said she put in several work orders, but nothing ever got fixed.
The company’s real estate arm — which operates under several iterations of the name Michigan Realtoken in Michigan — has racked up more than 1,000 blight tickets in just a few years, most of which are unpaid.
“I’ve been complaining for years, but nobody has ever come out,” she said. “As far as I can tell, they’re slumlords.”
Ayers wants to move but feels trapped by the low rent.
“I have two kids and can’t just uproot them,” she said. “But it’s still not fair to me if I’m paying rent, but you’re not taking care of my place.”
Help might not be on the way — the business appears to be in a deep financial hole. U.S. Postal Service data suggest more than 100 of its properties are vacant. In addition to residents clamoring for repairs, the company is behind on taxes for at least 300 properties. More than 200 of these properties will be foreclosed unless the debt is paid by March.
According to county and city databases, Michigan Realtoken owes the city at least $2 million in unpaid taxes and blight tickets.
RealT co-founders Jean-Marc Jacobson and his brother Remy Jacobson said their problems have nothing to do with cryptocurrency or their business model. Instead, they blame former property managers, saying that one company scammed them by keeping the cash meant for work orders and tax bills.
The Jacobsons said they couldn’t name the property manager because they’re planning litigation.
Their actions so far mirror those of Detroit’s speculators: Homes purchased on the cheap, then left to deteriorate or head to tax foreclosure at the expense of tenants, neighbors and the city. And the investors themselves buy shares in these properties through an inherently speculative instrument with little knowledge of what they’re actually getting.
The Jacobsons strongly object to the speculator label, saying they are working to clean up the mess and are reinvesting in their Detroit portfolio. They added through spokesperson Michael Layne that they’re on payment plans for every tax-delinquent property, but only showed Outlier Media agreements for three addresses.
“There’s all sorts of terrible, dystopian scenarios you can imagine with crypto in real estate.”
Andrew Baum, University of Oxford
$50 and a crypto wallet
Investing in real estate with cryptocurrency is a small but growing trend in the U.S.
Here’s how it works: A real estate firm, often through a unique limited liability company, buys a property. It then subdivides the property into hundreds or thousands of tokens, which it sells to investors. Every transaction is recorded on the blockchain — essentially a public record of cryptocurrency transactions. The token holders get regular dividends based on rental income.
The appeal for investors is the low barrier to entry. With just $50 and a virtual wallet to hold their crypto assets, they can buy a token. And unlike traditional real estate, which can take months to convert into cash, tokens can be resold in hours or days.
Laurens Swinkels, an associate professor at Erasmus University Rotterdam in the Netherlands, published a 2023 paper analyzing RealT’s investors using data in the public record. RealT puts all its listings on its website, including investment costs, expected returns and the transaction history for every token.
Swinkels found that the company, which projects around 10% annual returns, had sold all the tokens to almost every property it listed. Each property had more than 250 investors, on average.
“When I started researching them, I wondered how many people would want to own part of a home in Detroit,” Swinkels said. “It turned out to be a lot more than I expected. If you can’t afford a house or you want to spread out the risk, you can just buy tokens every month. And that’s what lots of people are doing.”
How tokenization works
Remy Jacobson has claimed the company he owns with his brother is the “largest real estate tokenization platform in the world today by all metrics.” He said they’d sold tokens for more than 1,500 properties to investors in more than 150 overseas countries. RealT bars U.S. investors from buying tokens.
He added that a property worth about $60,000 will sell all of its tokens in about 10 seconds.
Crypto evangelists like the Jacobsons make the model sound like the future of real estate. Critics hope not.
Andrew Baum, emeritus professor at the University of Oxford’s business school, called the economics of tokenizing real estate “unconvincing.” He also expressed concerns about accountability.
“There’s all sorts of terrible, dystopian scenarios you can imagine with crypto in real estate,” Baum told Outlier.
He said tenants probably won’t know who the owner is, making it difficult to hold their landlord accountable. But he questioned the model itself, specifically the challenges of getting money for repairs or renovations.
“If your roof is leaking, how do you get money out of the company?” Baum said. “The platform has to get the money from its token investors. Can it do that? Has it set aside enough in reserve? Will it make investors unhappy?”
The Jacobsons say their savings and insurance have allowed them to pay dividends, even after being ripped off by one of their property management companies. They added that investors are aware of the company’s difficulties. However, Outlier has no way of contacting them because each investor is identified as a string of random numbers and letters on the blockchain.
Nonetheless, demand for tokens has exceeded their availability, and the Jacobsons have rapidly expanded their portfolio, especially in Detroit. RealT also has tokenized properties in Chicago, Cleveland and St. Louis.
Outlier identified more than 500 properties in Detroit owned by Michigan Realtoken, but the Jacobsons said they own closer to 1,000. All were purchased since 2019.
The properties are scattered throughout the city, mostly in neighborhoods with below-average property values. Almost all are single-family homes or duplexes, but it also has a handful of apartment buildings.
Nearly all the Detroit listings on RealT’s marketplace show the “total investment” — which includes purchase price, renovations and maintenance reserve — between $60,000 and $90,000. The company’s marketing materials frequently tout that its tenants receive subsidized rent through Section 8 or low-income tax credits.
The Jacobsons said they invested so heavily in Detroit at first because it was cheap, but also thought they could have a positive impact.
“We’re not here to flip properties,” Jean-Marc said. “We really intended to improve communities, to improve neighborhoods in the long term. It didn’t work out that way for around 200 properties. And that’s tough.”
Eviction notices
Four tenants of these tokenized Detroit properties told Outlier that Mutual Property Management was in charge of their home.
One tenant who requested anonymity because they fear retaliation said its management was “horrible.” The tenant said they put in work orders for broken or malfunctioning air conditioning, bathroom vent and garbage disposal, but none were fixed.
Mousa Ahmad with Mutual said Michigan Realtoken was responsible for maintenance and that they parted ways because Michigan Realtoken decided to manage its own properties.
The Jacobsons say they’re working to address tenant concerns, but the solution is causing confusion.
Kimberly West received a message in October that a new management company, New Detroit PM LLC, was taking over maintenance and rent collection. Michigan Realtoken founded New Detroit PM as its in-house property management company in 2023, but West and other tenants didn’t know that. None of the tenants who spoke to Outlier knew what RealT was or that their home was part of a tokenized portfolio.
“They never asked me to come into the office, to meet up, to explain themselves or sign a lease,” West said. “I hadn’t heard nothing else from nobody at all.”
West said she felt uncomfortable entering personal details, like her Social Security number, into New Detroit PM’s online portal without signing paperwork in person. Fake landlords claiming to own property they don’t is a common occurrence in Detroit. West said her calls went unanswered and her email sent to the company bounced.
She said she’s never been late on rent, and has had sleepless nights because she doesn’t want to lose her affordable rent.
The Jacbosons said renters like West don’t need to worry.
“We’re not going to push the eviction button. We want sticky tenants,” Jean-Marc said. “If they’re well-meaning, and they want to pay and work with us, we’ll work out a payment plan, we’ll make an agreement.”
Soon after Outlier spoke with the Jacobsons, tenants received letters from New Detroit PM. It was printed on red paper, and at the top, it said “EVICTION NOTICE.” The letter warned tenants to make payment arrangements or get kicked out of their homes.
Jean-Marc defended the move as an effort to get tenants’ attention and into new leases.
That same day, on Jan. 17, RealT made tokens available for six more Detroit homes.
This article first appeared on Outlier Media and is republished here under a Creative Commons license.
