A historic real estate deal in Philadelphia’s Old City has become a turning point, marking the beginning of a new era in the use of digital assets. For some time now, cryptocurrencies have been utilized in the world of traditional finance, with the latter adapting to the novelty of crypto.
Bitcoin will back a financial package of $12.9 million, along with other assets, and it’s the first time the loan has been structured in this manner, at least as far as Philadelphia and the local government are concerned. In this article, we’ll go over the details of the lending deal.
The deal marks the first time a real estate transaction is backed by cryptocurrency. The building in question is a 63-unit, five-story building—originally built in 1854 and renovated in 1985. It will receive a loan of $12.6 million. These funds will be allocated towards: refinancing an $8.9 million lien, earmarking $2 million for property renovations, and establishing a $1.5 million Bitcoin reserve.
Experts, such as those from Cryptomaniaks, have been writing about the move traditional finance is making towards cryptocurrencies. Real estate is one of the most conservative businesses, and such moves are generally considered risky for them.
The financing structure was handled by Battery Finance, a digital asset credit platform launched by Newmarket Capital. Battery Finance specializes in such efforts in particular. Their portfolio focuses on merging cryptocurrency and traditional lending.
“By reallocating a portion of the equity into Bitcoin, the borrower significantly enhances the upside potential of their asset,” said Andrew Hohns, Managing Partner at Newmarket Capital and co-founder of Battery Finance.
The details of the loan were also made public. The term of the loan is ten years, and there’s no charge for paying it before that time. The borrowers remain unnamed, but the deal was put together and legally structured by Akin Gump Strauss Hauer & Feld LLP and Faegre Drinker Biddle & Reath LLP.
The local media have also taken note of the deal, not only because of the Bitcoin aspect, but also because it will revitalize the Old City.
“That old building sitting on the waterfront for many years [is] finally coming back to life,” said Kenneth Wellar, founding partner of commercial real estate firm GREA, in an interview with The Real Deal.
Bitcoin holdings are put into an escrow or with a third-party custodian. They serve as security for the loan. Unlike traditional financial assets, which use property as the sole guarantee of loans, Bitcoin also allows borrowers to access liquidity without selling their digital assets.
This is an appealing proposition to those who plan to hold Bitcoin in the long run, as they want to remain exposed to the potential appreciation of this asset. This hybrid strategy isn’t new, and some platforms have tried it before, but with smaller amounts.
This news isn’t just about a single deal, even though it has local significance. It’s about a broader trend of finding new uses for crypto within the traditional finance sector. Cryptocurrencies are no longer a niche asset for tech enthusiasts. Instead, they are widely used by otherwise conservative traditional markets.
Now that there are many more crypto users than before, and it has been proven that cryptos can recover after a loss, traditional businesses are getting on the trend. The Trump administration is also very pro-crypto, and this is noticeable in the way businesses are adopting it with more confidence.
If this deal is successful and closed, it seems likely that many similar deals will be signed in the future. Traditional businesses, such as those in real estate, are risk-averse; however, if other businesses in the same field make such an effort, they will likely follow suit.
The deal will also impact crypto regulation in this area, as it demonstrates an interest in the subject. Once a new area of crypto finance emerges, regulatory agencies move forward and establish rules for how the area will be operated.
The $12.9 million Bitcoin-backed real estate deal in Philadelphia marks a significant milestone in the adoption of cryptocurrency in traditional businesses. Bitcoin will back the loan, and unlike those that are mortgage-based, it allows the borrower to utilize crypto liquidity. The deal will also help the city refurbish one of its old neighborhoods.
Many believe that this marks the beginning of a new trend in lending and that there will be more such deals in the future, as they can be beneficial to all parties. Crypto regulations will also be updated to regulate such transactions further.
