Fund sponsors are racing into tokenized real estate faster than the legal and compliance infrastructure can keep pace with. According to Ron Geffner, Founding Partner and Head of Financial Services at Sadis & Goldberg LLP, his firm fields roughly one call per day from sponsors seeking to tokenize real estate assets — a volume that signals tokenization has moved well beyond early adopters and into mainstream fund management.
Demand Outpaces Legal Infrastructure
Tokenization — converting ownership interests in real estate or real estate funds into digital tokens tradeable on blockchain-based platforms — is no longer a niche concept. The structure offers improved liquidity, reduced transaction friction, and access to a broader capital pool, including international investors who might not otherwise participate in U.S. real estate funds.
But as sponsor interest accelerates, the legal profession’s capacity to support tokenization is not keeping pace. Many fund managers are entering unfamiliar regulatory territory with limited guidance and, in some cases, counsel that is not equipped to help them navigate it. “I’m starting to have probably one call a day for people seeking to tokenize real estate assets,” Geffner says. Digital currency, he adds, is increasingly shaping how assets are distributed — making it a permanent regulatory consideration rather than a passing trend.
Where Compliance Gets Complicated
Tokenization triggers obligations across multiple legal and regulatory domains simultaneously. A sponsor typically engages a third-party service provider to manage the technical infrastructure while legal counsel drafts or revises fund documents to address token-specific provisions. The more demanding work, however, lies in the subscription documents and in maintaining compliance with anti-money laundering rules and the Common Reporting Standard.
AML compliance presents a particular challenge. Tokenization platforms are often designed for speed and efficiency — qualities that can conflict with the rigorous investor due diligence required by AML rules. “The challenge is making sure that you’re not helping somebody launder money,” Geffner says. “The only way to do that is to have supporting information from a prospective investor, so that you can run the analysis properly.”
International investors add another layer of complexity. When non-U.S. persons participate in a tokenized fund, sponsors must address each investor’s home jurisdiction requirements, the Common Reporting Standard, and potentially offshore blocking structures in jurisdictions such as the Cayman Islands or the British Virgin Islands. Unresolved IRS guidance on how tokenized real estate interests should be classified and taxed compounds the uncertainty — leaving sponsors operating under assumptions that may prove incorrect as regulatory clarity develops.
Legal Expertise Shortage
The shortage of qualified counsel in tokenization mirrors a problem that has long affected traditional real estate fund formation. Most commercial real estate law firms are equipped to handle property transactions but have no meaningful experience with the asset management layer that fund structures require — including the Investment Advisers Act of 1940, the Investment Company Act of 1940, ERISA, and applicable tax code provisions.
“They just know how to do real estate deals,” Geffner says, “and there we find a lot of problems.” The consequences of that gap can be severe. Geffner describes one case in which a manager operated 17 distinct entities for a decade without registering as an investment advisor. When regulators took notice, the manager faced the prospect of returning all earnings accumulated over those ten years. “Imagine you spend 10 years working,” Geffner says, “only to find out you failed to do what I would say is a relatively simple and fairly inexpensive process.”
The same knowledge gap now extends into tokenization. Offshore law firms that have long supported U.S. fund sponsors are themselves still developing fluency in digital asset structures — creating a critical blind spot at the precise moment sponsors need guidance most. For fund managers considering tokenization, the risk is compounded: engaging counsel that can handle familiar transaction components yet is unequipped to address digital asset regulations is an exposure that could prove far more costly than getting it right from the start.
Building Compliance Infrastructure Early
Sponsors who approach tokenization primarily as a technology initiative — with legal documentation treated as an afterthought — are likely to face costly corrections as the regulatory framework around digital assets continues to develop. Geffner’s guidance is direct: confirm before engaging counsel that the firm has substantive experience across all relevant domains, including securities law, AML compliance, international tax structures, and the operational mechanics of digital asset platforms.
“Investors and operators should most certainly confirm whether their legal counsel has any familiarity with the Investment Advisers Act and the Investment Company Act,” Geffner says. “If they don’t, they can still use that firm — but get comfort that they work with another law firm that has that experience.”
The principle holds regardless of the current regulatory climate. Geffner pushes back on any suggestion that reduced SEC enforcement activity under a new administration changes the calculus for fund managers. “If you have a broken tail light on your car, you cannot say I’m not going to repair it because the police are pulling over fewer people,” he says. “It means nothing to the manager. It’s business as usual — protect yourself and do things the right way.” Sponsors who build sound compliance infrastructure now will be better positioned to adapt as regulatory clarity around digital assets emerges. Those who do not may find that no amount of retroactive legal work can fully reverse the damage.
