Financing a real estate project with a digital bond? The key rule: the bond follows the project plan, not the other way around. The project company issues a bearer bond as a crypto security (Section 4(3) eWpG). Its issuance terms settle four points a corporate bond does not need in this form: a minimum volume before registration, release of funds by construction progress, collateral through a trustee, and repayment from sale or refinancing.
Investors do not own the building
A common belief: "Through the token, investors become co-owners of the property." Wrong. A subscriber acquires a claim against the issuer for interest and repayment (Section 793(1) BGB). The land stays with the project company. The token is only the form in which the bond sits in the register.
So the issuance terms must set out how creditors are still tied to the project. Use of funds, collateral, reports and repayment are not technical questions. Clear terms help prevent disputes during the bond term.
Who issues, and what exactly is issued
This guide describes a German eWpG issuance by a project company holding one project. It issues a bearer bond that comes into existence by registration in a crypto securities register, not by a paper certificate (Section 2(1) eWpG). A register keeper named by the issuer maintains the register (Section 16(2) eWpG).
The issuer files the issuance terms with the register keeper before registration (Section 5(1) eWpG). If registration does not follow within three months, the filed terms are deleted.
The general sequence from structure to first subscription is covered in how to issue a digital bond under the eWpG. Which vehicle structure fits your project is a question to settle before the issuance and is not covered here.
How the bond follows the project plan
Every project stage triggers a bond event. The project plan sets the dates, not the law.
- Before construction starts: subscription period and minimum volume. Subscription amounts go to a separate account; registration only once the minimum volume is reached, otherwise repayment.
- Registration: the bond comes into existence. The issuer delivers the filed terms and the allocation list to the register keeper (Sections 5(1) and 17 eWpG).
- During construction: funds are released in tranches. The issuer shows construction progress to the use-of-funds controller. Basis: the issuance terms and the use-of-funds agreement.
- Over the term: interest dates and reports. A register extract as of the record date goes to the paying agent, a project report goes to the creditors.
- Sale or refinancing: repayment to the holders shown in the register.
- Delay: extension of the term, by creditor resolution if the terms provide for majority resolutions (Sections 4 and 5 SchVG).
What changes at subscription
A subscription is an offer by the investor; the bond only exists after registration. A construction project adds a threshold: below a minimum volume, the project cannot start. So the issuance terms fix how long the subscription period runs, what volume must be reached, and how subscription amounts flow back if it is missed. The usual rule: no registration, and the amounts are returned.
Who may subscribe, and which offer document is needed, is covered in who can invest in a digital bond.
How the bond is secured
A land charge is entered in the land register for one specific creditor. But the holders of a bearer bond change over its term.
The law offers a security mortgage with a land register representative for this case (Sections 1187 and 1189 BGB). In practice, a security trustee usually holds the land charge for all current holders. If the issuer does not pay, the trustee enforces it under the issuance terms.
The register is the list of who is entitled. At enforcement, the trustee needs a current register extract, not the subscription list from issue day.
What ongoing management involves
Management runs from registration to repayment. Four processes carry it.
- Interest dates. The paying agent pays the holders shown in the register on the record date. The process is described in the lifecycle of a tokenized bond.
- Release of funds. The use-of-funds controller releases each tranche once construction progress is documented.
- Reports. The issuance terms fix when and where the issuer reports on construction, costs and leasing.
- Changes. The issuer changes the term or interest dates with the required creditor consent under the German Bond Act (SchVG) and a new filing of the terms (Section 5 eWpG).
The costly mistake: repayment tied to a sale, maturity tied to a calendar
The mistake is a fixed maturity set on the planned sale date, with no rule for delays. Construction projects often slip.
If the sale has not closed by maturity day, the cash is missing.
- No majority resolutions in the terms: every extension needs the consent of every single creditor (Section 4 SchVG).
- Majority resolutions in the terms: an extension needs at least 75 percent of the voting rights taking part (Section 5(4) SchVG), a vote with notice periods, and then a new filing.
Write this rule before the issuance, and you do not have to fight for it in a crisis.
What this means for your project
- Construction depends on the issue proceeds: put the minimum volume and the repayment route into the terms. Otherwise: a registered bond without enough money to build.
- Funds should flow by construction progress: name the use-of-funds controller and the release evidence. Otherwise: disputes with creditors over every tranche.
- A land charge is planned as collateral: appoint a security trustee and settle its access to the register. Otherwise: collateral nobody can enforce for the holders.
- Repayment comes from sale or refinancing: provide an extension rule with majority resolution. Otherwise: every creditor must agree to a delay.
- A second construction stage is possible: allow an increase of the bond in the terms. Otherwise: a second bond with its own documentation.
Checklist before you file the issuance terms
- Minimum volume, subscription period and repayment if it is missed are set.
- The account for subscription amounts is separate from the project company's operating account.
- The use-of-funds controller and the release evidence are named.
- The security trustee and the security agreement are in place; the trustee receives register extracts.
- Reporting dates and channels are in the terms.
- Majority resolutions under the SchVG are provided for, including an extension rule.
- Interest record dates fit the processes of the paying agent and the register keeper.
- Filing happens only once the offer document and the payment route are ready (three month deadline, Section 5(1) eWpG).
Your next step
Mark every checklist point your terms do not yet cover. Then tell us about your project.