HIP 13 - Commercial Real Estate Collateral Ruleset

Overview

This ruleset defines the framework for onboarding Commercial Real Estate ($CRE2) as collateral within the Hifi Protocol. It provides standardized guidelines for collateral eligibility, borrower qualifications, loan terms, and enforcement procedures. By adhering to these rules, Hifi DAO ensures prudent credit extension while maintaining flexibility for diverse CRE-backed lending opportunities.

$CRE2 Parameters

• Collateral Ceiling: 15M
• System Wide Credit Limit: $10M
• 125% collateralization ratio (80% loan-to-value)
• Fixed oracle value: $1 per token

Commercial Real Estate Ruleset

• Collateral Requirements
  • Property Type: Commercial properties, including office buildings, retail spaces, industrial facilities,retirement communities, and multi-unit residential buildings.
  • Minimum Value: Properties must have a minimum appraised value of $500,000.
  • Appraisal Standards: All properties require an independent third-party appraisal or a recent market transaction involving at least a 25% ownership stake to establish fair market value.
  • Insurance: All necessary insurance must be maintained on the property.
  • No other liens or other outstanding debt on the property.
• Borrower Qualifications
  • Entity Type: Only professionally managed entities (e.g., corporations, LLCs, partnerships) are eligible as borrowers. No loans to individual borrowers.
  • Financial History: Participants must have a demonstrated track record of profitability and a minimum of 3 years in business.
• Loan Terms
  • Base LTV: Up to 70% of appraised value
  • Enhanced LTV: Up to 80% with additional credit enhancements (personal guarantees, additional collateral). Maximum LTV ratio of 80% (equivalent to a 125% collateralization ratio).
  • Origination Fees: Loan origination fees as appropriate.
  • Term: 6 to 24 months, with extensions up to 12 months (subject to fees).
  • Disbursement: Funds may be released in stages for projects requiring milestones, such as property upgrades or renovations. Full disbursement at origination may be permitted when utilizing escrow or a construction / property management firm.
  • Repayment Structure: Monthly interest payments, with optional quarterly or annual principal payments. Prepaid interest or Interest Reserve as appropriate.
  • Lien should be in first position.

Loan Administration

Lending Partner

• Drive liquidity demand, originate loans, and enforce repayment terms.
• Provide updates to collateral appraisals as appropriate, especially following significant market events.
• Submit financial reports as necessary to notify the Designee of any material changes in borrower status or property conditions.
• Manage liquidation processes for real-world assets in case of default.

Designee

• Oversee record-keeping and validate borrower eligibility.
• Mint collateral tokens equal to the value of the collateralized properties.
• Enforce credit limits and perform any necessary audits of Lending Partner records.

Default and Liquidation

• Trigger Events: Default is triggered by missed payments, property devaluation below acceptable LTV thresholds, or borrower insolvency.
• Process: The Lending Partner will manage the liquidation of collateralized assets to recover outstanding debts.
• Recovery Measures: Ensure compliance with local regulations for asset disposition and maximize value returned to the protocol.

Legal Framework

The ruleset operates within the existing legal framework established by:

• Designation Agreement with Mainframe Group, Inc.
• Agreement of Association with Finance Ventures

Benefits

1. Scalable Onboarding: This framework enables streamlined onboarding of CRE assets, reducing the need for individual governance proposals.
2. Risk Mitigation: By enforcing standardized rules and credit limits, the protocol ensures robust risk management.
3. Increased TVL: Expanding collateral options boosts total value locked (TVL) and utilization of Hifi’s DeFi ecosystem.

Voting

Upon this proposal’s success, Hifi DAO will execute the necessary variable changes to the Hifi Protocol’s Fintroller and take the necessary technical steps to integrate $CRE2 Tokens into the Hifi Protocol with the set collateral ceiling and fixed oracle value. It is recommended that DAO members review the full agreement for a comprehensive understanding before casting their votes.

The proposal is expected to go live Friday, November 13, 2024 with voting expected to begin on Sunday, November 15, 2024 (48-hour delay).

Additional Resources:

• HIP 13 — Commercial Real Estate Collateral Ruleset
• RWA Framework Improvements
• Collateral Ruleset: Implementation Details