Let’s begin with a story: At the end of 2017, with new technology such as bitcoin, Ethereum, cryptocurrency and blockchain at their very buzziest, a small, publicly traded beverage company, Long Island Iced Tea, announced it was changing its name to “Long Blockchain Corp.”
Literally overnight, shares skyrocketed 200% at the opening of the next trading day. Nothing had really changed except for the company’s name, but the signal that the business was now tech-integrated attracted attention, press and real market value for the company and many new shareholders.
Every few months, we see a new industry-relevant article about how blockchain technology will affect commercial real estate (CRE). Often, these articles gloss over the actual implications of the technology’s impact on CRE and rely on searchable trending buzzwords.
Introducing words like blockchain and cryptocurrency into our CRE vocabulary doesn’t mean there is a real difference in what we’re doing day to day as CRE professionals and experts.
There is, however, a real opportunity for growth and an exciting future ahead as blockchain technology is gradually incorporated into CRE processes. Here, we explore a glimpse of what that future could look like.
Blockchain Basics
First, we should define what blockchain is: “[A] shared distributed ledger technology in which each transaction is digitally signed to ensure its authenticity and integrity.” The peer-to-peer nature of the network is what secures transparency.
Blockchain is a powerful network because one of its principal purposes is as a decentralized database. Blockchain also offers benefits around capturing data. It is populated, verified and managed by thousands or millions of participants in the blockchain. No one individual or company is managing it, and its data cannot be manipulated. This allows for unparalleled transparency. There’s a level of trust in a record that can’t be manipulated because it’s on millions of computers that are powering the blockchain.
If the blockchain is a better platform for ledger and record keeping, why isn’t it yet being used universally? A Forbes article offered this answer: One, because of lack of understanding and knowledge about blockchain technology; and two, because of the difficulty of scaling the technology, at least at this point in time.
Complete integration of blockchain technology into CRE is not on the table within the next 12 months, but its impact will likely be felt as we look ahead five to 10 years. There are financial and non-financial applications for blockchain technology in CRE, some of which are closer to the forefront than others. I see practical data implications and the asset tokenization of real estate as a good place to start.
The Tokenization of CRE and Other Practical Applications of Blockchain
The current model for acquiring a property includes third parties and government regulations in order to secure a deed and obtain a loan to complete the process. Blockchain technology allows for digitizing and automating acquisition processes. In doing so, trust is created and ensured through a transparent ledger documenting records and payments that cannot be changed. This secures an asset without jumping through all the hoops currently in place. All the necessary information would be available on the blockchain.
The decentralization of a blockchain can also allow for the tokenization of properties. Currently, you can buy and invest in shares of a real estate portfolio as a whole through a REIT (Real Estate Investment Trust) or publicly traded real estate portfolio. The key here is that you can buy individual shares not of the property, but the portfolio.
In theory, blockchain technology would allow for individuals to buy shares of an individual property through the tokenization of real estate. This is because the transparency of the blockchain allows for immediate and secure property evaluations, updated in real time, responding to the market second-by-second, like a stock exchange.
There’s not currently a marketplace for that type of asset liquidity or tokenization of real estate, but it is possible through this innovative, democratic approach to the ownership of information and even property. The CRE industry has the opportunity to become more efficient and equitable if blockchain technology is integrated into the market.
An article published on Industrial Design highlights other non-financial applications of this technology in CRE, for example, in property management and project management. The article asks Brittanie Campbell-Turner, blockchain expert, about these other more practical, accessible applications. “What I’m most excited about in blockchain is the capability called smart contracts, which allows you to tie a condition to the transaction,” she says. In other words, the article notes, “the same technology that manages the back-end transactions of a financial exchange can be used to manage an established contract for, say, building maintenance.”
We challenge you to think beyond the technology and cryptocurrency terminology and instead think creatively about how to apply this valuable, democratizing blockchain technology to the commercial real estate industry. By educating yourself about how blockchain technology will transform CRE and being open to its practical applications in the future, you will be prepared for the blockchain revolution.
Author
Jake Edens serves as Colliers’ senior vice president of Technology & Innovation, U.S.A., where he leads a team of innovators with a primary focus of building a cutting-edge commercial real estate technology platform to drive exceptional results for Colliers professionals and clients alike. Prior to Colliers, Jake founded REscour, a commercial real estate data platform and decision engine, where he served as Founder and Chief Executive Officer.
Contributor
Chris Lexmond is the Vice President of Engineering and Product Development (USA) for Colliers International. In this role, he leads product teams within Colliers’ Technology & Innovation group. Before joining Colliers, Chris co-founded REscour with Jake Edens, serving as Chief Technology Officer. He has also created DevMap, a crowd-sourced mapping platform tracking developments across the country.