Why Metaverse Real Estate Investing Demands CRE's Attention
In recent months, property sales in the interconnected virtual worlds of the metaverse have begun to involve real money — lots of it.
Last month, a record-breaking transaction — a $2.5M sale of 116 parcels of "land" in Decentraland, a leading metaverse platform that launched in 2017 — underscored the influx of real-world investors and brokers in the market.
Tokens.com, a blockchain company, is paying $1.7M for a 50% stake in Metaverse Group, a pioneering virtual real estate company in a deal announced in October. Oren and Tal Alexander, New York celebrity brokers for Douglas Elliman, recently formed a partnership with Republic Realm, one of the largest investors and brokers in the metaverse, to focus on “trophy properties,” The Real Deal reported.
The questions facing the industry — after "What is the metaverse?" — are how much room for growth is there, and can the skill set of those who build, buy and sell physical real estate translate to the virtual realm? Like cryptocurrency, which is seeing billions in investment, what level of volatility will this new asset class entail, especially as different platforms jockey for position?
“It takes a lot of time, you need to make up your own mind and read as much as you can,” said Gauthier Zuppinger, the co-founder of NonFungible.com, which tracks sales of nonfungible tokens, or NFTs, often used in metaverse real estate transactions. “Don’t trust what you read on Twitter or Discord.”
Zuppinger said his team is working with some investors who invested seven figures a few months ago and now have portfolios with more than $100M. Decentraland parcels that sold for $20 when the platform launched four years ago can now command $100K.
Despite the hype surrounding the metaverse and unreal real estate, and questions around the speculative nature of investing in a totally new platform and means of digital interaction and commerce, its growing number of players and investors argue it isn’t just a good investment, but one that’s likely to grow substantially in value compared to traditional physical assets.
Location, still vital in virtual real estate, takes on a slightly different meaning in the metaverse. In many worlds, there are specific districts set up for different types of commerce, such as the Fashion District in Decentraland. Zuppinger's firm tracked roughly $17.6M in sales on the Sandbox, just one of the leading metaverse platforms, over the seven days ending Dec. 14.
But Republic Realm co-founder and CEO Janine Yorio argued that, because players can basically teleport to different coordinates within these virtual worlds, traditional concepts of visibility and foot traffic aren’t as important. What matters are “clusters of content,” and being able to create something that encourages interaction and commerce, or being next to a development that does.
This lack of traditional physical boundaries, as well as a lack of traditional established players, means the playing field is more level for new investors, Yorio said.
“Ingenuity and design matter far more than location and budget,” she wrote in a February op-ed at CoinDesk. A Republic Realm spokesperson declined to comment for this article.
“Buying land today in virtual worlds feels a lot like buying land in Manhattan back in 1750," she wrote. "It is also insulated from the COVID-induced volatility of the real-world real estate industry.”
Purchasing land in these platforms requires first creating a digital wallet and buying the type of digital currency accepted in a certain world, and then purchasing land via an online marketplace. In Decentraland, potential investors can select from one of 90,000 plots, measuring 16-by-16 "meters," and pay with MANA, a crypto token set up for the game. Purchases of land are recorded as nonfungible tokens, and they are traded via larger NFT exchanges.
Years of games and platforms such as Roblox, Animal Crossing and Second Life, have established the viability of online commerce. Anshe Chung became a Second Life property tycoon 15 years ago and was dubbed the “virtual Rockefeller” for creating an online development and leasing empire that raked in six figures annually.
The emergence of virtual real estate marketplaces over the past two decades explains why so many novice and experienced investors are bullish on developing and selling real estate in the metaverse. Recent announcements by tech firms, including Facebook’s rebranding and refocus as Meta and the expected release of augmented reality goggles by Apple in 2022, have underscored investor belief that the technology has finally caught up to the demand.
SuperWorld is a platform that mimics the real world and allows participants to purchase virtual versions of, say, the White House or the block where they grew up. Founder Hrish Lotlikar said the average paying user buys roughly $3K of SuperWorld land, and the company has sold “tens of thousands” of plots of land.
“It’s a very galvanized community,” Lotlikar said. “They’re passionate about what they’re building and owning places they love.”
Buyers and investors often look for an extension of what they have in the real world, Lotlikar said, as well as means of creating commercial connections between metaverse and real-world assets, to add physical world benefits to virtual purchases.
Swiss jewelry chain Camille Louise plans to sell real and virtual jewelry in SuperWorld and other platforms. Nike just announced that it is planning to sell goods and roll out products in the metaverse, and Sotheby’s created a digital auction house in Decentraland. The big $2.5M Decentraland sale in November was for land in the Fashion District, predicated in part on the idea that big brands will eventually want to lease this prime real estate for virtual stores. These are the kind of opportunities attracting small investors.
Zuppinger suggests potential investors need to be cautious about entering the market. Lotlikar plans to build out a virtual Multiple Listing Service so property investors can have a centralized database of big transactions, sales volume and asset valuation.
Like many platforms, SuperWorld allows owners of land to take a cut of whatever commerce or activity happens on their land, build virtual homes and charge rent, or set up virtual commerce opportunities. Rapper Snoop Dogg hosted a party on the Sandbox platform, charging entrants to see him perform in a virtual re-creation of his mansion. He is one of many celebrities investing in the metaverse, who, along with investors, are looking to create events and concerts.
After years of quiet growth before the recent explosion in news coverage, metaverse real estate has moved beyond a passing fad or trend, Lotlikar said. Virtual real estate is unlikely to suffer from users quickly jumping to the next hot platform or consolidating on one dominant one, he said. In the more decentralized metaverse, he argues, the economic benefits of ownership mean users will be less likely to bail and turn a platform into the next Friendster.
“None of these metaverses are as decentralized as expected, because investors want them to be as attractive and as mainstream as possible for everyone,” Zuppinger said.