One Token Over The Line: Are NFTs The Future Of Buying And Selling Real Estate?
The rampant hype around NFTs, fueled by million-dollar art buys and cryptocurrency billionaires, can make NFTs, or nonfungible tokens, appear like a novelty to a seasoned investor in assets like commercial real estate. Novelties, even popular ones, don’t make a business.
But amid the development and investment rush into new digital assets and platforms, including cryptocurrency and the metaverse, a small cadre of developers is trying to pioneer ways to trade real-world real estate assets with NFTs.
The market for these tokens, which represent discrete, nonreplicable digital assets and have helped fuel multibillion-dollar marketplaces for art sales, can theoretically be applied to many unique goods, including land or property. Many predict this way of buying and selling will move to commercial real estate.
“I see a world very soon in which 50% of all real estate transactions are done with crypto, and where contracts are recorded on the blockchain and ‘signed’ as NFTs,” Million Dollar Listing New York star Ryan Serhant told Elite Agent this week.
CRE firms would be right to view this technology as very nascent. But that doesn’t mean they shouldn’t take it seriously. Traditionally slow adopters of tech, these firms need to get comfortable with the space and gain domain knowledge.
Nicholas Chavez is a cybersecurity expert whose Florida-based firm, Silicon Title, is experimenting with using unique digital assets to buy real-world real estate. He said it is hard for people who develop skyscrapers to relate to an obsession over digital avatars or investing in JPEG artwork.
“When you see NFTs with names like Sparkly Unicorn, it’s difficult for developers to take it seriously,” Chavez said. “It looks like Pokémon to them.”
Victor Lund, founder of California-based WAV Group, an advisory that focuses on new technologies and NFTs, said he believes real estate NFTs are a specialty that will quickly evolve, especially because of the increased interest in the space last year among developers, private equity and banks.
Cryptocurrency speculators, investors and acolytes want to eventually find a safe haven for profits and transfer vast sums of digital wealth into something more tangible. Lund said there is roughly $2 trillion invested in crypto today and an estimated $300B in NFTs, all of which, he said, is essentially “cash on the sidelines.”
Investors who have gotten wealthy with these wildly fluctuating assets want to transfer this wealth into something more stable, such as real estate, Lund said. But they want to do so in a way that doesn’t involve the taxes and trouble of first transferring into standard currency. In its 2022 housing report, Sotheby’s predicted more crypto payments for luxury real estate.
“This is a way that people want to transact, but the law just hasn’t caught up with technology,” said Compass agent Jason Haber, who also runs Mint Capital, a venture fund that invests in NFTs. “It’s the ultimate certificate of authenticity, a public ledger in a decentralized system."
The technology is in its infancy, and as it stands, many challenges sit in the way of buying and selling investment-grade physical assets with this currency, especially proper disclosure and syncing with municipal data collection and regulations. Title transfer alone takes weeks, slowing down the high-tech promise of instant property sales and making such sales still more novel than next.
“Liquidity of real estate is now measured in months or years, and with NFTs, it’s days or hours,” Chavez said.
Early efforts to utilize NFTs for real estate purchases and transactions have zeroed in on individual homes. But if commercial investors can get beyond the existing hurdles, according to evangelists and early adopters, there lies a massive market opportunity and a more seamless form of trading.
“Nobody is doing anything on the commercial side yet, so it’s a huge opportunity space," Chavez said. "Nobody wants to start with a $300M skyscraper. Let’s start with Aunt Sally’s house, and commercial will follow residential.”
Many see the technological advantages of speed to sale, and the ability to fractionalize and trade ownership, quickly coming to commercial real estate. The blockchain, a distributed ledger of digital transactions, can be faster and more transparent than traditional real estate sales.
Multiple cities and states, such as Miami, have recently updated their stances on cryptocurrency and digital assets, and early tests and trials seek to validate this excitement. Chavez’s firm is experimenting with a way to sell an NFT with the right of first refusal on a residential property, locking in a price for the buyer for a set amount of time.
A partnership between Meta Residence, One Sotheby’s International Realty and Voxel Architects plans to build and sell a real-world mansion in Miami later this year via an NFT; the buyer would purchase a replica of the home in The Sandbox metaverse, which would come with rights to the actual home — representatives declined to name an estimated price or location for the actual asset, supposedly under construction now.
Brands are interested in setting up shop and buying commercial space in the metaverse to conduct digital commerce, and even Bill Gates has argued that companies should invest in office space for virtual meetings, suggesting potential tie-ins between real and metaverse properties.
“Real estate, commercial or residential, always looked at IT as overhead,” Chavez said. ”But right now, there’s a real opportunity to look at IT as the profit center, to create wealth by leveraging NFTs and option contracts.”
But first, to make NFT-backed sales of real estate possible on a widespread basis, they need to be allowed and standardized across a wide variety of municipalities. Like many tech firms attempting to change the way homes are sold, there is some dependence on the sophistication of local government.
Others are finding different ways to make the buying and selling process more high-tech in a way that doesn’t require government intervention. Tokenization is a process that splits the shares of an asset into numerous tokens that can be sold more quickly via digital currency and blockchain technology. DigiShares CEO Claus Skaaning compared the process to a “do-it-yourself REIT,” or a real estate asset trust, which turns the shares into digital assets while helping increase liquidity and democratize access to commercial property investment.
So far, his firm has helped investors tokenize many different assets, including Myra Park, a 250-unit apartment project near Dallas developed by MarketSpace Capital. He sees NFTs as being a little too risky right now.
Haber, the founder of Mint Capital, sees blockchain investment becoming its own team within larger commercial real estate firms, like debt or asset recovery. The speed of trading on the blockchain could become a huge advantage, and those who dismiss the technology out of hand will lose out on a significant opportunity, he said.
“The real estate industry as a whole tends to move slowly when it comes to change,” Haber said. “This has the ability to move at blistering speed and catch the old guard off balance.”