'Walk In With Your Eyes Open’: Navigating Blockchain And CRE
Proponents of blockchain say it could profoundly change and disrupt the commercial real estate business. But even those looking to create businesses with the technology admit there are still some significant hurdles that need to be overcome.
Blockchain is the system on which cryptocurrencies like bitcoin is built. Put simply, the cryptocurrency is the what and blockchain is one of the hows, said Andrew Ackerman, the managing director of Dreamit Ventures, a venture fund and accelerator focused on startups.
“What blockchain lets you do is transfer something from one person, without a central ledger and registry, without any doubt that it’s legit,” he said.
Some say it is best to think of it like a database that is accessible to everyone. Basically, it provides a way to record all parts of a deal. It is said to provide a secure, transparent list of transaction steps across a network of individuals and companies.
How blockchain works, and how it may be changing real estate, will be examined at Bisnow’s NY CRE Tech Summit on June 26.
With this decentralized ledger, some say the cumbersome and costly elements of real estate transactions — things like transferring deeds and titles, along with the associates fees, paperwork and middlemen — could be eliminated or streamlined.
Others believe the technology will most quickly improve data sharing. Some are banking on using it to raise capital for real estate assets, making the market far more liquid. And there is no doubt blockchain technology is starting to implant itself in the mainstream real estate industry.
Meridio, for example, an app that allows investors to trade shares of a property using cryptocurrency-like tokens, just got its first listing, a three-story apartment building at 304 Troutman St. in Bushwick.
The building will be one of the first to test out the technology, which its founders describe as a “paradigm shift." One of the elements of that shift, they claim, is that, in theory, the technology will allow people to sell off fractional shares in properties.
But as Dreamit’s Ackerman points out, in that scenario, finding a buyer is usually the most challenging part.
“The hardest part of that case is finding someone who wants to buy. The problem there isn’t how you do it,” he said. “Removing some of the friction and transaction costs does help, but in an illiquid market like this, finding someone to be the other side of the transaction is the bigger problem.”
While blockchain’s main benefits are that it is fast and secure, you still need to do your homework on the asset itself, just like in any investment, Ackerman said. It can be easy to be swayed by PR pitches and flashy ideas.
“[Blockchain] is going to change the world, but you have to walk in with your eyes open,” said L.D. Salmanson, one of the founders of real estate data network Cherre. “Be terrified of people saying 'it's changing the way ownership happens,’ and if they can’t explain it … be suspicious."
He notes companies are still figuring out ways to use blockchain to its full capacity.
“It’s not fixing title,” Salmanson said. “So long as there is no central agency willing to accept blockchain ledger of ownership as a definite proof of title, it will always be a shadow system.”
Certainly, making any major change to the way titles are recorded in the United States would be a lengthy process. Recording transactions is under purview of individual county governments, and making the switch to blockchain could take years. But there are already some moves to make it happen taking shape.
Vermont is running a trial with startup Propy Inc. to record records. Earlier this year, the land mapping and registration authority in Sweden said it would start allowing volunteers to try recording the transaction with the technology.
In the United States, Wyoming has passed some extensive legislation to pave the way for blockchain, said Gray Sasser, co-chair of law firm Frost Brown Todd's blockchain and digital currency team. But any change won’t be a speedy one.
“It’s going to take a while for any system to migrate,” he said.
“We aren’t focusing on title …. We are so far away from that being practical,” RealBlocks founder and CEO Perrin Quarshie said. “What we are doing is using blockchain just to raise capital — we put it on the chain and securities law already allows for this.”
A benefit, he said, is that blockchain offers a way for people all over the world to raise money and to make historically tied-up assets more liquid. People need to be cautious about where they are investing, he said, as there is significant misinformation and fraud out there.
RealBlocks has done seven deals and raised a little over $500K in the last year and a half, Quarshie said. It is in discussions to partner with some of the country’s largest REITs, though Quarshie said he was not yet able to reveal specifics or company names.
“We are now saying, 'Why don’t we give people around the world the chance to raise money for real estate investments?’” he said. “It’s actionable and practical immediately.”
Learn more about blockchain and other emerging PropTech concepts at Bisnow's NY CRE Tech Summit, June 26, at 866 United Nations Plaza.