This is a reprint of an article by Monax CEO Casey Kuhlman which first appeared on Globe Street on July 10 2019 - article link here
Blockchain, an innovative technology which was first developed in 2008, is gaining momentum across industries. According to Investopedia, “blockchain is a distributed, decentralized, public ledger.” Its use cases are rapidly growing and the real estate industry can also benefit from its application.
I believe that there are three areas that we will see blockchain impact real estate the most:
(1) Real estate investment:
Blockchain has the ability to take the real estate investment sequence and tokenize it. This can create partial ownership and increase liquidity significantly. Blockchain can also open up real estate investment trusts (REITs) to a new series of investors.
Typically, real estate is an asset class that requires significant capital and is dominated by high-net-worth individuals. Tokenization allows for the reduction in the amount of capital any one individual would need, meaning more people would have the opportunity to invest. This would help diversify portfolios. It would also offer more liquidity in the ecosystem and the opportunity to move assets around more easily.
A recent example of this being utilized is the St. Regis Aspen Resort. In August 2018, Templum Markets launched a digital security offering of the resort. By October 2018, 18.9% of the resort hotel was sold through digital tokens. It was a resounding success and we expect others to quickly leverage tokenization for investment.
(2) Property development:
In its most simplified context, property development comes down to a plethora of contracts. Often times, the contract management process is cumbersome and inefficient. Blockchain provides the opportunity to systemize property development. If used properly, all parties involved can use the same digital interface to streamline processes.
An exception to its utility is very large property developers who have their own internal systems that manage the complexity. These developers often have the ability to force others to use their systems. However, smaller general contractors do not have this same ability to force sub and sub-sub contractors onto one system. This results in contracts that are housed in different databases and not accessible to all constituents—if available at all.
Here, leveraging blockchain removes the question of data ownership and developers and contractors are able to have access to the same information. By being able to access contracts throughout an entire engagement, individuals will know if projects are being properly executed.
(3) Rent-regulated markets:
Blockchain can bring more certainty to rent-regulated markets. It can bring more precision around what happened over the life cycle of a tenant-landlord relationship and what a property manager has done to improve the state of a particular unit. Additionally, the industry characteristically has a large overhead and tight funding. Margins need to be kept low and operational costs need to be reduced.
Typically, the excessive costs that can be avoided are the interactions between people. Blockchain has the ability to coordinate in a new and efficient manner and to simplify the process, it removes the interactions between people and places them into this public ledger.
Blockchain was met with confusion and some skepticism as the ‘next big thing’ in its early years. However, as we are now in the second decade of its lifecycle, companies and industries across the world are beginning to realize the positive impact it can have. Ultimately, blockchain is about efficiency, transparency and simplification. Its key qualities of being both public and secure mean that anybody who touches a certain blockchain can be confident in its accuracy. Real estate is beginning to leverage blockchain, and we believe as the industry sees its benefits in everything from investment to development, it will begin to integrate the technology more deeply into its operations.
(The views expressed in this article are the author’s and not those of ALM’s Real Estate Media Group.)
Photo by PHOTOGRAPHER on Unsplash.