Can a mortgage be issued for virtual land? Apparently, it can in the metaverse

In a recent NAI article, we looked at the advent of the metaverse[SR1]  and what this new tech might mean for commercial real estate (CRE). Though we concluded that the answer to how the metaverse might impact the real world remains uncertain, since then, there have been some interesting virtual developments.

In particular, tech company TerraZero has started issuing “mortgages” for virtual real estate, and there’s very real money changing hands for entirely virtual properties.

A slice of (online) paradise?

To be clear, the “mortgages” in this case are funded entirely by TerraZero itself, rather than an external financial institution, but employ a system of down payment and instalments, much like the real thing. The first one was issued for a piece of land on a platform called Decentraland, where users can own, and sell, virtual assets. And as strange as this all sounds from a real estate perspective, there have recently been several big players setting up shop in the virtual world.

Perhaps the biggest, from a credibility point of view, is global financial leaders JPMorgan who recently launched a “virtual bank”, though at the moment it’s only being used for marketing purposes. In tandem with the purchase, JPMorgan issued a report, where they discuss their expectations for the metaverse’s development, saying:

“The success of building and scaling in the metaverse is dependent on having a robust and flexible financial ecosystem that will allow users to seamlessly connect between the physical and virtual worlds.”

They added that, in just the last six months of 2021, the average price for a virtual plot of land jumped from $6,000 to $12,000.

Hedging bets

Despite this apparent endorsement from one of the world’s leading financiers, there are still plenty of metaverse critics urging caution. One of the main points raised is that, unlike physical real estate, metaverse purchases can’t satisfy both property value fundamentals: namely scarcity and location.

Or as Louis Rosenberg, CEO of Unanimous AI and a veteran Augmented Reality (AR) developer, puts it:

“We don’t even know which platforms are [going to] be popular, let alone which locations… so it’s like somebody buying a piece of land anywhere in America and hoping that it becomes San Francisco or New York.”

For many companies though, hedging bets is taking the form of securing their own piece of the virtual pie. The Wall Street Journal reports that accounting firms PricewaterhouseCoopers and Prager Metis have also recently snapped up virtual sites, with the latter spending $35,000 on its purchase of a virtual HQ.

Is the metaverse here to stay?

Though it’s still early days, and impossible to say how the virtual property trend might play out, the recent developments in the space suggest it’s certainly worth keeping an eye on. At the very least, the metaverse poses an interesting proposition, and one a lot of people seem to be willing to speculate on.

SOCIAL: Do you think there’s a future for metaverse property? And if so, how do you see it unfolding?


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Market analysis: NYC counts the costs of Covid

New York City (NYC) is virtually synonymous with commercial real estate. It’s a mega sector there, with legendary dealmakers and eye-watering costs. With an incredibly dense population and as a home to a huge number of global headquarters, the city was not only hit hard by the Covid-19 pandemic, but also responded with some of the strongest mitigation tactics seen stateside and in the world. A report from the New York State Comptroller Thomas DiNapoli (published late 2021) now shows the true costs of Covid on NYC’s iconic commercial real estate (CRE).

Setting the scene

In 2019, reads the report, the office sector in NYC employed 1.6 million people, or a third of all city jobs. In the preceding decade, office market property values and billable values (on which property taxes are levied) had “more than doubled”. Off this incredibly strong base, employment in the office sector shrunk by 5.7% in 2020 – certainly a blow, but less than the 11.1% drop in total employment.

The gap here lies in remote work as a mitigation strategy, but that resulted in reduced office space demand. “Asking rents are down 4.2% in the second quarter of 2021, while vacancy rates are at 18.3%, a level not seen in over 30 years in New York City,” according to the report.

Market values down

The result is a steep drop in the full market value of office buildings (463 million square feet of inventory), which fell $28.6 billion citywide – based on the 2022 financial year (FY) final assessment roll. This is the first decline in total office property market values since FY 2000.

In turn, Market Watch’s analysis says, the declines “cost more than $850 million in property taxes in the city’s fiscal 2022 budget.

Charting the return

What the ledger numbers don’t indicate, though, is “what next?”. Partnership for New York says that while the labor market recovery “remains sluggish”, NYC saw “strong income and sales tax revenues and pandemic-era highs in hotel occupancy and transit ridership” during Q3 2021.

The New York City Recovery Index – a joint project of Investopedia and NY1 – puts the state of the city’s recovery at a score of 85 out of 100, or “over four-fifths of the way back to early March 2020 levels”.

The CRE shakeup has also led to some much needed strategic thought and speculation about the future for NYC, including suggestions that empty office space be converted to residential to address the city’s need for affordable housing.

Two Tales of One City

by Alec Pacella for Properties Magazine January 2022

The dust has finally settled on 2021 and, for better or worse, it looked a lot like 2020. It’s that “better or worse” part that will be the focus of my annual wrap-up column.

I’ve used this theme a few times in past columns, sometimes I termed it “best of times, worst of times’ while other times I called it “glass half full, glass half empty.’ As has been said several times in the recent past, COVID has accelerated trends that were already present and the concept of ‘better or worse’ is no exception. To see what fared better and what fared worse, read on.

Click the link for the complete article: http://digital.propertiesmag.com/publication/?m=&l=1&i=734292&p=64&pp=2&ver=html5

Work smarter not harder: The impact of blockchain on CRE

So far in this blog series, we’ve looked at some of the most cutting-edge emerging technologies: The Internet of Things (IoT), robotics, and virtual reality. We’ve discussed the potential these developments have to revolutionize the way we do business and work in the real estate space. 

While each of those has its applications, none hold quite the same promise for changing the fundamental aspects of how we make, and document, commercial real estate (CRE) deals as blockchain. In this fourth entry in the emerging tech series, we have a look at the implications of this pivotal technology.

Blockchain basics

Nowadays, blockchain is a term everyone’s hearing with increasing regularity. To start, it’s worth having a brief recap of exactly what the tech is. At its simplest, a blockchain is a ledger – a record of information. Not all that different from the databases you’re already using to record details of properties, clients, or transactions. 

The feature that makes blockchain unique is the way that information is recorded. Each “block” can hold a certain amount of data. Once a block is full, a new block is started and the previous block forms part of an immutable chain – essentially a timeline extending outwards from the first block to the current one. 

Information on the blockchain is public and distributed across a network of computer systems – meaning that it’s very, very difficult for one person to hack or alter the information stored in the chain. 

Streamlined data

The opportunity blockchain presents for the CRE space, is the ability to streamline a lot of time-consuming tasks. Imagine having all of the paperwork for a given property digitized, accessible to everyone involved in the deal, and confirmed as accurate by multiple parties. 

Steve Weikal, MIT’s Head of Industry Relations at the Center for Real Estate, describes it like this:

“There are two areas where I think the blockchain is. There’s going to be the intersection with legal tech, so that’s land registry and recording and ownership, and all of that paperwork that exists in the system… the other is the intersection with fintech.”

Of course, an issue that comes up here is how this system can be used with potentially sensitive information – client details that shouldn’t be a matter of public record. For business networks, private blockchains can be set up to only allow access to specified parties. In this case, the identity of participants is verified in the network as well, unlike public blockchain where users can remain anonymous. Private blockchains function more like a traditional database in this sense, trading off some of the immutability of their data for privileged access. 

Sealing the smart deal

Maybe the most promising application of blockchain for CRE deals is being able to deploy “Smart Contracts” for things like tenancy agreements. Smart contracts hard code the details of an agreement on the blockchain, and are uniquely suited to real estate deals, because they can handle conditional clauses. 

As an example, startups like UK-based Midasium are already providing a prototype platform that replaces traditional landlord-tenant agreements. Using smart tenancy contracts, clauses of the agreement are automatically enforced when certain conditions are met. This can include paying rent, returning a security deposit, and directly deducting maintenance costs from the rental amount paid across to the landlord. 

It’s a system designed for transparency and rapid settlement, and the concept is gaining traction in other parts of the world. An added bonus of using smart contracts for tenancy is the possibility of building up a database of real-time data for rental prices and trends in the rental market.

A growing sector

Overall, enterprise reliance on blockchain is set for rapid acceleration. Forbes, quoting an International Data Corporation (IDC) report notes that:

“Investment in blockchain technology by businesses is forecast to reach almost $16 billion by 2023. By comparison, spending was said to be around $2.7 billion in 2019, and we will see this acceleration ramping up over the coming year.”

Blockchain adoption in CRE, however, is still in the early stages. The tech still needs to overcome a few growing pains – in terms of privacy concerns, operational complexity, and a lack of standardized processes – before we’ll necessarily see it forming the backbone of CRE transactions.

That said, it’s a space well worth keeping an eye on. There’s been growing interest, for example, in CRE tokenization –  splitting the value of a given asset into separately buyable blockchain-based tokens. What this means in practice is that instead of looking for one buyer for an expensive asset the value gets subdivided and opened to a much broader market. Which in turn may actually boost the value of the underlying asset.

There’s a lot of potential and little doubt that blockchain will make its way into CRE one way or another. But, like many things in the cryptocurrency and blockchain space, the real challenge will be separating the wheat from the chaff, the fact from the hype, and identifying functional applications of the tech rather than purely fanciful ones. 

A new reality: AR and VR in CRE

The way the modern world interacts with physical space is changing. We’ve gone from “bricks and mortar” to “bricks and clicks” as the e-commerce revolution transforms retail, and all our devices are now talking to us and to each other. 

The increasing utility of virtual and augmented reality is another contender for our attention as their applications in the commercial real estate (CRE) space become more apparent. These technologies promise to revolutionize the way we do business and interact with both our clients and real estate itself. 

In this latest part of our series on emerging tech, we take a dive into some of the applications of these new tools and how they can be used to enhance CRE operations.

Reality defined

For many of us, the difference between virtual reality (VR) and augmented reality (AR) is a little fuzzy, so let’s start there. Augmented reality, according to the brains over at MIT: “superimposes virtual enhancements on real-world scenes in real-time.” 

In practice, this might mean you’re walking around with an app that works through your phone camera and ‘adds’ images or information to the real world around you – like superimposing a dinosaur into your living room, or wayfinding markers and digital info onto the world around you.

Virtual reality is a little different in that it creates an entire world or scene that you can explore, usually with the assistance of techs like VR headsets and haptic gloves. So, think about viewing an entire virtual mall or building site, or the interior of a space you are leasing out.

The terms are often used interchangeably, and they do overlap to some degree, but they aren’t synonyms. Fortunately, splitting them into neat little boxes is not a prerequisite for understanding how AR and VR can be used to enhance real-life CRE.

Space that virtually sells itself

One of the biggest advantages VR and AR offer is the ability to virtually show spaces, even before they’re built. This means marketing efforts can kick off earlier in the development process, and potential clients get a better, more immersive sense of what a property might look like before there’s even a door to step through.

Existing spaces are also increasingly being digitized through the tech produced by companies like Matterport which specialize in 3D capture. Properties can be staged and shown as a digital, interactive experience that really gives potential buyers a sense of what a space looks like. Recent studies on residential properties using the tech showed that having a virtual tour meant that, on average, a property closed 31% faster and sold for 9% more.  

Aside from the obvious financial upshot of those numbers, VR tours also mean less time spent physically traveling to and from sites. That can be a huge bonus for both CRE professionals and clients. Brokers can guide prospective tenants towards a higher number of property options and help those clients curate a shortlist of candidates they’d like to see in person, raising the likelihood of making a deal.

Built to (digital) spec

Other areas where VR is making an impact are in architecture and construction. Modeling buildings under development in VR means that any potential problems can be identified before they’re, literally, cemented in place. Plans can also adapt and change easily, and creative solutions can be “tried on for size” before committing to them. Having a digital model also serves as a point of truth that a team can return to during lengthy development projects. All of which translates into savings in time, money and materials.

Once construction is complete, buildings outfitted with appropriate sensors can also generate a digital twin – a virtual copy of the building and its systems. This is a real-time model of the building and can include information like power usage, air quality, temperature, and occupancy, among other factors. Using this data, it’s possible to streamline a building’s operations to meet energy efficiency goals and once again, reduce costs. 

Of course, this is much easier to include as part of a new development. One of the challenges to the wide-scale implementation of this tech is aging building stock, which is costlier to outfit or retrofit with the necessary hardware.

Real-world enhancement

Meanwhile, returning to VR’s more grounded cousin, augmented reality has some interesting applications of its own. Large furniture suppliers like IKEA are already using the tech to help buyers model furniture, or entire room designs, through an app. In CRE, this kind of functionality could see use when staging a space – along with the option to present multiple versions of the room or site to potential buyers. 

As mentioned above, AR is also being used for wayfinding. Using digital sensors, a busy mall or office space can be outfitted with virtual markers that visitors can follow to their desired destinations. Retail, in particular, stands to benefit from the ability to guide shoppers to specific areas or products – all while providing additional information and support through a phone-based app.

Steady growth on the cards

As far back as 2016, Goldman Sachs predicted that the global AR and VR market would be worth $80 billion by 2025. While current estimates from Statista are a little tamer – with VR predicted at $12 billion and mobile AR at $26 billion – the trajectory of the industry is clear. 

Consumer demand for AR and VR enhanced experiences is likely to climb as these technologies gain traction, and the value to CRE professionals is obvious. All of which makes this a curve well worth getting ahead of for the savvy brokerage.