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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Seamless site management: Drones and smart tech for CRE inspection

Over the past few years, the use of drone technology in the commercial sector has seen massive growth, with drones being used for everything from agriculture to law enforcement.

In the commercial real estate (CRE) context, the value of drone technology is also rapidly becoming apparent. Drones deployed for site inspections can save time and money, in addition to keeping personnel out of harm’s way. In the event of disasters and damage to premises, drone photography provides accurate images for insurance purposes and a detailed catalog of damage.

In this latest blog in our ongoing tech series, we explore these applications in more detail, along with other smart technologies that are changing how we approach real estate development and management.

Drone detection

One of the main areas where drones add value is by enabling fast and accurate building inspections. Processes that would normally take a long time for a human team, such as surveying rooftops, can be completed in a single programmed flyover. There is also potential for the technology to be deployed for façade inspections and other critical, but time-intensive, maintenance operations.

The advantage of using drones for these tasks is that they can access areas that are difficult, or even dangerous for human crews. And they do it in a fraction of the time.

When equipped with the appropriate hardware, like thermal imaging cameras, drones can also check on a building’s heat loss profile, potential gas leaks, and even expedite operations during construction, all while making the overall project more sustainable.

Easing insurance and investment

Drone surveys can also add value during dealmaking, with detailed drone imagery that lowers investment risk when properties are changing hands. With a flyover, it becomes a matter of a few minutes to figure out whether a property shows signs of external structural issues. The task of valuation also becomes easier, allowing property sales to proceed smoothly.

As a recent Wall Street Journal article points out, there’s also been wide-scale adoption of drone technology in the insurance industry. The use case here is rapid assessment of claims and the ability to respond to critical situations, such as assessing property damage after a natural disaster.

Quoted in the article, Travelers Insurance VP, Jim Wucherpfennig, puts it like this:

“The technology allows us to write damage estimates more quickly for our customers, pay them more quickly, so that they can begin the repairs to their property and get back on their feet.”

As with maintenance inspections, he adds that deploying drones to these sites ensures that claims professionals are kept out of harm’s way in potentially dangerous areas.

Smart glasses and CRE

A second technology that is gaining traction for site inspections is Augmented Reality (AR) “smart glasses”. In essence, smart glasses allow the user to combine what they are seeing in the real world with superimposed virtual tools, making it easier to measure and quantify key parameters during construction and development.

As an example, on a building site, an inspector equipped with smart glasses could take measurements just by looking at a doorframe or window and then compare their findings to virtual plans. They would also be able to photograph, record and stream what they’re seeing, ensuring no details are missed during an inspection.

Like drones, smart glasses also enhance on-site safety. In this case by ensuring personnel can focus on what’s in front of them, rather than the tablet or smartphone in their hand.

Though it’s still early days for this technology, the market appetite for smart glasses is increasing across a range of commercial applications, and advances in this area are certainly worth keeping an eye on.

Human expertise

What’s important to bear in mind is that these technologies don’t negate the need for human intervention. Rather, they shift the human element to the controller’s seat.

The photographic surveys undertaken by drones, for example, still need to be interpreted by human experts. Similarly, the video feed from a pair of smart glasses still streams back to the team at the office, who are then enabled to support decision-making processes at the site. So instead of replacing human expertise, these technologies supplement it, providing the means to optimize routine operations.

For CRE professionals, these technologies offer another tool to add to the toolbox. And some extra options for making deal negotiations as smooth and seamless as possible.

Social: Are smart tech and drones already part of your CRE environment? And how do you see this space developing?

What’s happening in… Vancouver?

Vancouver, in British Columbia, is one of Canada’s most well-known and densely populated cities. It is positioned on the west coast, just 45km north of the border with the United States. Some 650 000 people live in the “city proper”, while the larger metropole (bearing the name “Greater Vancouver”) is home to almost 2.5 million people. Vancouver is reportedly Canada’s most cosmopolitan city, with an ethnically and linguistically diverse population.

The city is a popular destination for the film industry (nicknamed “Hollywood North”), and for tourists, as well as enjoying a reputation as a cultural hub with many galleries, museums, and theatres. With a busy port, rail network, and as a nexus for the transcontinental highway, Vancouver’s economy was built on trade, and has expanded to include film and TV, tourism, raw materials, construction, and technology. Recently digital entertainment and the green economy are also driving GDP growth.

Post-pandemic landscape

Like most of the world, Vancouver was rocked by Covid-19, with business shutdowns and job losses. However, it was relatively more resilient than other Canadian metros. The region’s gross domestic product (GDP) is expected to bounce back by 6.8% in 2021, and forecast to grow by 4.1% in 2022.

By September 2021, however, the Vancouver region’s employment figures had recovered in absolute terms. The Vancouver Economic Commission says: “Some jobs have migrated sectors; retail & hospitality are still recovering, while other sectors – such as tech and construction – have gained jobs.” Employment in the Metro Vancouver area hit 101.3 in September 2021, the highest figure in the country and “finally surpassing pre-pandemic levels”.

Property watch

Vancouver is the country’s most expensive residential market and the most expensive place to live, which means that while it enjoys high scores in quality of life metrics, it has priced a lot of younger buyers out of the market. It enjoys high demand, and is considered a strong commercial real estate (CRE) market – especially for the multifamily and office sectors.

Software and data provider Altus Group says CRE investment in the Vancouver market area “saw a significant surge in the second quarter of 2021”, adding that the robust multifamily and apartment market is “fueled by the highest apartment rental rate in Canada, a shortage of rental product in the construction stage, and the anticipation of border openings to international students and immigration in the near future”.

Commercial vacancies naturally increased during the pandemic (increasing from 4.4% in late 2019 to 7.5% in late 2020) and the “return to office” expectations  of 2021 was tempered by news of variants and secondary outbreak waves.

Companies seeking space in the city are increasingly looking to develop former industrial space in the east, according to Business in Vancouver, with particular interest from firms in high tech and the medical and life sciences. They are however competing for space with a powerhouse industrial segment. In Q1 and Q2 2021, investment in the industrial market in Vancouver surpassed $1.1 billion, and lease pricing reached a new record high of $15.50 per square foot.

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.

Watch this space: Industrial boom continues into late 2021, and beyond

We’ve all seen how the Covid-19 pandemic gave the industrial sector the shove it needed to go from well-poised to interstellar. Now research from the Commercial Real Estate Development Association (NAOIP) suggests there is no slowing down for commercial real estate’s (CRE) newest darling sector.

The NAIOP’s Industrial Space Demand Forecast for Q3 2021 shows that “sustained growth in e-commerce [and] demand for industrial real estate continues to outpace supply”. This, they say, puts the sector in a state of net absorption that will continue throughout the year and into 2022.

Digging into the numbers

The authors of the report are Hany Guirguis, PhD, Manhattan College and Michael J. Seiler, DBA, College of William & Mary. They write that “the demand for industrial real estate still outpaces supply” even with “nearly 100 million new square feet delivered nationally since the beginning of the year, 450 million square feet currently under construction and another 450 million planned”.

Their data then boils down to net absorption of some 162.6 million SF in the second half of the year, and they state that they’ve “returned to their pre-pandemic confidence levels”.

Triangulating more data
The demand has of course been driven primarily by the boom in e-commerce. GlobeSt.com reports that e-commerce sales hit “a quarterly record of $222 billion in the second quarter of this year”, accounting for 13.3% of all retail sales. But there are contributing factors, such as growth in cold storage, materials and construction, manufacturing and medical industries.

With the combination of factors, CRE data analysts such as YardiMatrix are predicting the growth to stay buoyant through 2026. Yardi’s predictions include delivery of 348 million SF next year, 360 million SF in 2023, and up to 370 million SF in 2026.

New growth
There are other blooming products and industry categories that will only increase this demand. The cannabis processing industry is hungry for space in deregulated regions and in countries with widespread legalization like Canada and Latin America. Finally, there are superlative predictions for the industrial square-footage needs of the commercial space industry too.

No wonder, NAIOP CEO Thomas J. Bisacquino calls industrial “a bright spot in the CRE industry”.