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. 

Capital markets news bite: Daily fund indices showing record strength

The National Council of Real Estate Investment Fiduciaries’ (NCREIF) latest report on the performance of daily-priced fund indices (NFI‐DP) indicates remarkable strength in the sphere. The report covers the September 2021 period – the latest at the time of going to print – and the data shows the asset class had its highest monthly returns in a decade.

This would put year-to-date (nine months) returns for this group of daily-priced funds at 13.08%

Performance and make-up

The NFI‐DP at the end of Sept 21 was at 2.36%, up from 1.68% in the preceding month. According to the NCREIF, the index represents “the performance of a group of daily‐priced open‐end funds that invest predominantly in private real estate, generally ranging from 75% to 95% allocation”. The balance of allocation for these funds sits in liquid investments (including cash and securities). This makes for a “small universe of qualifying funds” and returns that are equal-weighted and gross of brokerage fees, as well as advisory and incentive fees.

Industry relevance

NCREIF’s data is used by various media and industry analysts as one element (of many) in the determination of market health. They put together various data products, of which this is one, by collecting property and fund level information drawn directly from members – usually on a quarterly basis. The NFI‐DP however is drawn monthly. They have data from over 35 000 properties and 150 funds on their database, which dates back to 1977.

National property index

The decade-high record for daily-priced fund indices (NFI‐DP) noted above is not the only record-level they have noted this year. The last results from the quarterly NCREIF Property Index (NPI) (published in August 2021, representing Q2 2021) show the highest return in the past ten years, sitting at 3.59% up from 1.72% in the previous quarter. This is the top return result since the second quarter of 2011 (3.94%). NCREIF writes, these “are unleveraged returns for what is primarily ‘core’ real estate held by institutional investors throughout the US”.

SOCIAL: What industry facts and figures do you use to inform your understanding of the state of the market?

NAI Pleasant Valley Announces New Agent- Lorin Schultz CCIM

Lorin Schultz, CCIM Joins NAI Pleasant Valley as Vice President

AKRON, OHIO – October 22, 2021,  NAI Pleasant Valley, a leading global commercial real estate brokerage firm, announced today that Lorin Schultz, CCIM joined the firm as Vice President. “We are excited to welcome Lorin back to the NAI Global family,” said President Alec Pacella.

Lorin has significant experience in commercial real estate, particularly in the office market around Akron. She joins NAI Pleasant Valley after spending several years at Colliers and NAI Cummins, where she secured purchases of substantial properties, including Merriman Valley Parkwood Plazas, and procurement of leases for companies such as Tegron and J.M. Smucker Company. Previous to joining the real estate profession, Lorin was a broadcast journalist for NBC stations in Columbus and Youngstown, Ohio.

Lorin holds a Bachelor of Arts Degree in Mass Media Communications from The University of Akron.  She became a licensed realtor in 2003 and later earned CCIM designation in 2009. Lorin currently belongs to the National Association of Realtors and Leadership Akron NEXT 10.

About NAI Pleasant Valley

NAI Pleasant Valley is the Northern Ohio office of NAI Global, the leading global commercial real estate brokerage firm. NAI Global offices are leaders in their local markets and work in unison to provide clients with exceptional solutions to their commercial real estate needs, locally and globally.

To learn more, visit www.naipvc.com

Big expectations for the industrial boom to continue

Data from the seventh annual industrial market report by WealthManagement.com Real Estate (WMRE) remains clearly bullish on the industrial sphere of commercial real estate (CRE), particularly on the points of sentiment, occupancy, and rent growth.

The report is based on an April 2021 survey distributed to readers of Wealth Management Real Estate. Respondents include private investors, financial intermediaries, developers, lenders, occupiers, and service providers, with over 50% of respondents in senior management and ownership roles.

It is in keeping with other market analysis sources. The industrial deal volume was up 18%, in comparison with 2015 to 2019 averages, according to RCA’S most recent U.S. Capital Trends report

Ecommerce at the core

The prospects of e-commerce and fulfillment, they write, were strong drivers before Covid-19: “The demand for home delivery of more types of goods and services provided extra fuel for fires that were already burning even before COVID-19… The strong and consistent performance also caught the eyes of new investors looking for a safe haven.”

The report draws from the U.S. Census Bureau information which shows how e-commerce made up 14% of total retail sales in Q4 2020 (up from 11.3% in Q4 2019), and from other sources that suggest e-commerce is to grow to some 21% of global sales by 2025.

Strength factors

Around the world, top corporates seem to be continuing their acquisitive streak in this space:

  • A mid-Aug release from Amazon announced their plans for a robotics fulfillment center and five new delivery stations in Florida.
  • American global investment company KKR made a third industrial purchase in Denver this year.
  • Australia and the UK are also seeing news of large industrial deals, as companies seek strategic assets for “e-commerce, on-shore manufacturing and a desire to be positioned close to the end-consumer”.

Expansion is expected to last

Even with the need for social distancing measures on the decline, the WMRE report’s respondents show faith in “a lot of runways to go for what’s already been a long run of expansion for the sector”.

Source: https://www.wealthmanagement.com/no-harm-done

Social: What do you think? Are we in the midst of or past the industrial CRE expansion phase?

CRE Capital Markets: making money work for you

The capital markets function within commercial real estate (CRE) is such a huge part of the property industry these days but is still quite poorly understood by those on the outside. Yes, there is a certain magic to bringing all the right elements together to support a smart capital market deal, but that doesn’t mean it’s a mystery or unknowable. Conquering capital markets is a matter of strategy and value. You just need the right partners to guide you.

Course 101

Let’s get back to basics: If you are talking about capital markets as a general term (not necessarily within real estate), then you are describing a place for buying and selling stock, bonds, and debt instruments. A stock exchange, like the NASDAQ, is a type of capital market.

Zoom back into CRE

Within CRE then, you can see how capital markets are places for brokering financial deals specifically in property. When a brokerage, like ourselves, offers capital markets as a service this means we are providers of capital solutions relating to property. This can mean solutions for investors and for occupiers and may include advising on investments, recapitalizing, or debt placement – what’s on offer really depends on the brokerage and its own expertise in-house.

NAI Global’s capital market services include:

  • Investment sales
  • Note sales
  • Live and sealed bid auctions
  • Debt placement
  • Acquisition advisory

The right capital market partners

A capital markets service provider needs two overarching things for success: A depth of knowledge (expertise in the financial specifics and deal types), and a breadth of network (access to the right people and right primary and secondary markets).

Emerging trends

From crowdfunding to app-based finance, capital market professionals are also facing a wave of innovation and change, largely driven by factors like digitization and the fourth industrial revolution.

“Evolving technology means the barriers to entry are coming down, but expertise and experience continue to be what sets capital market service providers and consultants apart,” explains Jay Olshonsky, President & CEO of NAI Global. “That’s what you want on your side when you’re looking for the capital solution you need.”