Success in real estate often depends on several factors, including how well you can use technology to your advantage. Over the last couple of decades, digital transformation has become increasingly necessary in real estate. Now, there’s a new technology on the horizon that could change the way people buy, sell, and think about property. This guide to how people use blockchain in commercial real estate will introduce some of the technology’s current applications and how it may change over time.
What Is Blockchain Technology?
Blockchain technology is a way of recording transactions in a decentralized ledger. Once a “block” gets added to the blockchain, it’s difficult or impossible to alter. That means everyone gets an accurate view of transactions that take place on the network. Since blockchains use decentralized ledgers, no one controls them. Instead, thousands or millions of devices connected to the internet contribute to verifying and recording transactions.
Bitcoin was the first application of blockchain technology. The concept had been discussed in the late 1990s, but no one had applied it until Satoshi Nakamoto—probably a pseudonym for a group of people working on the bitcoin project—started selling bitcoin in 2009.
Today, many industries have found ways to integrate blockchains into their processes. Blockchains can help:
- Ensure the integrity of pharmaceuticals from the point of creation to distribution.
- Track food safety issues to prevent tainted products from reaching consumers.
- Trace the provenance of jewelry to ensure its authenticity and source.
Non-fungible tokens (NFTs) have also become popular applications of blockchain technology. With an NFT, you purchase a specific segment of a blockchain that is connected to a piece of art. The blockchain can give artists more opportunities to get paid for their work. It also tracks exchanges, which means artists could get a percentage of the profit when someone resells their work.
What does this technology have to do with real estate? For one thing, you could potentially use blockchain in commercial real estate to confirm that someone owns property. Instead of performing a title search to determine legal rights of ownership, you could simply look at the blockchain to see everyone who has owned a piece of property. If blockchain records became the standard, it could save real estate agents, buyers, sellers, and courts a lot of effort.
How Is Blockchain Technology Changing Real Estate?
Applying more blockchain in commercial real estate could disrupt the industry in positive ways. Since blockchain is a relatively new technology, very few real estate companies use it. It could become increasingly popular, though, as people learn about its potential benefits.
Some applications of blockchain in commercial real estate might include the following.
Faster, More Secure Transactions
Blockchain has multiple features that can lead to faster, more secure transactions. Since all activity gets recorded in a public ledger, you don’t have to wait for financial institutions to process documents.
Blockchain in commercial real estate would also eliminate the possibility that someone could alter records. Currently, consumers rely on financial institutions to protect their sensitive data. Unfortunately, the additional protections banks and other financial organizations follow don’t ensure safety. Some of the biggest data breaches target financial institutions, likely because criminals know they can find information that helps them commit fraud.
Blockchain ledgers are kept on thousands of devices. It’s possible for a hacker to change information ledger entries on one of those devices. As soon as the machine connects to the network, though, the other devices will correct the change. Altering the ledger would require a massive, incredibly precise attack that would alter more than half of a network’s machines. It isn’t impossible, but it’s so outrageous that it’s hard to imagine anyone coordinating such a challenging campaign.
Smart Contracts
Real estate contracts can include very specific details that all parties must respect. For example, a contract might hold the seller liable for fixing damage before closing the deal and passing the title to the new owner. When you have a long list of stipulations, it gets difficult to track every condition in the contract.
Smart contracts that use blockchain technology help automate the process. Blocks in a ledger can contain if/then instructions that move the project forward at the correct time. For example, the smart contract might stipulate that an official price offer gets sent to the buyer after the property has been inspected and assessed by a professional. Once that happens and the buyer decides on their offer, the number gets sent to the seller or the seller’s real estate agent for approval.
When executed correctly, smart contracts built on blockchain technology ensure that everyone fulfills their obligations before the deal closes.
Lower Costs
When you use blockchains in commercial real estate to streamline processes, you automatically create opportunities to lower costs by reducing paperwork and the number of steps you need to take when buying property.
Some online real estate platforms will let you purchase property tokens (more on that in the next section). Instead of going through a brokerage that charges fees, you can use cryptocurrency to buy a property or part of a property. Blockchain in commercial real estate lets you purchase the property directly instead of going through intermediaries, so you avoid all of the fees and percentages that professionals charge during the process of buying or selling property.
Asset Tokenization
Asset tokenization will change real estate in at least three ways:
- Make it easier for multiple people to invest in a property.
- Track property ownership.
- Help investors sell their stakes to others.
Blockchains could easily change the way crowdfunded real estate investments operate. Currently, crowdfunded investment properties divide ownership by the number of investors. For example, a real estate firm might have 100 shares that they sell. Once fully funded, they use the investor’s money to purchase or build a property that will generate revenue.
Tracking Asset Ownership
Asset tokenization would alter the arrangement slightly to give investors and developers more flexibility. Instead of purchasing a share of the property, you would buy a token that gets recorded in the public ledger. Now, you have a fully visible record of when you bought the token and how much you paid for it. If your ownership ever comes into question, you have proof that you invested and the tokens belong to you.
Selling Your Real Estate Investment Tokens
Additionally, asset tokenization will make it easier for you to sell your investment to someone else. Currently, investment agreements can prevent you from selling your share until you get permission from other owners. Even if you can sell your portion without approval, you will need to go through a lot of paperwork before you can transfer your share to a different investor.
Tokenization removes these barriers because the token becomes a symbol of ownership. When you feel that you want to get a return on your investment, you find someone willing to purchase the token from you. The arrangement only needs to involve the buyer and the seller. Once the transaction takes place, it gets recorded in the ledger as part of the blockchain.
You might not even need to learn who owns a piece of property. Until then, you can rely on databases like ProspectNow to learn more about property owners and their contact information. You can even find the real contact information of decision-makers within an LCC that owns the property.
The Future of Blockchain in Real Estate
It’s difficult to predict the full effects of blockchain in commercial real estate, but you can already see how the technology influences other industries. There are good chances that it could have similar effects on buying, selling, and investing in real estate.
Virtual Real Estate
The popularity of virtual property is potentially the biggest change that blockchain in commercial real estate will have on the industry.
You can already use cryptocurrency to purchase virtual property in the metaverse, a 3D version of the internet that requires virtual reality goggles to experience. Some of the most popular tech companies selling virtual real estate include:
Most of these companies only accept cryptocurrencies as payment. Some even have their own cryptocurrencies. When you exchange fiat currency—which means money backed by a government—for cryptocurrency, you invest in the underlying platform and gain an opportunity to buy virtual real estate.
The metaverse is still in its infancy, so you might wonder why anyone would care about a segment of blockchain in real estate that doesn’t apply to physical property. That’s a fair question. However, recent developments show that the metaverse could become a significant trend that lasts for years or decades. It might even transform the way people use the internet.
Consider that the rapper, actor, and entrepreneur Snoop Dogg owns a large section of the metaverse where he can host private gatherings with his virtual neighbors. The opportunity to live next to and interact with Snoop Dogg means so much to one person that they spent $450,000 on a piece of land in his complex.
Major companies are also investing in virtual real estate. For example, CVS plans to build virtual stores in the metaverse where shoppers can browse and purchase items. CVS hasn’t worked out the details, yet. It seems likely that it will either ship purchases to shoppers or offer curb-side pick-up services for those who buy goods in their metaverse store.
This aspect of blockchain in commercial real estate has gotten a lot of attention because it could represent significant investment opportunities. Imagine the return you could have gotten by purchasing Los Angeles real estate in the early 1900s. That’s the type of returns early investors want from virtual real estate. It’s only possible because companies have applied the technology of blockchains to commercial real estate.
Blockchain in Commercial Real Estate Could Generate Incremental Returns
Since blockchains retain data about every transaction, it keeps a record of every person or organization that has owned a piece of property. It’s possible that this aspect of blockchain in commercial real estate could alter the way investors think about making money from property.
For example, you sell a token to someone for $5,000 under the condition that you also receive 10% of future sales. A few years later, that person sells the token to an investor for $10,000. You would receive $1,000. What’s interesting is that you could collect interest even further down the line as investors continue selling the property token. Selling a piece of property today might mean you keep earning money on it throughout your life.
Obviously, no one knows exactly how this will work. There are a lot of details to figure out. Regardless, there is potential that no one would have considered a decade ago.
How ProspectNow Can Help
ProspectNow is still at the beginning of realizing the benefits of blockchains in commercial real estate. Currently, a Chainlink node gives applications and developers access to ProspectNow’s database across leading blockchains. The collaboration with Chainlink benefits anyone using blockchains in commercial real estate because it takes an agnostic approach, cryptographically signs ProspectNow’s on-chain data, and has a proven record of excellent security standards.
As blockchains become more prevalent in real estate, ProspectNow will consider adding more features that take advantage of the technology. For example, it might include blocks that confirm property ownership. The platform will evolve depending on the needs of users and the overall market.
Start a free trial with ProspectNow to see how it contributes to your success by giving you access to better data analytics, helping you make investment decisions, and generating leads that will likely convert within the next 12 months.