It’s extremely likely that you have heard of these terms. Chances are many readers are quite familiar with them, and some may even have personal experience with the blockchain. There are many, however – CRE professionals and laymen alike – to whom these terms are enigmatic, indicative of some techie fad, a trending, but ultimately insignificant fascination. I’ll let Blythe Masters, ‘one of the most powerful women on Wall Street,’ address the latter group, “You should be taking this technology as seriously as you should have been taking the development of the Internet in the early 1990s.” It is a strong sentiment, sure, but one that has been echoed by everyone from industry insider Duke Long to the Wall St. Journal.
The blockchain is important, that much is certain, and it either will or already is affecting many different industries, and varieties of transactions, and will certainly change commercial real estate as well.
But first, what’s bitcoin, and what’s the blockchain?
Bitcoin is a digital cryptocurrency. That means that bitcoin is a unit of currency that computer ‘miners’ acquire via solving complex equations. When these equations are solved, the computer is rewarded with bitcoins. This progression is catalogued, each ‘block’ added to an encrypted digital ledger, with a record of each ‘node’ or computer that solved the equation. That ledger is known as the blockchain, and is considered by many to be the biggest technological contribution of bitcoin. The significance of the blockchain lies primarily in security, every bitcoin transaction that has ever taken place is a part of the blockchain, and every new one is likewise tacked on. The chain is organized chronologically, so every new transaction is connected to the one that preceded it. In short, this means that when you’re dealing with currency in a blockchain, there is never a question about where your money is coming from, or where it’s been.
So, what does this mean for CRE? Namely, adoption of blockchain technology will create massive efficiencies in the business of owning and selling commercial properties. How will the blockchain do this? The use of the blockchain in CRE will affect the TIME it takes to underwrite and close deals, the TRANSPARENCY with which those deals are made, and the SECURITY conditions under which those deals are finalized. The legal documentation underlying conveyance will be more clear; information will be available in real time and on mobile devices; cost and friction will be removed from the process of acquiring and financing portfolios of assets.
Brokers know that the weeks and months that drag on in the process of marketing a property for sale and ultimately closing a deal increase the risk that the deal won’t happen at all. Time is important in all things, but when you’re talking massive real estate transactions, it is a particularly important commodity. Blockchain technology will allow every building to have a digital address, including records on the owner, maintenance history, and the value compared to other structures. This eliminates time spent on research, phone calls, and fact-checking. Perhaps the most important time-saving angle of the blockchain, however, is what’s called a ‘smart contract.’ A smart contract permits transference of an asset digitally.
In the blockchain world, time, money and attention will be focused on the negotiation of deal terms, not the laborious and costly due diligence and legal process associated with transacting sales today.
One of the most common topics for journalists and industry gossipers recently has been the influence of foreign investment in markets like New York City, London, and Paris. Where’s the money coming from? Whose money is it? These are relevant questions that could be answered immediately were all these acquisitions happening in the blockchain.
This level of transparency may make some nervous, but we’ll echo Duke Long’s sentiment, when he writes, “Don’t want to opt into the full information transparency it takes to execute the digital transaction? Get out of commercial real estate. GET OUT!”
Kim S. Nash, writing in the Wall St. Journal, “The power of blockchain lies, advocates say, in its inherent security, which can establish trust directly among parties in a transaction, making it possible to remove the middlemen that currently serve that function.” Essentially, the security of the blockchain is in part due to its removal of some human influence. The blockchain is a perpetual digital record and ledger, it is a secure method of transaction because nothing can be fudged, misrepresented or over/under sold.
We can see that the question of whether or not the CRE industry will be affected by the blockchain is already irrelevant. It is going to have an impact, and it will be up to CRE professionals to anticipate and adapt to the changes it brings.