It seems everywhere on the Internet you look, at some point, you find headlines about blockchain technology. For most people, Bitcoin is one of the first things that come to mind when they think of blockchain. But blockchain developers are coming up with all kinds of solutions for almost any industry imaginable. The most recent of those industries headed towards blockchain disruption is the commercial real estate (CRE) industry.
Understanding Blockchain Technology In a Nutshell
Despite most articles claiming that blockchain technology was born in 2008, the idea had actually been around since 1991. Two men, Dr. W. Scott Stornetta and Dr. Stuart Haber, are considered to be the Godfathers of the blockchain, wanting to create a system of cryptographically secured chain of blocks where documents could not be tampered with.
Though their idea ends up being a stroke of genius, it didn’t become a reality until an individual or group of individuals operating under the pseudonym Satoshi Nakamoto conceptualized Stornetta and Haber’s idea in 2008. In 2009, Nakamoto’s blockchain was implemented as the public ledger mechanism for Bitcoin.
The core of blockchain technology lies in the use of a peer-to-peer network where the peers act as “witnesses” to transactions that occur. This network is supported by thousands of computers, preventing any alterations to the completed blocks or to the consensus of the peers. This makes fraudulent dealings impossible since there are thousands of witnesses to refute any fraudulent claims.
In addition to that, each block in the chain is “immutable,” which means that no one can delete or alter its data at any point in time. As the blocks are added to the chain, it goes through cryptography so that people cannot meddle with them.
And even though there have been news stories about various cryptocurrencies being hacked, if you research into each case, it was usually the fault of developers attempting to be creative and creating their own unique blockchain technology that had a weakness in its design. Others who claimed to have been hacked actually hacked their own system in order to steal users’ money, known as an “exit scam.”
Real Estate Investment and Blockchain Technology
A lot of people want to invest in property, but how many people reading this actually have enough cash lying around to purchase a house, let alone have time to monitor it. Furthermore, a growing number of Millennials aren’t investing as much as previous generations. According to CNBC, around 80 percent of Millenials have chosen not to invest in the stock market. Out of that number, half of them stated the reason being they didn’t have enough money. This has also caused the CRE industry to suffer all around as Millennials are also choosing to stay home with mom and dad rather than rent or buy a home.
This has led to many startups trying to fill in this void with online companies offering everything from the tools to compare real estate agents, free property reports to matchmaking-style rental sites. But it is tokenized investment properties that seem to be the most promising thing yet. Following the same pattern as Bitcoin, where you don’t need to buy one whole coin, potential investors don’t have to buy an entire property to benefit from the rents. Instead, they can simply buy one or more tokens, with each token representing a specific measurable portion of the property in question.
For example, an apartment building is placed on a token-based real estate site and each individual apartment is sold as a token; or each square foot could also be sold as tokens. This means you could either buy one or more apartment units or one or more square feet of an entire building. On top of this, each token will increase in value as the properties increase in value. Some of the property tokenization sites offer monthly incomes for rents.
Tokenization also has the potential to add numerous advantage to the CRE industry, such as added transparency, simplified management, enhanced security, and, most importantly, increased liquidity. A wide gamut of tokenized properties is offered these days, including office buildings, retail spaces, multifamily structures, single-family homes, warehouses, and anything else considered a property or real estate.
Tokenized Real Estate Models
The models of real estate tokenization already available include:
- Real estate fund shares
- Partial or whole real estate ownership
- Crowdshare-style investment programs offering loans to developers and real estate owners
- Tokenized real estate investment trust (REITs)
Additionally, real estate companies interested in token-based real estate options must consider a wide range of issues, a lot of which are legal in nature. Because of the complex nature of tokenizing real estate, it is required to hire a well-experienced real estate, tax, and securities attorney who is also well-versed in blockchain technology. As this is a new thing, they can be few and far between and expensive.
If you’re a real estate agent who owns their own company or a property developer, this is a great way to fund your projects without using banks or loan companies. For those who have wanted to invest in property but felt the money was an issue, blockchain technology has opened the doors. As this is a developing industry, it’s also a great idea to look into investing or launching your own startup that deals with the tokenization of real estate.