Blockchain Real Estate
Blockchain Real Estate : Blockchain, Smart Contracts and their potential impact in the Commercial Real Estate market
Blockchain has gained traction lately, and its use cases are diverse, but is the commercial real estate sector ready for this new technology? And how will it react? Understanding what blockchain is and how it works is necessary to understand its importance and scope.
Blockchain is a digitized, distributed ledger that immutably records and shares information. In other words, it’s a platform that stores and verifies entries on historical transactions between users across a network.
The CRE industry is known for being secretive when it comes to comparable lease rental rates, valuations, and property prices to create a competitive advantage. This might have been accepted or even viewed as standard in the past, but in today’s interconnected and digitized world, users and clients demand transparency.
Many startups have made technological advancements to make some of this information public, easing the distribution of property-related information online. Its uses go beyond finance or CRE; technologists are making this digital ledger track anything of value: birth and death certificates, educational degrees, medical history, insurance claims, the provenance of food, and much more.
Blockchain technology can replace transactions rooted in trust with those governed and proved by mathematics. Smart Contracts are agreements that utilize the blockchain to automatically and securely execute obligations when certain conditions are met.
For example, a smart contract may automatically transfer ownership of an item when it is fully paid for or after a set interval of time. Smart Contracts are based on code and the contract can be immediately and automatically put into operation.
The social implication of blockchain is linked to how contracts are viewed. From a computer science perspective, they are technical artifacts, just lines of code based on conditional logic, but computer scientists aren’t the ones who will utilize them.
Real estate agents, lawyers, and the general public perceive contracts as social resources. Contracting practices within social and relational contexts indicate that contracts have multiple functionalities. They are used to accomplish numerous goals that are not accounted for in a smart contract framework.
According to the 2015 World Economic Forum, a survey report that surveyed 800 executives and communication technology experts, 57.9% of the respondents believe that 10% of the global GDP will be stored on Blockchain technology by 2025.
This is also evident when looking at the 2018 Technology Outlook in the Apparel Market report. Apparel companies are looking more to business intelligence and analytics to utilize data to gain an understanding of customer needs and desires.
12% of these companies are evaluating the testing/deployment of Blockchain technology in their sector. This presents a broader trend of new technologies leading to a fast-paced disruption in many industries, where many companies are faced with the challenge of disrupting or being disrupted.
There is an inevitable convergence of blockchain and commercial real estate amongst us. The real estate industry has been steeped in tradition, hardly changing over the past hundreds of years. Well, it is no longer viewed as such an immovable object. There has been a tremendous uptick in real estate related startups, venture capital investments, and technology adoption.
Another common thought shared amongst all papers, articles, and books, is that we live in an information-driven economy where disruption is not a new phenomenon, yet it’s a hot topic acknowledged by every CEO. Many companies and startups are utilizing one or more new technologies to gain an advantage, for example, advanced cloud computing, social media, and analytics are used to lead business decisions in many industries.
Data from the 2018 Technology Outlook in the Apparel Market gives a glimpse of how companies are looking more to business intelligence and analytics to utilize information acquired from customers to understand consumer needs, trends, and desires.
Many companies have already implemented cloud technology (30%), and cloud computing has been growing at 4.5x the rate of IT spending since 2009 and is expected to grow by more than 6x through 2020.
Just like the CRE, the apparel market was not accustomed to disruption/change until the turn of the 20th century with the rise of e-commerce. This sector has been showing interest in technologies such as blockchain with 12 percent of the evaluation, testing, or deploying Blockchain technology.
Another statistical paper that supports the claim of a rapid increase in new technology is the “Economic News Briefing,” a report in the Economic Bulletin. The briefing was published in 2018 with a projection that Korea will spend 5 trillion won on the ‘growth of innovation’ in 2019, an increase of 2 trillion won compared with 2018.
A total of 9 to 10 trillion won will be invested over the next five years across four projects. These projects are aimed at building digital platforms for big data analysis and transactions.
In creating a big data platform, the government will focus on promoting big data and AI, developing blockchain technology to ensure data management security, and boosting the sharing economy. Their success may serve as an initiative for other countries to follow.
Smart contracts were invented 20 years ago but have recently gained traction due to applicability with blockchain. This digital representation of the mutual agreement can replace lawyers and banks that have been involved in contracts for asset deals, depending on the pre- defined terms.
Smart contracts can also be used to control ownership of properties, both tangible (i.e., houses, automobiles) or intangible (i.e., stocks, bonds, access rights). Blockchain technology plays a role in smart contracts by using cryptography to replace third parties such as notaries whose role has been necessary for establishing trust in the past.
Smart Contracts have the power to move funds between bank accounts, transfer property titles, and reconcile payments. The low hanging fruit are applications in which contracts are narrow, objective, and mechanical with straightforward clauses and clearly defined outcomes.
Real estate contracts can get complicated quickly, but smart contacts could be implemented in a simple storage locker or residential property lease. The Netherlands has recently announced that the city of Rotterdam will use blockchain to record lease agreements for the Cambridge Innovation Center (CIC). This allows companies housed within CIC to conclude contracts faster and easier than before.
Breaking lease provisions down into code will allow for reinventing how leases are structured and worded. The benefits of using smart contracts involve a reduction in the timeframe and associated costs of the leasing process by streamlining communication.
Parties involved in the negotiation process can work off a single document, removing tedious back and forth of red lines and comments on documents. Comments and edits can always be tracked during the leasing preparation process.
There is an inevitable convergence of technology and real estate, the increase in investment or interest in new technologies by private companies and government, and lastly, the rise in the popularity of smart contracts due to blockchain. Blockchain has the potential to be a disrupting force, a force that brings transparency and ease of use to an industry that has been stagnant for a while now.
Resources:
Compton, S.H. Spencer, and Diane Schottenstein. “QUESTIONS AND ANSWERS ABOUT USING BLOCKCHAIN TECHNOLOGY IN REAL ESTATE PRACTICE.” The Practical Real Estate Lawyer 33.5 (2017): 5-9. (http://files.ali- cle.org/thumbs/datastorage/lacidoirep/articles/PREL1709_Compton_thumb.pdf)
Cohen Lewis, Lee Samuelson, Katz Hali.2017. “Blockchain: The Future of Real Estate Finance?.” CRE Finance World, Winter 2017, pg. 46-48
“Economic News Briefing” Economic Bulletin 40.8(2018).Business Insights: Global.Web. Retrieved 28 Sept. 2019.( https://bi-gale- com.queens.ezproxy.cuny.edu/global/article/GALE%7CA556468926?u=cuny_queens)
Levy, Karen E. C. “Book-Smart, Not Street-Smart: Blockchain-Based Smart Contracts and The Social Workings of Law.” Engaging Science, Technology, and Society, estsjournal.org/article/view/107.
O’Brien, Robert T., et al. “Blockchain in Commercial Real Estate (CRE): Deloitte US.” Deloitte United States, 9 Aug. 2018, www2.deloitte.com/us/en/pages/financial- services/articles/blockchain-in-commercial-real-estate.html.
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Written by Bryan Lliguicota
Blockchain Real Estate
