What is blockchain, and why do I keep hearing about it?
Blockchain is the latest digital disruptor knocking on the door of the commercial real estate sector. But questions arise whether the industry is ready for this new technology, and ready or not, how blockchain might impact investment sales going forward.
Blockchain initially started out as the accounting structure behind the bitcoin digital currency. Blockchain technology is commonly described as a virtual “public ledger” system where individual transactions are recorded in a memory block. When one memory block is full, another block is added, which creates a growing chronological chain of transaction information all linked together.
That blockchain ledger can be used to record, store and share information. The main intent was to be able to verify digital currency transactions. However, the blockchain system has evolved to include broader applications for recording and validating a variety of different types of transactions. For example, IBM is reportedly planning to use blockchain to verify the authenticity of diamonds, while Mastercard has a patent pending to create a blockchain solution to safeguard identity data. Blockchain also has the potential to create big change for commercial real estate.
Blockchain and CRE
The commercial real estate industry has traditionally held its cards close to the vest with confidentiality on lease terms and rates, purchase agreements and sales data. Building tenants rarely know what their neighbors are paying for rent, and it is hard to gauge whether the “deal” they were able to negotiate is higher, lower or on par with other co-tenants. Sales data is becoming more transparent as it is captured by tax assessors, appraisers and a field of third-party data providers, such as Reonomy, that are working to pull back the curtain on property ownership and sale transactions.
Yet despite the advances in capturing more sales information, that data remains somewhat fragmented among different providers. Blockchain has the potential to bring more accuracy and efficiency to transaction data by capturing and recording sale information, as well as storing it in one single depository that is widely accessible in a shared system. A recent blockchain report released by Deloitte listed a number of potential benefits that blockchain could create for commercial real estate investment sales that include:
- Enabling near real-time settlement of recorded transactions, which will create more current data for sales comps and analysis;
- Streamlining what has typically been an ineﬃcient property search process due to fragmented data sources;
- Automating recording of data, which saves time and prevents errors from manual entries;
- Limiting reliance on intermediaries, such as title companies;
- Reducing fraud and simplifying the process of title searches and verification.
In addition, the benefits of blockchain have the potential to go beyond just a faster, centralized record-keeping system for sales comps. Blockchain technology has the potential to “grease the wheels” of the entire sales process from start to finish from creating more effective property searches and improving underwriting and analysis to simplifying the ability to draft sale documents.
Residential real estate is already beginning to embrace blockchain technology with companies that are developing systems to record property deeds on blockchain. In some cases, firms are even partnering with local governments to transition deeds into those new digital systems. That could be a test case to watch for commercial real estate.
Blockchain applications also are beginning to creep into the commercial real estate industry. For example, the Real Deal recently reported that WeWork competitor Knotel has launched KnotelKoin, an online office listing platform that utilizes blockchain technology to record transactions and facilitate property searches for prospective tenants.
It is still early days for blockchain. Yes, it could be a game changer in how sale, financing and lease data is captured, recorded and shared. But there are plenty of sticking points that still need to be addressed in terms of the cost, who will participate in creating a blockchain system, how to organize it, and ultimately, who can access that data. Will it be a private or public repository of information, or perhaps a combination of the two?
What is exciting about blockchain is that it is another example of how the commercial real estate industry continues to move further ahead in improving data transparency. The industry has made huge advances in the depth and breadth of market and transaction data that is more widely available and increasingly accurate. At the same time, these new technologies are changing industry expectations. Investors want and need accurate, real-time data that drives all aspects of real estate transactions and helps to support better decision-making. And that appetite will continue to push firms, including Reonomy, to look for new and better solutions.
Reonomy offers real-time access to detailed property data that business owners, investors and commercial real estate professionals need in today’s competitive marketplace. Try Reonomy National for free today.