Cushman & Wakefield, Chicago, has released a discussion of blockchains in connection with real estate. The paper argues that the technology could “transform CRE transactions ranging from property listings, asset management, and the purchase and sale of properties.”
It reminds us that blockchains are shared digital ledgers, both tamper-proof and visible across a network. Most commercial applications will likely use a “permissioned” model of blockchain: that is, one will need permission to become part of the network. If we think of this technology as a track, we can also think of Bitcoin in particular, and cryptocurrency in general, as one of the trains making use of the track. The forwardmost train. But we should also observe that there are other trains, such as “smart contracts,” underway.
The Cushman paper contends that there exist important barriers to the implementation of this technology, such as the fact that agreement on a consensus protocol for its use among all the parties to a transaction can be cumbersome.
Despite the obstacles, though, the paper presumes that the revolution is underway. Within a decade, the authors believe, “blockchain technology will be widely adopted.” The bulk of the paper is an outline of what that will entail.
Steps and Benefits
A typical blockchain involves six steps: first, two parties exchange data; second, nodes verify the transaction this entails, based on rules established by the network; third, verified transactions are bundled together into a block; fourth, the block must then be validated via a consensus mechanism; fifth, miners try to “solve” the block; finally, the block is distributed throughout the network as another link in the chain.
The benefits of transaction through such a system? In the broadest of terms, Cushman identifies three: efficiency, security, and transparency. Blockchains are efficient given the otherwise cumbersome number of parties involved in contemporary CRE transactions (buyer, seller, realtor, underwriter, lender, title company, appraiser, county recorder, inspector…). They are secure because documents on a blockchain are immutable and dated, leaving little or no room for many varieties of tampering and fraud. They are transparent, as distinct from the government registries that are often cumbersome and opaque.
The Cushman paper provides several examples of companies that are already using blockchain in the CRE space. The list includes: Northern Trust and IBM, which have partnered in several initiatives aimed at property due diligence for transactions; the City of Rotterdam, which has allied itself with Deloitte and the Cambridge Innovation Center to develop applications recording leases for the benefit of asset managers; eLocations, a concern in Switzerland, which is working to give “owners, tenants, and brokers real-time access to their property listings allowing them to edit or correct information;” Ubitquity, in Delaware, which is offering a blockchain platform for financial, title, and mortgage companies; Propy, of San Francisco, California, which has “completed a handful or residential real estate transactions” using smart contracts, and which plans to expand into the commercial real estate space.
The Cushman paper also mentions the tokenization of commercial real estate. For example, Leaseum, London, and Michael Chetrit, New York, have created a $250 million blockchain-based investment fund. This will be backed by New York office properties.
The idea behind the Leaseum/Chetrit plan is that each property is allocated a certain number of tokens based on its value. Investors in the fund are purchasing the tokens according to the size of their investment. The token holders can trade with each other on a peer-by-peer basis, allowing a seller to get out of the deal and get cash without going through the fund management, and allowing token buyers to increase the size of their stake in the fund and asset class, likewise.
The Cushman report is the work of Revathi Greenwood, Americas head of research; Sandy Romero, senior analyst; Melanie Kirkwood Ruiz, CIO, Americas; and Marcio DeCosta, technology solution owner. They expect that the adoption of blockchains in the CRE world will follow the usual hype cycle. There will be a “peak of inflated expectations” early on, then a “trough of disillusionment,” then a slower recovery as second and third generation products and applications come on board. The process is furthest along in the area of supply chain management.