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Blockchain to bring legion of new retail investors to commercial property market

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Blockchain to bring legion of new retail investors to commercial property market

Blockchain technology will significantly expand the reach and efficiency of the commercial property market in the coming years, and most in the industry can expect to keep their jobs despite the disruption, experts said.

Real estate industry players and a few technologists gathered at an IMN-sponsored real estate conference last week in New York City predicted a range of positive changes that will come when blockchain, the distributed-ledger technology behind popular cryptocurrencies such as Bitcoin, takes root and real assets become "tokenized." Legions of new investors will stream into the commercial market, many of them of the "average Joe" stripe, and they will transact largely without procedural friction and at lightning speed across markets and borders, speakers said.

In short, investing in commercial property will become a more liquid and efficient business. Smart contracts, the computer protocols that verify and enforce deals on the blockchain, will serve as grease on the gears.

"This is just going to be one of those things that completely revolutionizes how real estate transactions take place," Josh Malinoff, principal at REdirect Consulting, said.

Mo Shaikh, CEO of Meridio, a blockchain platform for shared real estate ownership, said the pool of potential investors opens up "tremendously" with the new technology, as it significantly lowers the barriers to entry.

"You'll have access to a platform where, if you're reading news about Brooklyn [N.Y.] or where Amazon's new offices are going to be, you ... can look up assets [online] in that region and invest," Shaikh said.

Moreover, the metadata attached to real estate crypto-assets on the blockchain will boost transparency, improving the positions of all participants, including sponsors, underwriters and token holders. Distributions will be streamlined, too.

"You can actually capture time-based events or certain other clauses that cause that distribution to happen, autonomously," Shaikh said. "And as time evolves, perhaps we'll even be able to collect rent from a tenant."

The blockchain, while highly disruptive, will not be calamitous for most traditional market professionals, conference speakers said. Rather, it will simply serve as a new master tool. Advisers' and brokers' market expertise will still be in high demand.

"While we may lose some on the transactional side of this business, I think there's a real role for knowledge to play," Jason Greenstone, senior director at Cushman & Wakefield, said.

In an interview, Josh Stein, CEO of Harbor, a compliance platform for tokenizing private securities, said demand for research and other forms of market expertise is likely to spike.

"Private capital gets faster, cheaper and easier. The private liquidity pool gets really big. There [will be] more jobs, and analysts and commercial real estate brokers become way more important. Why? These things will be ... hard to understand. The value of good analysis goes way up," he said.

However, the real estate industry will likely witness a sharp decline in back-office requirements, Stein said. KYC, or know-your-customer, requirements will go "way down," and the need for transfer agents, which maintain investor records and account balances, may evaporate on the private side of the business.

"Your private wealth managers won't go away, but they won't spend 20% of their day killing themselves getting an irate client out of a formerly illiquid investment," he said.