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Cryptocurrencies initially surfaced in the residential real estate market roughly a decade ago, with early adopters experimenting with Bitcoin transactions. However, these transactions primarily involved immediate conversion back to fiat currency. The real innovation lies not in direct crypto purchasing power, but in the underlying blockchain technology and its potential disruption of Commercial Real Estate (CRE).
The real game-changer is the blockchain itself. The CRE sector is tentatively, but increasingly, leveraging blockchain’s capabilities, signaling a paradigm shift in how commercial properties are financed, managed, and traded.
Tony Giordano, a luxury real estate broker and early cryptocurrency evangelist, believes the CRE industry is poised for significant blockchain integration. “Commercial is definitely right around the corner from really embracing it,” he notes, emphasizing the imminent potential of this technology.
“I don’t see how the entire real estate industry will not be on the blockchain within 10 years,” Giordano asserts. “It’s the most secure platform and technology to do it,” envisioning a future where property records, mortgage bonds, titles, and deeds are immutably stored within a distributed ledger.
Blockchain can be visualized as a colossal digital filing system providing security and permanence for vast quantities of data, encompassing everything from cryptocurrency to critical property documentation.
Deloitte’s analysis highlights blockchain’s transformative potential within CRE, extending beyond cryptocurrency applications. The report stated, “blockchain-based smart contracts can play a much larger role in CRE, potentially transforming core CRE operations such as property transactions (purchase, sale, financing, leasing, and management). Over time, blockchain adoption can have a broader impact, as it can be linked to public utility services such as smart parking, waste, water, and energy billing, and also enable data-driven city management.”
One prominent application is tokenization, which involves converting ownership rights of CRE assets into digital tokens. This process facilitates fractional ownership and streamlines the trading of property shares. While direct investment in tokenized U.S. real estate is currently limited to international investors due to regulatory constraints, its long-term potential remains substantial.
Deloitte’s report on tokenization projected, “This technology could help build trillions of dollars of economic activity for the real estate sector over the next decade, in part, by allowing it to expand its investor base and product offerings.” The firm estimates that roughly $4 trillion of real estate will be tokenized by 2035, a significant increase from the projected $300 billion in 2024.
Beyond tokenization, blockchain presents interesting opportunities in commercial real estate finance by utilizing AI to assist in the risk analysis. This method could potentially transfer loans to new properties while utilizing the original interest rate.
“It would open up so many more transactions if people weren’t sitting on that interest rate. So now, with AI and blockchain, he can plug it into any bank and allow it to transfer the mortgage and interest rate to the new property,” Giordano explained.
AI automatically assesses the risk associated with the new asset, providing assurance to the lending institution regarding its suitability for the existing interest rate. Consequently, the property owner avoids the prepayment penalty often associated with commercial real estate transactions, freeing up capital for alternative investments.
“I think it’s easy for them to understand once you say, you have a 4.5% rate on this $20 million number. You also have a prepayment penalty for seven more years that doesn’t allow you to sell the building without paying a $4 million penalty,” he explained.
“They don’t have to understand that AI and blockchain is on the back end helping the bank do it. They just understand that it’s secure from the blockchain.”
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