Perspectives

Blockchain in commercial real estate

Is it just hype?

“Speed is the new currency of business,” said Salesforce CEO Marc Benioff at the 2016 World Economic Forum, Davos, Switzerland.¹

May 24, 2017

A blog post by Surabhi Kejriwal, Real Estate research leader, Deloitte Services LP

This quote is relevant in today’s world when every new technology comes with a promise to improve the speed of doing business and, eventually, profitability. As we try and keep pace with the technology advancements, more often than not, the first reaction tends to be: ‘is this technology a hype?’ And this was my initial reaction to blockchain, a technology that is at a nascent stage but is expected to revolutionize the world as the internet first did.

To determine whether blockchain is truly revolutionary, or just hype, I began by studying the technology. Simply put, blockchain is a digitized, distributed ledger that immutably records and shares information. The technology comes with features such as near real-time transactions, a trustless environment, secure proof of transactions due to the distributed ledger system, and immutability. These features are expected to digitize and hasten the speed of transactions, remove inefficiencies in existing processes, and improve accuracy, among other things.

The next obvious question was, how can this technology be relevant for the commercial real estate (CRE) industry?

But, before answering this question, I reflected on existing levels of digital adoption. My sense is that CRE companies are using a combination of online and offline steps in key processes such as leasing, purchase-sale, and financing transactions. As an example, pre-purchase due diligence activities tend to be a mix of online and offline activities. Yet, many of these processes tend to lack transparency, are inefficient, and are often hosted on disparate information technology (IT) systems. As a result, CRE companies may have to deal with a high incidence of inaccuracies in information records, accounting entries and processes, and so forth. This, in turn, increases costs and the potential for error or fraud.

Further, I evaluated an existing processproperty search—as it relates to leasing and purchase-sale transactions. Typically CRE brokers, owners, and tenants use multiple listing services or systems (MLS) to access property-level data, such as location, rental rates, and property features, during leasing and purchase-sale transactions. Many times, these platforms tend to be:

  • Expensive due to high subscription costs and data control with centralized organizations instead of the brokers.2
  • Inaccurate due to errors associated with human intervention and lack of standardization. Essentially, the quality of data is completely dependent on the preferences of the brokers.3
  • Inefficient due to fragmented data on multiple platforms.4

A blockchain-based MLS would enable data to be distributed across a peer-to-peer network in a manner that allows brokers to have more control over their data, along with increased data democracy, as listings would be more freely accessible.5 Each property listing would have standardized details on property location and address, comparable rental rates, ownership history, tenant details, age of the property, and title.6 In some sense, blockchain would enable a “single version of the truth” about ownership, property attributes and title, and so forth. This, being verified truth, may even reduce the need for intermediaries and increase the overall speed of the search process and eventually the entire transaction. Also, market participants could have access to more reliable data at a lower cost. In fact, Rex MLS has started testing blockchain technology for property listings, details of which are illustrated in figure 1.

Figure 1: Rex MLS—revolutionizing CRE listings globally

us-rex-mls-figure-1.jpg (1100×1396)

On further research, I came across this statistic: According to a 2015 World Economic Forum survey of 800 executives and information and communications technology sector experts, 57.9 percent believe that 10 percent of the global GDP information will be stored on blockchain technology by 2025. This made me believe that blockchain technology is indeed not a hype.

In fact, I feel there is a possibility for blockchain technology’s applicability beyond process efficiency. It may expand the realm of trading CRE as an asset class. Imagine if CRE ownership is converted into a digital asset in future. Likewise, if other assets and commodities are also converted into digital assets, there may be more seamless trading across different asset classes.

Having said that, I do recognize that blockchain adoption is not an answer to all the inefficiencies in existing processes. There are prerequisites for blockchain technology to be successful in the longer-term. The two most important ones are:

Standardization of data to break silos and enable free flow of information and transactions. Currently, there are also no policies and legal guidelines governing blockchain technologies.

Collaboration among various industry participants such as the CRE companies, industry associations, blockchain startups, academia, investors, consultants, and potentially regulators to collectively understand and devise practical blockchain-based solutions.

In summary, as newer technologies evolve, it is important for CRE companies to constantly evaluate their applicability to their business. Particularly as it relates to blockchain’s potential in key real estate processes (leasing, purchase-sale, and financing), we bring to you a three-part series titled “Blockchain in commercial real estate: The future is here!” The series offers in-depth insights about how blockchain could revolutionize existing processes along with focus areas for companies planning to adopt the technology. Our first report, which focuses on leasing transactions, is hot off the press, and available here.

What do you think?

I would like to hear your views on the possibilities for blockchain technology adoption in CRE and the constraints that may limit its adoption.

“Davos 2016 – No Speed Limit In Pursuit Of Digital Transformation”, Stuart Lauchlan, Diginomica, January 21, 2016
“A Decentralized Multiple Listing Engine and Real Estate Smart Contract Application,” Rex, October 27, 2016
3Ibid
4Ibid
5Ibid
6“Deep Shift: Technology Tipping Points and Societal Impact”, Global Agenda Council on the Future of Software & Society, World Economic Forum, September 2015

QuickLook is a weekly blog from the Deloitte Center for Financial Services about technology, innovation, growth, regulation, and other challenges facing the industry. The opinions expressed in QuickLook are those of the authors and do not necessarily reflect the views of Deloitte.

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