Blockchain and its importance to the commercial real estate industry
While Bitcoin is likely the highest profile use of this new technology, blockchain has the ability to revolutionize commerce in ways previously unimagined
Last year was dominated by news about Bitcoin – you couldn’t get away from it if you wanted to. Now that the buzz has quieted down, those in the business community are starting to spend a little more time understanding its underlying technology – blockchain. While Bitcoin is likely the highest profile use of this new technology, blockchain has the ability to revolutionize commerce in ways previously unimagined.
What is Blockchain?
In its simplest form, blockchain serves as a platform for transactions of any kind from anywhere in the world. In its more complex form, blockchain serves as a digitized public ledger for keeping track of encrypted financial transactions. This breakthrough technology allows market participants to share a digital record of transactions without the need for a governing body. Because this distributed ledger is maintained by numerous parties, the data cannot be tampered with. Not surprisingly, many of the world’s largest corporations are experimenting with blockchain’s applications.
Who can use Blockchain?
Companies including IBM, J.P. Morgan and Google are exploring ways in which their different businesses can incorporate this new technology into everyday functions. Government services might be the most obvious and immediate user of blockchain. Sitting on loads of paper records, local, state and federal governments will be able to input the data into an open distributed ledger. Specific uses could be immigration information, entity incorporation and property records. Those within the commercial real estate world will be able to directly benefit from blockchain technology through expedited and more complete due diligence, capital raising and conveyancing processes.
Think CARFAX…but for buildings. CARFAX was originally conceived to combat odometer fraud. Today, the company is ubiquitous within the used car industry. With few exceptions, buildings are rarely ever “brand new,” and even when they are, potential buyers will want to know every single component of construction. Blockchain has the ability to store building construction details, maintenance and occupancy histories and any perceived near-term capital repair items. Having this level of transparency will greatly help expedite the underwriting process.
Best case, identifying a joint venture partner or a first mortgage lender can be a long and winding road. Worst case, it can be torture. Blockchain has the ability for a sponsor and capital provider to effectively vet each other before ever meeting in person. The sponsor will be able to fully understand the lender’s transaction history, their evaluation process and other borrowers’ feedback instantly. Capital providers will be able to conduct an in depth, deal-by-deal analysis of the sponsor’s track record.
Municipalities have typically relied on paper documents to determine permitting compliance and land ownership. Oftentime, human error can come into play, lengthening what could be an already drawn out closing process. Blockchain has the potential to streamline the examination of historical records (title, environmental, etc.), resulting in time and cost savings.
To say that we have only scratched the surface of blockchain technology is somewhat of an understatement. Cryptocurrency has shown us this new technology’s potential within a very esoteric space. When expanded to other industries and other applications, the sky is the limit. Blockchain has the ability to positively impact the commercial real estate industry through a more complete vetting process (asset provenance, maintenance history, investors capability and documentation), in less time and at a lower cost – music to the ears of many industry participants.