When it comes to investing in commercial property, Aditya Koparde and Shaily Srivastava want to be the new kids on the blockchain.
“We did our MBAs together, and one day when we were having lunch, we wondered how technology might disrupt the real estate investment market,” Ms. Srivastava says.
That lunch nearly three years ago led them to co-found Acreageway, a blockchain-based, real estate investment company that will be open for business in April.
Mr. Koparde and Ms. Srivastava, the company’s president and chief executive officer, respectively, are aware even people who are sophisticated in finance, investment and property still struggle to understand blockchain and related concepts such as cryptocurrency and bitcoin – and how these might affect the commercial real estate sector.
It’s not as complicated as it seems, Mr. Koparde says. “Technology addresses a few challenges that exist in real estate,” he explains. “One is [that it] provides a digital platform that can let people invest in property in the same way as they do in stocks and funds.”
A new way of raising commercial property finance, investors will, for example, be able to click “buy” on their smartphones to purchase a percentage of a planned new office complex without having to sign a stack of contracts and real estate documents.
Acreageway is just one company seeking to find a niche as the commercial property sector continues to experience a digital transformation.
“The underlying technology of blockchain can be used to improve investment processes, and this is really where it ties into real estate,” says Daniel Fuke, partner at Bay Street law firm Fasken and legal advisor for Acreageway.
According to the Blockchain in Commercial Real Estate report by Deloitte’s U.S. Center for Financial Services, the effect of the technology on property will be wide-ranging: “Blockchain technology can potentially transform core commercial real estate operations such as property transactions like purchase, sale, financing, leasing and management.”
A 2015 World Economic Forum survey of 800 executives and tech experts predicted that by 2025, 10 per cent of all global information about gross domestic product – one-tenth of all financial data – will be stored on blockchain technology.
It’s important to distinguish between bitcoin, cryptocurrency and blockchain when it comes to commercial real estate investment, Mr. Fuke says. Cryptocurrency is a digital form of money; bitcoin is one of several types of cryptocurrency that are produced by “miners” – computer programmers who collect payments from people around the world and issue them “non-fungible tokens,” or NFTs, that rise and fall in value just like dollars, euros or yen.
“It may be a bit early to get excited about concepts like bitcoin for real estate, but blockchain can make a big difference,” Mr. Fuke says. “It can expand the pool of investors and may therefore increase property values [as more investors come aboard on projects].”
Blockchain is the process that documents all these transactions electronically – no matter how they’re paid for – in a way that’s easy for everyone to see and hard for anyone to tamper with. It’s all recorded and stored digitally, so there’s always a copy somewhere.
As more and more transactions are performed, completed and stored using blockchain and there’s a permanent e-record of everything, mid-level services, such as title searchers, may grow obsolete.
“Some real-estate-related services may go the way of travel agencies,” Ms. Srivastava says.
There may still be niche services, “but blockchain can take out the cost of transferring ownership in property without the involvement of banks, lawyers’ trust accounts and so on,” she explains.
The idea behind enabling people to buy small shares in commercial real estate is to “tokenize” transactions the same way a bitcoin is a token. Shares of real estate can be bought and sold electronically, and the token is recorded on blockchain rather than a dusty deed.
Along with blockchain, bitcoin eventually may also play a role in the way people invest in commercial property, however, the way you pay is not as significant as the record-keeping yet, says Addison Cameron-Huff, a Toronto lawyer who specializes in cryptocurrency law.
“People will just buy and sell using the local currency,” he says. “It’s easier – international buyers in Toronto will pay in Canadian dollars.”
Nevertheless, cryptocurrency can have some impact on the types of properties that investors covet, Mr. Cameron-Huff says.
“That’s because the production and maintaining of actual bitcoins requires large amounts of energy,” he explains, referring to the reliance on huge computers that solve the algorithms that become increasingly complicated as more people buy and sell their bitcoins.
All that computer power eats electricity, generates heat and must be kept cool. Cryptocurrency producers are seeking properties that have access to cheap electric power, often in remote places.
“If you have a bitcoin storage site in the Northwest Territories or northern Alberta, you can cool it by just opening the door,” says Mitchell Demeter, president of Netcoins Inc., a Vancouver-based company that works with cryptocurrency investors.
Investors are also looking at using natural gas that is flared off in southern Alberta oil fields to produce energy that can be used in buildings stuffed with crypto-churning computers, says Cale Moodie, CEO of Neptune Digital Assets Corp., a cryptocurrency company based in Vancouver.
“There’s ample excess energy in Alberta that’s otherwise not being used, and in addition to flared-off gas, there’s potential for properties [that service bitcoin] in places with hydro power,” he says.
Mr. Moodie and Acreageway’s founders see the blockchaining of real estate as part of a larger shift in the financing, development and redevelopment of commercial property.
“You need a lot of money to put up a big building. Up to now it’s been hard to get in and out of something you invest in, and with all the paperwork it’s not that transparent or easy to see how much you own of what,” Mr. Koparde says.
Turning bricks and mortar into digitally recorded tokens can put small retail investors just a click away from owning a tiny piece of real estate and help those who finance projects find the funds they need.
In the end, digitizing real estate finance is a way to move money that builders now have to seek from big banks and institutional lenders such as megapension funds, Mr. Koparde says.
“Our dream is to have a fully licensed digital platform where ordinary people can reap the benefits of real estate investment.”