In a previous blog article we tackled how the blockchain infrastructure works. In this article, we’ll look at the implications for commercial real estate. Blockchain tech has the potential to disrupt the CRE landscape and change how we handle investments forever.

Right now, there is no widespread implementation of blockchain for CRE investments. However, this is slowly changing as the benefits and use cases become clearer.

While blockchain isn’t a miracle solution to every problem, there are many legitimate uses for it that can greatly improve some of the processes involved with CRE investments.

How Blockchain Can Be Used in CRE

Appropriate use of blockchain tech is important. Specific use cases involve blockchain as a replacement for traditional databases and tedious verification processes.

Here are some of the most likely examples of how it might work.

Increasing Liquidity

Commercial real estate is a highly illiquid investment class. Blockchain can address this illiquidity by speeding up transactions.

One thing blockchain databases are excellent at doing is verification. If ownership documents and other documents relevant to a sale are held on a secure blockchain, they will be easier to access during a sale.

Not only could blockchains be used to speed up document verification, they can also improve liquidity through property or asset class tokenization. More on this below.

Creating Smart Contracts

Blockchain offers a unique opportunity for contracts. Smart contracts can be programmed to only be fulfilled once certain conditions are met. The database itself acts as a mediator, removing the need for a trusted third party and automating the process.

Smart contracts have the conditions coded into the blockchain itself, meaning all transfers of currency, ownership, or assets can be performed simultaneously once the contract conditions are met. These are built on public or private blockchains allowing only permitted users to see details of the contract.

The benefits of smart contracts are numerous. They’re faster, more efficient, more accurate, trustworthy, and secure. They also negate the need for costly intermediaries, reducing the overall cost of the transaction.

Improving Access

One of the major issues facing real estate investment is the lack of access for those who are not qualified investors. Blockchain tech could help more people access real estate investments and reduce the capital investment requirements.

This could be done through tokenization of real estate assets. Tokenization is the process of selling ownership of a real estate asset through digital tokens, a process that allows the ownership to be split between many more people and offered at a wide variety of price points.

Although it’s not a common model yet, tokenization of ownership has been successfully implemented already. The groundbreaking case was the St. Regis Aspen Resort, which sold partial ownership in the form of digital tokens. Ownership tokens were bought with Ethereum through a secure, private blockchain marketplace. That marketplace is now used as a medium of exchange for token owners who want to sell their stake to other buyers.

Fractional ownership makes CRE more accessible to investors with low capital.

Because ownership tokens are tied to a physical asset, they also have inherent value that isn’t subject to the high volatility many blockchain-powered investments face.

Verifying Ownership

Blockchain databases can be used to record transfers of ownership. Because blockchains create an unchangeable record, they work well as reliable sources for ownership information.

Buyers, sellers, brokers, and other relevant parties would be able to easily identify the owner of a property, helping to avoid scams and fraudulent activity.

Another potential benefit is securing information against loss. In cases where physical records are destroyed, ownership would still be verifiable through a blockchain database. This could help to settle property ownership disputes and make investments more secure.

As blockchain tech becomes more ingrained in CRE, the processes that support CRE investments will become more efficient, secure, and automated.

Our team at Creiland Consultants is excited to be offering secure services on the blockchain and accepting payments towards real estate purchases or lease payments in Cryptocurrency. To learn more, please check out our services or call us at 1 800 980 6668.