Commentary

Chain of command

How blockchain technology is transforming real estate

August 21, 2020

Bitcoin’s value may be volatile, but blockchain, the backbone technology that powers cryptocurrencies, isn’t going anywhere, and it has the potential to dramatically transform the way we do business. Smart companies will explore how to implement it, or whether they can implement it, before its use is widespread.

Steve Weikal, the Head of Industry Relations for the MIT Center for Real Estate, compared its power to that of the internet. In an interview during MIT’s Real Disruption series, he said blockchain could be “disruptive in a way that the worldwide web was disruptive to the world 25 years ago.”

A blockchain is a distributed database. Instead of being connected to a common processor, it acts as a digital, decentralized ledger, allowing money to trade hands without the use of a third party, like a bank.

A.P. Moller-Maersk, a high-profile player in the shipping industry, announced in January 2018 that it will enter a joint venture with International Business Machines Corp. (IBM) to create a blockchain-based platform to track and organize global shipping. Shipping is one sector that will lead the way in adopting blockchain, and then it will filter to more diversely held industries, like real estate. Its widespread use will completely redesign commercial real estate transactions.


Title insurance shakeup

It isn’t a matter of if blockchain technology will disrupt title and transaction services, but when. The title recording system in place today is fragmented. Both private title insurance companies and public government entities maintain databases that can be in conflict, often leaving no clear title to a property.

Blockchain is a decentralized concept, meaning that the data does not reside in any one place, but it also means that an entire network of computers agree on the data. This could eliminate title discrepancies and increase transparency.

If the technology is widely adopted, the public records that are now stored on a county-to-county basis in the United States would be transferred to the blockchain database, creating a public registry.

Over time, its adoption could reduce title insurance companies’ involvement in real estate transactions, though an industry shakeup is not going to happen overnight.

Smart contracts

Blockchain’s biggest impact on commercial real estate would be a smoother, faster contract management process that expedites deals. With smart contracts, every part of a lease or sale agreement is automated, and payments are received instantly—even outside of business hours.

In a building sale, for example, a smart contract would record the key terms of the agreement and initiate the payment, which would automatically transfer the property without any third-party involvement.

Smart contracts would also speed up prelease due diligence. Blockchain technology can help verify identities, making the background-check process faster. Parties involved in a contract can access it with a personal digital key, arguably reducing the likelihood of fraud.

With any new technology, there is an uncomfortable adjustment period. But for the commercial real estate industry overall, it is safe to expect that blockchain would make for a smoother process over time.

Brandon Nunnink is Managing Director for JLL Valuation & Advisory Services in the Midwest. Brandon can be reached at Brandon.Nunnink@am.jll.com.

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