OMERS Ventures
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OMERS Ventures

What role does web3 and the metaverse have to play in the future of real estate?

It’s almost impossible to read anything about tech these days without tripping over something related to web3 and the metaverse. I’ve been particularly interested in the topics from a real estate perspective, given my proptech focus.

I decided to sit down with a few people who see the market through different lenses, to get their take on how (or if?) web3 and the metaverse will affect the future of real estate. I spoke to Dean Hopkins, COO, and Taylor Clark, Strategy Associate, at global real estate investor and asset manager, Oxford Properties, Matt Giffune Co-Founder at lease management software startup, Occupier*, Jim Barrett, Vice President, Chief Innovation Officer of global construction giant Turner Construction Company and Alana Podrx, founder of Eve Wealth, an investing platform targeting individual investors with a focus on teaching the fundamentals around web3.

But before we dive in, I am working on the basic understanding that web3 is the third wave of the Internet and is focused on collaboration and decentralization, all based on the blockchain. And that the metaverse is how we experience the Internet of the future. Today, this is mainly through virtual worlds. The reason we are talking about them together is because the two are inextricably linked. The growth and utility of the metaverse depends on the evolution of the technology used to build web3 (blockchain, cryptocurrency, non-fungible tokens (NFTs)).

When we think about the different waves of frontier technology, real estate, as an industry, has not necessarily been at the front of the pack. Few would argue that it is a traditional industry where technology adoption tends to lag. For example, artificial intelligence, machine learning, virtual reality and blockchain technologies are still just in their infancy in the sector. In fact, when talking to traditional real estate players, there is often a disconnect between the problems they want solved (i.e. replacing Excel, increasing collaboration, data tracking) and the technology ‘solutions’ they are being approached with. Unsexy workflow automation software is still very much needed, especially in commercial real estate and construction (arguably the residential real estate market is a bit further along).

How is real world real estate thinking about web3 and the metaverse?

If we’ve established that web3 and the metaverse are all about the ‘new Internet’ and the digital world, why would well-established, traditional property companies, be thinking about these when there seems to be so much uncertainty around not only what it is, but how it will evolve and what the use cases might be?

Decentralization and the level of innovation surrounding blockchain technology mean web3’s potential applications span far and wide and will create meaningful change. Even if we aren’t yet aware of all the ways in which web3 will impact the industry, no one wants to be caught behind the ball.

With an estimated 25% of people spending at least one-hour a day in the metaverse by 2026, real estate companies certainly can’t ignore its presence. But the metaverse itself is awash with issues, as shared by the experience of one journalist who decided to find out what all the hype was about. Clearly there will be challenges in this space.

According to Dean Hopkins and Taylor Clark at Oxford:

“We’re watching it closely, but we’ve yet to see a traditional landlord plant their flag in the metaverse by acquiring large plots of land or undertaking a major development. Right now, they seem to be experimenting by replicating a physical asset in the metaverse.

For example, when Covid forced One Times Square’s owner, Jamestown, to restrict attendance at its famed New Year’s Eve celebration, the real estate investor recreated its property and celebration in the metaverse. The December 2020 virtual celebration was attended by 3.7 million people globally. The in-person event in Times Square could only host 15,000 attendees, or 58,000 in a non-Covid year.”

Matt Giffune, founder of Occupier, a company that offers tenants lease-management software and related data, added “our platform essentially presents the ability to manage a short- or long-term contract as it relates to real estate. And there’s no reason these assets need to exist in the real world. As companies begin leasing digital storefronts, those agreements will likely have a lot of basic similarities to real estate contracts today. A potential first mover opportunity for us is aggregating either supply and/or demand for digital storefronts, representing an opportunity to not just manage but transact in Occupier. It would be a missed opportunity for a company like ours to take our eye off that ball.”

So clearly businesses at both ends of the size spectrum are taking this evolution seriously, even if it is only at a conceptual level. The fact that we are seeing traditional real estate terms such as ‘land’, ‘plots’ and ‘development’ being used in discussions around the metaverse makes it hard for traditional players to ignore.

Assessing potential impact

While there are undoubtedly many web3 use cases not yet seen or thought of, several applications have already been realized today. Some web3 applications will simply enhance existing processes, while others will fundamentally change how things are currently done. One way to assess the potential impact of web3 and the metaverse is to think through the real estate lifecycle, starting with how organizations transact.

Today, the process for obtaining and proving ownership in the real estate world is complex, lengthy, costly and involves many intermediaries. Blockchain technology has the potential to reduce some of this friction. According to Dean, at Oxford, “the increased digitization of deal artifacts, including smart contracts and digital records of ownership (NFTs), provides immutable data and has the potential to streamline the transaction process, increase transparency and require fewer intermediaries, thereby reducing transaction costs”.

On the payments side, if adoption of digital forms of payment continues, landlords could eventually be forced to accept cryptocurrency as a legitimate means of rent payment and a method to pay vendors, contractors, etc. On the investment side, real estate tokenization, whereby ownership of physical assets is fractionalized and recorded on the blockchain, provides access to individual investors, who have otherwise been excluded from investing in an asset class restricted to institutions and accredited investors. Fractionalized ownership is enforced by a distributed open ledger, which eliminates the risk of fraud through indelible proof of ownership and reduces intermediaries, thereby allowing ownership to be traded more freely.

With respect to ownership structures, we are seeing the emergence of a new form of collective ownership via Decentralized Autonomous Organizations (DAOs), or groups established by like-minded individuals, bound by rules embedded into a blockchain. DAO ownership is represented by digital tokens owned by individual users vs. a handful of individuals or a large company (such as a landlord) and shareholders can vote on the creation, operation and governance of the DAO. This may result in a new form of collective ownership, such as tenants of a multifamily building operating as a DAO.

Traditionally, the real estate and construction industries have been slower than other industries in terms of innovation and digital adoption, but they are rapidly closing the gap. Certain web3 applications are already impacting the real estate value chain, while other applications will take time to mature. Real estate tokenization and fractionalized ownership already exist, with companies such as IPSX in the UK. Other applications, such as the shift in ownership structure towards digitally native distributed entities, or DAOs, will take more time to effectively infiltrate the industry.

Jim Barrett of Turner Construction sees the potential benefits web3 could bring around improving transparency. He said:

“The construction industry, at a fundamental level, has an information provenance problem. The tsunami of data and information overwhelming any given project and, in aggregate, its various stakeholder companies; is only growing in frequency and magnitude.

But with information being produced by more and more technology sources and passing through more and more channels, transparency of attribution and its concomitant accountability is only becoming more opaque. And yet, at the same time, all the traditional risks of poor outcomes remain ever-present.

A new networked world of web3 would be a welcome antidote to our growing (mis)information problem and transform the construction industry and, more broadly, the process of developing and maintaining the built environment”.

The ultimate benefit of web3, and in particular blockchain, specifically to the construction industry, seems clear. Jim continued:

“having software solutions built on the fully transparent and secure blockchain ledger technology of web3 would provide the welcome visibility and accountability as to who received what information when they received it, and what they may have changed when passing along to others.

Unfortunately, in our business when various parties end up in arguments about the provenance of information and actions taken as a result of it, the winner is often not determined by merit but rather by who better documented their claim. web3 might change the traditional environment in a meaningfully positive way.”

Web3, real estate and the changing nature of work

The COVID-19 pandemic accelerated the adoption of a hybrid work model and the rise of the metaverse may push this evolution even further as companies consider building virtual spaces to complement real life ones.

Dean Hopkins said, “with the pandemic accelerating the trend of remote work and digital connectivity, in due time, I do think we will see select other employers follow Meta’s lead and explore opening an ‘office’ in the metaverse. How the landlord-customer relationship will evolve into the metaverse remains to be seen but I think it is an area worth keeping an eye on.”

Look to retail as the early adopter

Long before COVID struck, we were already seeing online shopping increase. On top of this, we are seeing the emergence of a new type of digital product, NFTs.

Dean Hopkins and Taylor Clark offered hands-on insight into what they are seeing in the space, as a major landlord:

“while we are in the early innings of the web3 era, we are seeing retailers emerge as the first movers. Retailers view the metaverse as not only an alternate channel through which to sell their products, but as an opportunity to strengthen their brand reputation and customer affinity. Brands are selling digital products in the form of NFTs, which often mirror real-world products and/or are sold alongside physical items.

For example, this past Singles’ Day, Burberry launched 1,000 units of a 3D deer animation. Customers who bought this NFT also received a physical, limited-edition Burberry scarf. All 1,000 units, priced at $454 a piece, sold out. But for now, they are experimenting with the metaverse as an adjunct to their physical spaces. You have to remember that in retail, your brand is everything, and making big moves that could impact the brand — like a wholesale move to the metaverse — is something that would take a lot of thought and consideration.”

Matt Giffune of Occupier suggests initial traction will likely come from the ad spend of retail companies as they are looking to brand themselves within whatever metaverse they are using to target customers…similar to brick-and-mortar storefronts. He adds: “another opportunity may be becoming the “operating system” of the metaverse office. Like workplace management tools today, how do you facilitate employee interaction with a virtual workspace?”

Limitless possibilities

While many early web3 applications will enhance existing processes, there are some potential outcomes of web3 that have the power to fundamentally disrupt the industry. No one knows yet what these are. And even if a company feels like it has ‘cracked’ the implications of what web3 and the metaverse mean for its business, there are different skills required to win the real estate game in the digital world, according to Alana Podrx, founder of Eve Wealth, an investing platform targeting individual investors with a focus on teaching the fundamentals around web3.

“What if an owner wants to enter a new country where the regulation and infrastructure is largely unknown? How would they do this? They would spend time researching the market by hiring people on the ground that have relationships with all the local players and understand the uniqueness of the market.

When it comes to web3 and the metaverse, this new world has a new crew of relationships with a specific expertise to engage on different blockchain protocols. The leaders in the digital world will be different than those who traditionally win in the physical world. I expect to see a new wave of virtual real estate players emerge. The risk profile here is extremely high but there is high reward potential too. Players that make strong strategic bets on the metaverse that will ultimately have the audience and traffic will be successful.”

Jim Barrett sees long term possibilities in the construction industry too:

“the other way web3 might change the industry is also in terms of the provenance of intellectual property. Maybe a web3 future results in creative problem-solvers like designers and others being able to attach, in a legal manner, attribution of IP to a work product so that they later enjoy greater compensation for the original value of their thinking. We could see the opportunity to monetize the, until now intangible output of the knowledge worker. Maybe NFTs are attached to Building Information Modeling deliverables from architects and engineers so that later “consumers” of that work product pay royalties for any subsequent use and benefit from that work product. This sort of new business model would radically transform the process of turning vision into reality in the built environment.”

What next?

It’s inspiring to see traditional real estate players taking this evolution seriously and thinking deeply about both risks and opportunities. But I’ve yet to be convinced that our real and virtual worlds are set to collide in a mainstream way, anytime soon.

There are many challenges in the sector centring around payment flows, transaction closings, data tracking/transparency, asset ownership and space utilization (i.e. hybrid work) to name a few. I’m curious how we can speed up solutions to these widespread challenges using the technology behind web3. If you’re building a company in this space, I’d love to chat.

The disruptors

Through my discussions and research, a few interesting companies emerged that are focused on web3 / the metaverse and real estate (physical and virtual). I’ve listed them below. If there are others you’d add to this list let me know, and I’ll update it!

Robinland

Description: Developer of a platform intended to tokenize high-quality real estate projects
Founded: 2021
Capital raised: N/A

Praxis

Description: Operator of a startup society intended to develop beautiful, energetic, resident-owned cities
Founded: 2019
Capital raised: $15.0M

The Sandbox

Description: Metaverse that allows users to buy virtual land in a virtual world
Founded: 2018
Capital raised: $493M

Milo

Description: Provider of crypto based mortgages by taking crypto wealth into consideration (vs. selling)
Founded: 2018
Capital raised: $24.0M

Stageverse

Description: Social metaverse platform designed to connect and discover the culture within a 3D social experience
Founded: 2017
Capital raised: $7.5M

EveryRealm

Description: Operator of a metaverse ecosystem intended to invest, manage and develop assets
Founded: 2021
Capital raised: $65.9M

Decentraland

Description: Metaverse that allows users to buy virtual land in a virtual world
Founded: 2015
Capital raised: $50.5M

Spatial

Description: Helps creatives and brands build their own spaces in the metaverse
Founded: 2016
Capital raised: $47.3M

Emperia

Description: Creator of immersive virtual spaces focused on fashion, art and retail
Founded: 2019
Capital raised: $0.5M

Propy

Description: Enables people to sell their home as an NFT
Founded: 2015
Capital raised: $2M

*Occupier is an OV portfolio company

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OMERS Ventures is the venture capital investment arm of OMERS, one of Canada's largest pension funds with over CAD$114 billion in net assets. OMERS Ventures is a multi-stage investor in growth-oriented, disruptive technology companies across North America and Europe.

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