Blockchain in CRE

Blockchain in CRE

While there have been plenty of technical developments in the past decade that have shaped and continue to shape the landscape of commercial real estate, none quite compare to the innovation of blockchain technology. The capacity for blockchain to revolutionize the core elements of how we create and record commercial real estate far outpaces that of other technologies.

What Is Blockchain?

You have probably heard the term blockchain in more recent conversations, but what exactly is it? At its simplest, blockchain is a ledger. It is a record of information, not all that different from the databases you are likely already using to record the data of clients, properties, and transactions. What makes blockchain unique is the way that this information is recorded. Once a “block” is full, a new block begins, forming a permanent chain, or timeline, that extends away from the first block to the current one. Because information on this timeline is publicly distributed across a network of computer systems, it is very complicated for any one person to hack.

Streamlining CRE

So what value can blockchain bring to the CRE industry? The answer is streamlined data. We all know CRE consists of a multitude of time-consuming tasks. Blockchain presents the opportunity to streamline these tasks. It allows you to have a property’s paperwork digitized, accessible to everyone involved, and validated as accurate by everyone involved.

One issue that arises, due to the publicity of the chain, is how the system can be used with clients’ sensitive information. Private blockchains are one solution for business networks to use that only allow access to specified parties. With this method, participants’ identities are verified, unlike in the public blockchain where identities can remain anonymous. Because of this, private blockchains function more like a traditional database considering there is a trade of their privileged access for the fixedness of their data.

Smart Contracts

One of the most valuable features that blockchain provides to CRE is “smart contracts”. Smart contracts are essentially self-executing contracts. In other words, the terms agreed upon by the buyer and seller are directly written into lines of code. Therefore, clauses of the agreement are automatically enforced when certain conditions are met, like paying rent or removing any maintenance costs from this rent. This method creates transparency and quick resolutions and has the potential to create a database of real-time information for rental trends in the market.

Adopting Blockchain

Blockchain in CRE is still in its beginning stages. While global market dependence on blockchain is set for rapid growth, the technology still has its kinks to work out in the CRE industry, such as the concern for privacy and functional complexity. It is worth keeping an eye on, however, as its potential continues to grow. CRE tokenization, for example, is a recent concept that allows the value of an asset to be split in order to separate buyable blockchain-based tokens. In other words, an expensive asset, like a property, can be opened to a much broader audience because the value gets subdivided rather than focused on one buyer.

The question therefore is not if blockchain will have a large affect on the CRE industry, but rather when.