Blockchain has become a buzzword (some may argue an overused one) and often times people use it synonymously with Bitcoin and cryptocurrencies. The technology as we know it is more than that of speculative digital coffee-cards which you purchase from a token sale or crypto exchange.
We here at Leaxcoin, as a platform that came up with the solution to all the problems with real estate transactions, either in the purchase, rent, lease, and real estate launch or in the property registry, we saw that the use case for blockchain in the commercial real estate has become stronger and more apparent:
Data-driven and self-executing contracts
Digital contracts provide a strong source of information and data. With the use of digital contracts, we will be able to obtain specific terms and conditions which can be captured on to the blockchain and executed through smart contracts. For example, the return of rental security deposits can be immediately released to the tenant once the premises have been authenticated as good. Traditionally, this process can be administratively cumbersome and even becomes problematic when filing of the paperwork was not done well.
With digital contracts, the status of a deal becomes almost instantaneously updated. This provides almost real-time business tracking metrics, mitigating the need for costly administrative reconciliations. Combined with historical data, commercial real estate players can use predictive analytics to gain deeper and smarter insights at an almost real time, leading to more informed decision-making for the business.
The blockchain hence becomes the “center of truth”, which will also promote fraud prevention through its immutable properties.
Cashflow Management and Loyalty Programs
For many years, banks have been dominating in the space of cash management and transactional banking for real estate players; managing the collections of a lease or purchase payments on behalf of the companies for a fee between 0.5 percent to 5 percent of money flows.
This includes credit card and other point-of-sale payment systems. With the use of blockchain, smart contracts and a competent middleware, rental / lease payments between tenants and landlords can be tokenised within the ecosystem of the property managers and real estate developers with the final “clearing” being done at one go — taking away the need for traditional payment systems and transactional banking services which attract the above fees.
Using blockchain and tokenizing of loyalty programs will allow for a standardized/unified platform for rewards points. Allowing for rewards points to be used across real estate companies/ malls/establishments. A Star-Alliance or Asia-Miles equivalent for real estate establishments will bring unprecedented value towards loyalty point holders, unlocking hundreds of millions of unspent rewards points across the industry.
Tokenizing Leasing Contracts and Fractional Ownership
“A real estate investment trust, or REIT, is a company that owns, operates or finances income-producing real estate. For a company to qualify as a REIT, it must meet certain regulatory guidelines. REITs often trade on major exchanges like other securities and provide investors with a liquid stake in real estate.” (Investopedia)
Traditionally, REITs (i.e. real estate investment trusts) or collateralized structures are dominated by larger real estate companies who are able to allow individual fractional ownership of commercial buildings and complexes (through a unit / mutual trust-like structure) and receive income from the respective properties held.
Blockchain technology and tokenization enable for an affordable and much quicker way to make such investments available on the open market. Of course, such structures will still be under the scrutiny of the respective governments and will still need to comply with the respective frameworks.
What is attractive is that smaller real estate companies and corporate owners can now gain access to the additional liquidity which can be unlocked through a tokenized structure, with much lower “underwriting” fees as compared to the current charged by investment banks or traditional capital market underwriters.
Decentralized KYC network — where this should be a lesson learned from banks
Taking a page out of the banking industry, one of the key challenges for banks is to be able to have a unified due diligence / KYC system of their clients. Citing banking secrecy as one of the main reasons, banks continue to be hesitant to utilize blockchain as a means of providing regularly updated client data contributed by the participant banks. There are reports about banks working towards this common goal but with differing standards of compliance between banks, it will be interesting to see how a unified, undoubtedly permissioned blockchain amongst participating banks will emerge.
Such lessons can be learned and avoided for the commercial real estate industry. Utilizing a permissioned blockchain, real estate companies can share de-sensitized information about their clients/vendors. For example, company search, due diligence information, and repayment information onto a shared permissioned blockchain. Contributors towards the chain can be anonymized, yet provide a multi-faceted view of client/vendor profile based on the respective interactions with the different property owners/managers/developers. With more actors onboard, the continuous update of the due diligence information by the actors will serve to strengthen the datasets and profile of every individual vendor/tenant, thereby providing even more reliable information and behavioral indicators of the prospective vendor/tenant.