Commercial real estate is embracing blockchain technology. What investors should know

A version of this article first appeared in the CNBC Property Play newsletter with Diana Olek. Property Play covers new and evolving opportunities for the real estate investor, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large public companies. subscription To receive future issues, directly to your inbox.

Nearly a decade ago, cryptocurrencies began to appear in the residential real estate market. There were stories of the first house sale in Bitcoin, but in reality it was just people buying the currency and then converting it back into dollars.

Now cryptocurrencies are being used more for leverage. Lenders like Propy use it as collateral for both residential and commercial real estate loans, so buyers don’t actually have to sell their Bitcoin or other cryptocurrencies in order to make a purchase. They want to hold cryptocurrencies, because they generally rise much faster than the housing market.

Investors can certainly use cryptocurrencies to purchase commercial real estate assets, but what the commercial real estate industry is finally embracing, albeit slowly, is blockchain technology, which is where cryptocurrencies live.

“The commercial space is definitely on the verge of really embracing it, so we’re on edge,” said Tony Giordano, founder of Opulent Agency.

Giordano is a luxury real estate broker, and was one of the first crypto pioneers in the space. He began educating fellow brokers, through social media and conferences, on how to buy and sell real estate with Bitcoin. He is now exploring how this will impact the commercial sector.

“I don’t see how the entire real estate industry won’t be on blockchain in 10 years. You know, it’s only here, people are already recording everything that’s on it, and it’s the most secure platform and technology to do that,” he said.

Giordano describes blockchain technology as a very large virtual filing cabinet, where billions of records can live forever without risk. This includes cryptocurrencies, mortgage bonds, titles, bonds, literally everything.

A report from Deloitte looked at how it has already changed the commercial real estate market:

“Until recently, blockchain was known as the technology that powered Bitcoin. However, industry players are now realizing that blockchain-based smart contracts can play a much larger role in CRE, potentially transforming core CRE processes such as real estate transactions (purchase, sale, financing, leasing and management). “Over time, the adoption of blockchain technology could have a broader impact, as it can be linked to public utility services such as smart parking, waste, water and energy billing, as well as enabling data-driven city management.”

There are several ways to use blockchain for commercial real estate financing. One is coding. This process converts ownership rights to CRE assets into digital tokens, allowing partial ownership and facilitating the trading of shares in the property. However, currently, US citizens cannot invest in tokenized US properties, as they are still regulated, but international investors can.

Another report published by Deloitte last April, specifically about tokenization, said, “This technology could help build trillions of dollars in economic activity for the real estate sector over the next decade, in part, by allowing it to expand its investor base and product offerings.”

Nearly $4 trillion of real estate will be tokenized by 2035, up from less than $300 billion in 2024, according to the Deloitte Center for Financial Services.

Then there is the financing opportunity. Giordano pointed to BV Innovation, a blockchain platform that creates convertible mortgage bonds for commercial and residential financing on the blockchain. Its AI-powered software helps commercial real estate finance companies transfer loans at current interest rates from one property to another.

“This will open up a lot of transactions if people aren’t sitting on that interest rate,” Giordano explained. “Now, with artificial intelligence and blockchain technology, he can connect it to any bank and allow it to transfer the mortgage and interest rate to the new property.”

The AI ​​automatically analyzes the risks on the new property, making the bank feel secure that it is a high-quality property relative to the current interest rate. The owner does not have to pay the prepayment penalty that is so common in commercial properties. This allows them to use what would have been a prepayment penalty as assets to invest in another property. Giordano says it’s not as complicated as it seems.

“I think it’s easier for them to understand once you say, you have a 4.5% rate on that $20 million number. You also have a prepayment penalty for another seven years that doesn’t allow you to sell the building without paying a $4 million penalty,” he explained.

“They don’t have to understand that AI and blockchain technology are there on the backend to help the bank do this. They just understand that it is blockchain safe.”