Commercial Investment Real Estate July/August 2018 | Page 33

Blockchain can transform the industry, but will
the profession embrace it?
BY SARA S. PATTERSON
Digital Ledger
While many individuals associate blockchain with bit-
coin, cryptocurrency is only one small component of
what blockchain can facilitate.
Instead, think of blockchain as a digital ledger being
maintained by a network of computer nodes. Each chain
on the ledger can verify and track the commercial real
estate transaction. These one-time-only, transparent
transactions will occur and reside only online.
“At the points in the commercial real estate process
where there is a third-party verifier, it will look different
with blockchain,” says Steve Weikal, head of industry and
alumni relations at the MIT Center for Real Estate in
Cambridge, Mass. “This includes title companies, lend-
ers, and listing services. Will we still need a recording
office? These services may not go away entirely. But it
will change how people interact with those services, and
it will look different.”
While the possibilities are many, three significant
potential benefits of blockchain involve smart contracts,
streamlined title searches, and transfer of assets online.
Smart contracts allow the deal to be completed online
in code, creating more efficiency. It will become the
public record for taxes, which will streamline the pro-
cess significantly.
“Smart contracts can happen without human interac-
tion, so they reduce human error,” Hooper says. “These
Challenges Ahead
Blockchain will be challenging an established system
that stakeholders understand. While it’s comparatively
inefficient, the current infrastructure is immense.
“We know the current system’s f laws and love
complaining about it, but it is familiar to multiple people
involved in commercial real estate transactions, from
brokers to lenders to attorneys,” Weikal says.
Another obstacle is the perception of blockchain as
being synonymous with bitcoin and other cryptocur-
rencies. “That’s a PR problem,” according to Weikal.
“The recent hacks of digital currency are not about the
underlying technology of blockchain, which is secure.”
A third hurdle is that technology such as blockchain
and artificial intelligence is happening so quickly that
regulators cannot keep up. As a result, regulatory agen-
cies are reacting rather than being proactive, according
to Weikal.
Will clients slow down the acceptance of blockchain?
“I foresee a lack of trust from non-tech-savvy clients
that prefer the traditional, person-to-person relation-
ship aspect of commercial real estate transactions,” says
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E
xperts compare adaptation of blockchain today
to the internet in the early 1990s. Like the
internet, blockchain has the potential to trans-
form the entire world, including commercial real estate
and related industries.
But how fast will it be adapted by mainstream busi-
nesses, lenders, and governments? What form will it
take for commercial real estate and related industries,
and how will they apply it?
“There’s a sense of inevitability with integrating
blockchain into commercial real estate and especially
the transaction process,” says Adam Hooper, CCIM,
co-founder and CEO of RealCrowd in Portland, Ore.
“But how long will it take, 18 to 24 months, or 10 years?
We still are trying to figure it out. Usually commercial
real estate professionals are not early adopters. But its
use will spread quickly once it starts gaining traction.”
smart contracts potentially can remove the ambiguity of
ownership, recording a perfect record of who owns what.”
As property records are coded in blockchain, title
searches will be accessible to the public and include veri-
fied data. Due diligence is more effective, reliable, and
quick, according to Gregory M. Karch, partner and
founder of WorldBlock Legal in Tampa, Fla.
Finally, blockchain can transfer assets in the form of
cryptocurrency online, eliminating the need for escrow.
It also will change how payments can be processed and
allow for easier cross-border and international commer-
cial property deals.
“Blockchain can create one global currency; all of a
sudden, no one has to worry about the different currency
rates,” Kerch says. “It will be so much more effective to
use blockchain than our current system, plus it’s audit-
able. Even the foreclosure process will be more effective
on blockchain.”
For brokers, closing a transaction will be much easier,
with less friction and less low-margin work with clients
and other stakeholders. “Brokers will become increasingly
valuable as advisers,” Weikal says. “As transparency goes
up, the velocity of transactions speeds up. Brokers can
close more transactions than ever before because each
one is so much faster.”