Blockchain’s Implications for CRE
- Nov 19, 2018
Blockchain, the technology behind such cryptocurrencies as bitcoin, has been adopted by the CRE industry to only a limited extent so far, but it could be widely adopted within a decade. This could transform such functions as due diligence, asset management of large multi-tenanted properties or portfolios and global property searches. That’s the central theme of a new report by Cushman & Wakefield, Blockchain, Bitcoin and Real Estate, which provides current real-world instances of these functions being assisted via blockchain.
Also known as a “shared digital ledger” and sometimes called a “value-exchange protocol,” blockchain is commonly associated with cryptocurrencies. The report notes, however, that the technology’s efficiency, security and transparency also lend themselves to numerous other uses. A blockchain transaction simply involves the exchange of data, which could represent money, but could instead represent a contract or deed, for example.
“Blockchain is actually a shared digital ledger of transactions recorded and verified across a network of participants in a tamper-proof and visible chain.” the report explains. “Permissions determine who can access or participate in the chain. Most commercial applications are expected to use a permissioned model.”
“As of today, blockchain and cryptocurrency adoption in our industry is in its early stages, but as with any technology that possesses the potential to essentially redefine how transactions occur in the real estate space, we are paying close attention to it,” Revathi Greenwood, Cushman & Wakefield’s Americas head of Research, said in a prepared statement. “As operational hurdles are addressed, convergence with other technologies grows and questions over scalability are answered, we expect blockchain to influence and impact commercial real estate across several verticals,” she continued.
Blockchain technology should result in faster transaction processes, specifically in cross-border transactions, added Cushman & Wakefield’s Senior Managing Director, Strategic Consulting, Jeff Lessard. “This improved efficiency will have numerous financial benefits, including reduction in friction costs of commercial real estate transactions, like fees tied to document preparation and review.”
The report identifies three key areas where blockchain could change CRE:
- Asset management: Through facilitating automation of invoicing, reconciliations and lease management, blockchain can improve how large, multi-tenanted properties and portfolios are managed.
- Property searches: Blockchain has the potential to transform property searches globally by increasing transparency and access.
- Smart contracts: Increased transparency in the transaction process will lead to speedier closings. While documents on a blockchain remain immutable, amendments that have been approved by all parties can be appended to show changes.
Despite all this, and predictably perhaps, blockchain is not a techno-panacea, and multiple obstacles remain. One is that, currently, no technical standards exist to guide blockchain implementation across industries. Another is that distributed databases are inherently slower than centralized ones, which could limit certain applications requiring high volume and speed.
In addition, despite its multiple inherent safeguards, blockchain is not entirely invulnerable to fraud. In a “51 percent attack,” for example, an individual or group could take control of 51 percent of the data in a single blockchain, allowing them to create a majority consensus and thus take over ownership of the blockchain.
Image courtesy of Cushman & Wakefield