The Commercial Real Estate Industry Adapts to Metaverse Real Estate

In the six months since Facebook, Inc. rebranded to Meta Platforms, Inc., the idea of ​​the “metaverse” has gone from a little-known sci-fi fantasy to the forefront of popular culture. . This year, digital real estate sales in the metaverse are expected to double to $1 billion.[1] Despite this renewed interest, there is still limited consensus on the meaning of the term and the implications of this new technology on society and the economy. The emergence of digital real estate in the metaverse presents a unique opportunity for the commercial real estate industry.

In this article, we will provide (i) a brief overview of what the Metaverse is, and (ii) an overview of why the commercial real estate industry should take notice.

What is the Metaverse?

There are several metaverses. Some are built on blockchains (“onchain”), while others are built “offchain” in traditional video game environments. The common thread is that all are persistent virtual environments where users can interact with each other in a three-dimensional world, witness dynamic real-time events, and purchase digital goods similar to in-app purchases. In on-chain metaverses, digital real estate can be purchased with cryptocurrency on one of several different metaverse platforms; however, the current market is saturated across major platforms including The Sandbox, Decentraland, Cryptovoxels, and Somnium. To date, approximately 95% of all virtual real estate sales in the Metaverse occur in The Sandbox or Decentraland.[2]

Each metaverse platform is made up of codes subdivided into a limited number of plots, similar to longitudes and latitudes on a map. After the sale of a parcel, the information of the buyer is recorded in a non-fungible token (“NFT) which is encoded on a public blockchain. This code serves as a unique identifier and provides a secure chain of title. In other words, buying an NFT and the associated blockchain works the same way as a deed and the associated chain of title in a typical real estate transaction.

Why should the commercial real estate industry take notice?

Ownership in the metaverse is essentially absolute, and owners can develop, rent, sell, or otherwise use their virtual real estate as they wish. Owners of digital properties can build office buildings, operate storefronts, rent property for events, and erect billboards for advertising.

With the increase in demand and prices for land in the metaverse, virtual real estate financing has also begun. In January 2022, TerraZero Technologies provided one of the first “mortgage” loans for the purchase of virtual real estate in the metaverse.[3] TerraZero first assessed the borrower’s business plan to profit from virtual real estate before purchasing the land in the borrower’s name, title to which they held until the loan was repaid and the NFT is transferred to the borrower.[4]

So far, the biggest digital real estate deals in the metaverse have been bought by crypto-based investment firms. Everyrealm (formerly Republic Realm) has purchased 792 parcels of digital real estate in The Sandbox for $4.3 million and plans to develop some of the land with gaming company Atari.[5] Tokens.com has made a $2.4 million purchase from Decentraland, which it plans to develop for fashion events and retail purposes.[6]

The big players in the traditional real estate market are also realizing this. This year, JP Morgan Chase announced its entry into the metaverse by opening a salon in Decentraland, complete with a tiger and a portrait of Jamie Dimon.[7] HSBC has purchased digital real estate in The Sandbox, which is set to be turned into a stadium to host virtual sporting events.[8] Our company, Arentfox Schiff, along with other notable companies, such as Adidas, Gap, Hulu, PricewaterhouseCoopers, Nike, and Verizon, are also grabbing digital properties.[9]

As consumers and businesses embrace the metaverse, ad spend is expected to follow. JP Morgan Chase and Grayscale, a major investment firm, expect the Metaverse to bring in $1 trillion in annual revenue in the coming years.[10] Many of the world’s largest companies believe this growth will be inevitable as the metaverse and underlying blockchain technology become better understood, much like the rapid growth experienced by social media behemoths and giants. search engines today. As a result, many investors believe the price of digital real estate will appreciate rapidly in the short term as the growing user base diminishes the limited supply of digital land and digital landowners capitalize on dollars. advertisers.


FOOTNOTES

[1] Robert Frank, Metaverse real estate sales exceed $500 million and are expected to double this yearCNBC, Available here (last visited April 24, 2022).

[2] Identifier.

[3] Phil Rosen, Metaverse mortgages are being issued to buy virtual land – and one of the first has just been signed for a property in DecentralandTerraZero Technologies, Available here (last visited April 29, 2022).

[4] Andre Martinez, How does a metaverse mortgage work?National Mortgage News, (10:05 a.m., Feb. 3, 2022), Available here.

[5] Republic Realm Completes Largest Land Acquisition Ever in the Metaverse, US$4.28 MillionRepublic Realm (November 30, 2021), Available here.

[6] Sanctuary Ian, Metaverse real estate prices are booming. That is whyWorld Economic Forum (March 10, 2022), Available here (last accessed April 24, 2022).

[7] Kate Birch, JP Morgan is the first major bank to enter the metaverseFinTech (February 17, 2022), Available here (last visited April 24, 2022).

[8] HSBC becomes the latest brand to enter the metaversePYMNTS.com (March 16, 2022), Available here (last visited April 24, 2022).

[9] Birch, supra note 7.

[10] Christine Moy, Opportunities in the Metaverse: How Businesses Can Explore the Metaverse and Navigate Between Hype and Reality (2022), Available here (last accessed 24 April 2022).

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