CRE Blockchain for Dummies with MIT
A Q&A with Steve Weikal, Head of Industry Relations at the MIT Center for Real Estate and the CRE Tech Lead in the MIT Real Estate Innovation Lab
Blockchain is top-of-mind for companies in a variety of industries, but how does it relate to commercial real estate, and more critically, how might it change the future of transactions as we know them? We spoke with Steve Weikal, head of industry relations at the MIT Center for Real Estate and the CRE tech lead in the MIT Real Estate Innovation Lab, to learn about blockchain—in layman’s terms—and get answers to a few pressing questions.
JLL: At it’s simplest, what is blockchain?
Steve Weikal: Blockchain is an infrastructure technology. But, there’s an important distinction to make between blockchain and cryptocurrency. Blockchain is the underlying technology that will empower digital currency and other fascinating functions that we are unable to do right now. It’s a continuously growing list of records that is shared, permanent, append-only and distributed.
JLL: So, how does it work exactly?
SW: Imagine you had one file folder containing all the information about every aspect of a building and the entire team had a view of the folder. If anyone wanted to make a change, the entire team would be privy to that update. In reality, blocks of information or blocks of code are linked together in a chain. The information is fully secure, in theory, because you can’t go back and make an edit without the entire chain being made anew. We call this the Immutable Ledger. Another aspect of security for blockchain is that it’s stored all over the world in the cloud—the record isn’t in a single server where it can be hacked.
JLL: What happens if a mistake is made somewhere along the line?
SW: You can append it, but it will be recorded for all to see. A new block is generated by this edit and the chain is secure again.
JLL: Why does this matter for commercial real estate?
SW: If we have a system that is transparent, and trusted, it eliminates the need for third party authentication. For example, in buying and selling, escrow ensures both parties fulfill their duties as set forth in the agreement. But with blockchain in place, steps could be taken well in advance of the deal to ensure both meet the agreement and the process would be expedited, even automated. The same example can be applied to title insurance. If there was a system that authenticated the title on an asset to be clean and clear and the chain of ownership was trusted, there wouldn’t be a need to pay for title insurance. In multifamily, there could be an opportunity to completely rethink the 12-month lease structure by verifying tenants in advance based on a repository of blockchain records—like a secure FICO score for renters. If a tenant in an existing building wanted to leave, a new party could take over the lease immediately since we’d know they’re already verified. This would serve to optimize occupancy, possibly approaching 100%.
There are countless opportunities for blockchain to modernize commercial real estate and create a seamless and instant experience for all involved. Anywhere there is a third party involved there will be an opportunity for blockchain.
JLL: This is great. On the flip side—what are the limitations, if any?
SW: The initial onboarding and verification process of existing records might be the most limiting. We also need to ensure the technology behind blockchain itself has been fully proven to be secure. There have been several instances of hacking, mostly in the area of wallet, crypto and mining systems not being secure. But, this could be a result of the technology being relatively young.
Another challenge to adoption is the existing recording mechanisms and systems. If in the future there will only be one data source where information is stored, existing systems will need to adapt. Interestingly, trials are currently happening where entrenched systems for recording ownership and transactions don’t yet exist. Estonia and Ghana are hosting trials. They don’t have an established data repository to compete with because their political and democratic institutions are evolving. They have a clean slate, so to speak.
JLL: Along these lines, what are the greatest barriers to entry for a company wanting to implement blockchain?
SW: Other than the question of security: self-interest. Blockchain has the potential to eliminate many third parties and create infinite transparency. There will be resistance from industries where their success is related to the pain points blockchain solves—like friction and information asymmetry.
JLL: And if a company wants to take the leap, where can they start?
SW: My advice to companies is to start small. Identify an area where verifying users is important, select a blockchain company that you trust and go from there. For example, MIT implemented a blockchain based digital diploma system that is trusted and secured and will verify graduates of the Institute. The current system is cumbersome and has weaknesses, so this is an innovative solution on a small scale.
JLL: Are blockchain companies taking the leap into CRE?
SW: There are companies creating platforms for different industries, including CRE. We’re seeing platforms for property ownership and e-closings. There’s also an interesting conversation surrounding tokenization in real estate. Think fracking, but with a blockchain flavor. It could change the way we assign ownership of a building, and therefor risk. It’s a concept that’s still in its infancy but will be fascinating to see how it develops and works in tandem with blockchain technology to shape the future of commercial real estate.
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