“There is a demystification process that must occur, and from a regulatory point of view, there are strangers,” said witness Yi, director of cash services for Chase. “But there are clear applications for blockchain in commercial real estate, with increased efficiency and transparency potential as these solutions are developing.”
What is blockchain?
Blockchain can be best known as technology that feeds cryptocurrency, but it is a versatile innovation with wider applications.
Blockchain technology works as a large digital book that stores and shares information on a computer network. The information in this large book is stored in the form of “blocks” of data, such as transactions. When a new transaction occurs, a block is added to the “chain” using the technology designed to prevent falsification, including modifications or deletions by members of the network.
Each node of the network maintains its own copy of the big book, and no node controls the modifications. When changes occur, they are instantly shared with each copy, ensuring that all participants in the network access the same information.
Real estate opportunities
Blockchain technology is still evolving, as is the regulations governing its use. But the commercial real estate industry began to explore its potential to increase efficiency and transparency thanks to applications, in particular:
1. Intelligent contracts
An intelligent contract is a digital agreement stored on a blockchain, programmed to execute automatically once the predefined conditions have been filled.
An intelligent lease, for example, could automatically return the security deposit of a tenant following a satisfactory moving inspection. And in theory, an intelligent contract could fulfill the functions of a title company in a sale of commercial properties, transfer the title and issue payment once the buyer and the seller perform the contract.
“If intelligent contracts help investors automate processes around compliance and verification of contracts or suppress intermediaries, this could cause cost savings and faster execution,” said YI. “It is not something that we see using customers today, but it is something that we could see more in the future.”
2. Programmable payments
Blockchain technology – including JP Morgan Kinexys – facilitates complex payments quickly and effectively. Transactions have settled in a few minutes, including cross -border payments that traditionally take up to two days by bank transfer, reducing payments synchronization uncertainties.
The blockchain also rations the automation of payments. A commercial real estate owner could schedule payments to automatically execute when specific conditions are met, these transfer funds exceeding a threshold defined on a different account.
“There are other payment methods that allow customers to define parameters for automated payments, but it is not as detailed as you can do with blockchain,” said Yi. “We invest in this technology and continue to push limits and innovate.”
3. Tokenized assets
Tokenization converts property rights of digital or physical assets into “tokens” stored on the blockchain.
If a commercial property owner throws a portfolio of multifamilial properties, each token would represent an action available for the purchase of investors. When investors sell their participation, they transfer the token to buyers. The owner of the portfolio can use intelligent contracts and programmable payments to automatically distribute income to chip holders.
“Many people avoid real estate due to the required initial capital. Tokenization, or fractionation assets, could open real estate to a wider audience,” said Yi.
Remain informed
The implementation of blockchain requires costs and benefits carefully for your business, including the way technology is part of existing systems, potential regulatory implications and necessary technical expertise. To find out more, Contact your banker or payment and liquidity team.
“It is in the interest of a client to ask questions about the future state of industry,” said Yi. “See what ideas they can provide and learn how they explore technology.”
YI also recommends joining a learning community. This could include other investors and professionals from different industries that bring new perspectives. “It is a question of connecting with people with similar interests and, as a community, of implementing your technological mastery,” he said.
