A version of this article first appeared in the CNBC Property Play newsletter with Diana Orrick. Property Play covers new and evolving opportunities for real estate investors, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large publicly traded companies. Sign up to receive future editions directly to your inbox.
Roughly a decade ago, cryptocurrencies started appearing in the residential real estate market. There was talk of the first Bitcoin home sales, but in reality people were just buying with the currency and exchanging it for dollars.
Currently, cryptocurrencies are being used more for leverage. Lenders like Propy use it as collateral for both mortgages and commercial real estate loans, so buyers don’t actually have to sell their Bitcoin or other digital currencies to buy. They want to hold on to cryptocurrencies because they typically appreciate in value much faster than the housing market.
While investors can certainly use cryptocurrencies to purchase commercial real estate assets, it is the blockchain that cryptocurrencies live on that the CRE industry is slowly but finally starting to embrace.
Tony Giordano, founder of Opulent Agency, said: “There’s no doubt that commercials are just around the corner, and we’re on the brink.”
Giordano is a high-end real estate broker and an early cryptocurrency pioneer in the field. He began educating fellow brokers on how to buy and sell real estate with Bitcoin through social media and conferences. He is currently investigating how it is impacting the commercial sector.
“I can’t imagine that in 10 years the entire real estate industry won’t be on blockchain. You know, it’s just here and people are already recording everything on blockchain. And it’s the most secure platform and technology to do it,” he said.
Giordano describes blockchain as a great big virtual file cabinet where billions of records can exist forever without risk. This includes cryptocurrencies, mortgage bonds, titles, deeds, literally everything.
In our report, we looked at how Deloitte is already transforming the commercial real estate market.
“Until recently, blockchain was known as the technology behind Bitcoin. However, industry participants are now realizing that blockchain-based smart contracts have the potential to play a much larger role in CRE and transform core CRE operations such as real estate transactions (purchasing, selling, financing, leasing, and management). Blockchain implementation is likely to have a broader impact over time, as it can be linked to utility services such as smart parking, waste, water, and energy billing. “Enables data-driven city management,” the report states.
There are several ways to use blockchain for commercial real estate financing. One is tokenization. This process converts ownership of CRE assets into digital tokens, facilitating fractional ownership of real estate and trading of shares. For now, however, U.S. citizens cannot invest in tokenized U.S. real estate because it is still regulated, but foreign investors can.
Another report published last April by Deloitte, specifically on tokenization, said: “This technology could help build trillions of dollars of economic activity in the real estate sector over the next decade by enabling an expanded investor base and product offering.”
According to the Deloitte Center for Financial Services, approximately $4 trillion of real estate is expected to be tokenized by 2035, up from less than $300 billion in 2024.
Then there are funding opportunities. Giordano pointed to BV Innovation, a blockchain platform that creates transferable mortgage bonds for commercial and residential finance on the blockchain. The company’s AI-enabled software helps commercial real estate finance companies transfer loans from one property to another at current interest rates.
“If people weren’t settling for that rate, more transactions would be possible. So now, with AI and blockchain, you can connect to any bank and transfer your mortgage and interest rate to a new property,” Giordano explained.
AI automatically performs risk analysis on new properties, so banks can rest assured that they are quality properties at existing interest rates. Owners do not have to pay prepayment penalties, which are common in commercial real estate. This allows what would have been a prepayment penalty to be used as an asset to invest in another property. Giordano insists it’s not as complicated as it seems.
“I think it’s easy for them to understand if I say this $20 million figure comes with a 4.5 percent interest rate. There’s also a seven-year prepayment penalty and they can’t sell the building without paying the $4 million penalty,” he explained.
“Banks don’t need to understand that AI and blockchain are supporting their operations on the back end; they just need to understand that they are secure with blockchain.”
