The commercial real estate industry operates with a healthy dose of logistics, red tape, and supporting roles. Many of these factors are put in place to protect investments and make sure projects run in a smooth financial and legal fashion.
Underwriters, agents, and every position in-between ensures this smooth process. But these roles all will change over the next five years thanks to a piece of technology from the FinTech industry, blockchain.
A distributed database, blockchain maintains a continuously growing list of ordered records called blocks. Each block contains a timestamp and a link to a previous block. By design, blockchains are inherently resistant to data modifications.
For example, once the data is recorded, the data in a block cannot be altered retroactively. As a result, blockchains are an open, distributed ledger, recording transactions between two parties efficiently and permanently.
Many of the tech players in the proptech industry in Silicon Valley, Calif., are using blockchain in residential real estate transactions, and it's coming quickly to commercial real estate. Unlike LoopNet, CoStar, or other listing sites, this technology actually allows the transaction to close without all of the red tape.
Blockchain technology starts with understanding artificial intelligence and deep neural networks. Without going into the complicated details, the principles are decisions based on previous data outcomes, which over time become reliable.
Let's take a commercial property transaction that did not close, for example. The buyer finds a property, obtains the price, and receives all the supporting details. To come to a decision, the buyer engages in discussions and negotiations. During all stages of the process, many reasons for the project not moving forward occur. The deal may have fallen through because of price, title, or underwriting.
Machine learning can analyze this process flawlessly in fractions of a second. The same goes for looking over a contract or looking to see if the pricing model works for the market.
What's revolutionary is how blockchain puts all of these functions into one location with the security that humans cannot match. This allows the market to buy, assess, write contracts, and accept and make deals in a fraction of the time it does now, and people are already doing it.
Traditionally, many eyes look at a commercial real estate project to lower the risk of something going wrong on multiple fronts. Errors on documents, misinformation, and general distrust are items those involved in the deal try to recognize and avoid.
Blockchain completely takes this factor away from the deal. It secures all documents, analysis, agreements, and inspections by distribution. No one person holds the key. This is the basis of how the technology works.
The decentralization of the data is the basis of its security, and the data is far more secure than any human or legal counterpart. Once the commercial real estate market starts using it online on a large scale, the amount of time and money saved will be massive.
In a commercial deal, blockchain automates:
- Making offers
- Contract creation and review
- Title checking and government integration
- Automated public record inclusion
- Smart contracts
- Property conditions through vendors
- Electronic disclosures and signatures
This level of automation may take some time for the commercial industry to adopt, and it will happen in phases. Just like the listing sites, blockchain will start to take over the commercial areas where investors naturally trust services such as listings, pricing, and analysis. Relatively quickly, however, blockchain will take on a larger role in real estate transactions.
Blockchain could bolster faith in the market like no other technology ever has, and it's already happening in residential real estate from one end of the transaction to the next. Commercial projects are the new frontier. The possibilities are endless, and the technology is already here.