As the internet enters the next phase of its evolution, Web3, its potential for revolutionizing how commercial real estate is researched, bought, sold, financed, and managed, seems limitless. The advent of Web3, as it has been dubbed, should one day lead to a more efficient, secure, and transparent industry, according to CRE thought leaders. But as with most new technologies, the operative word is “potential”—meaning it’s too early to tell whether Web 3.0 (or Web3) will fully deliver on its immense potential.
“We’re literally building out Web3 and trying to figure out how to capitalize on it,” says Tim Vi Tran, SIOR, founder and president of The Ivy Group, a real estate investment advisory firm based in Fremont, Calif. “In terms of direct impact, I would say it isn’t quite there yet, but a lot of people are looking at it to see how using Web3 can make their workflow more efficient and how to better engage with their clients.”
WHAT EXACTLY IS WEB 3.0?
One of the problems with the term Web3 is that it serves as an umbrella for a vast array of blockchain-based websites, services, and applications, including cryptocurrencies, AI, NFTs, DAOs, decentralized finance, digital twins, virtual/augmented reality, and more. Although most descriptions emphasize the decentralization of business models that will run on “permissionless” blockchains, there are as many definitions for the term as there are Google searches. In his in-depth and informative guide to Web 3.0 for the Harvard Business Review, “What is Web3?,” Thomas Stackpole defines Web3 as a “convenient shorthand for the project of rewiring how the web works, using blockchain to change how information is stored, shared, and owned.”
CRE lecturer, researcher, and thought leader Steve Weikal, industry chair of the Real Estate Transformation Lab at the MIT Center for Real Estate, characterizes Web3 as “the 3D Internet.” “You can define it in a bunch of different ways,” he states, “but I think it's useful to understand its evolution. Web 1.0 was the browser, Web 2.0 was mobile and devices, and Web 3.0 is going to be this 3D Internet, although for now it will be rendered in two dimensions.”
For this article, we chose to stay out of the virtual world of real estate and the metaverse, “I think that it's still relatively on the fringes, and it's mostly a marketing and engagement exercise,” is Weikal’s assessment. With such a sprawling topic, what may be of most value for SIORs is gauging the present and future impact of Web3 on CRE.
To answer that question, we turned to ChatGPT, the language model developed by OpenAI that, while not technically Web3, can be seamlessly integrated into Web3 applications. Residential real estate agents, who are typically further ahead of the curve with technology adoption than their CRE counterparts, have been using ChatGPT to write property listings for some time now. We asked the ChatGPT chatbot, “What are the practical applications of Web3 for commercial real estate?” and got this response:
As an AI language model, I don't have personal opinions, but some of the potential practical applications of Web 3.0 for commercial real estate are:
1. Improved Efficiency: Web3 will facilitate the creation of more efficient and secure systems for managing commercial real estate data. This will reduce manual errors and increase productivity, saving time and money for real estate professionals.
2. Enhanced Transparency: The blockchain and distributed ledger technology can provide transparency and tracking abilities that can reduce transactional costs and enhance trust among parties. This will create a more seamless and efficient process for buying, selling, leasing, and managing commercial real estate properties.
3. Smart Contracts: Smart contracts and decentralized autonomous organizations (DAOs) can provide secure and transparent transactions between buyers, sellers, and tenants. This will increase the speed and accuracy of transactions, leading to better outcomes for all parties involved.
4. Tokenization of Property: By representing commercial real estate properties as digital tokens, investors and owners of properties can fractionally own them, making ownership more liquid and accessible. This can lead to new investment opportunities and increase the liquidity of the commercial real estate market.
5. Improved Property Management: Web3 can facilitate more effective property management by providing real-time data on occupancy, maintenance, and tenant behavior. This will enable property owners to optimize and enhance their properties for their market and generate greater returns.
While even OpenAI cautions that the responses "may be inaccurate, untruthful, and otherwise misleading at times,” the answer provided appears to be in line with searchable definitions from trusted sources—and is eminently more comprehensible for laypersons than most sources. Still, even the ChatGPT answer emphasizes the potential of Web3 rather than its practical application.
WHERE WE ARE, WHERE WE'RE GOING
This is not to say that Web3 isn’t already providing solutions. Tokenization of commercial real estate assets is a reality, although the practice has not taken off in the way its proponents hoped for, due in part to an inconsistent regulatory environment. Smart contracts and decentralized financing are also in use, but the possibilities for Web3 have only scratched the surface.
Tran says one application his firm is using is Google Analytics, augmented by Monster Insights, which allows him to identify not only who is viewing the properties on his website but where they’re from and how long they’re staying on the page. Even with the availability of this valuable data, the manual process is still time-consuming, and Tran believes Web3 will deliver a better process. “What I envision with Web3 and artificial intelligence is that when somebody views that property, the Web3 technology should be able to gather all that information for us, contact the person, and ask them if there are any specific questions the broker can answer. Blockchain can help with the many manually intensive processes, and from there, the listing agent can provide the expertise.
Another manual process that Tran has improved through Web3 technology is creating an automated template to produce individual property websites for his listings. “In the past, we would go to GoDaddy and get a domain name, then pay a web developer to build the website,” says Tran. “We’ve developed a seamless process that we coded ourselves where we can upload the property information and pictures to a template. I can literally upload ten properties in a day, whereas previously, it would take us two or three weeks to build a website for a single property. The whole point of Web3 is to eliminate a lot of repetitive tasks.”
Tran believes that as the technology advances, Web3 could create more efficient prospecting tools. “There's an estimated $400 billion worth of commercial real estate loans coming due right now. Wouldn’t it be nice to know which properties and who the owners are? These loans are coming due, and these people will have to take action, whether it’s foreclosure, refinancing, or putting the property on the market. Right now, it’s a manual process, and I think this is where the Web3 technology could help you home in on those properties.”
THE FUTURE OF WEB 3.0
While Web3 is still in its nascent stages, industry experts like Weikal see endless possibilities as the technology evolves. One application already being implemented to some degree in CRE is virtual reality. “Imagine. You’re a broker in New York City, and the asset is in Seattle. Your client is in Dallas, and the architect is in Tokyo, and you all put on headsets and talk about it,” explains Weikal. “The broker takes them on a virtual tour; they don’t have to get on an airplane; he walks them through the neighborhood and takes them around the building that doesn’t even exist yet; he flips some switches to show them design options, and shows them views of outside the building. And maybe later in the virtual world, we sit around the table, negotiate, and sign the papers.
Augmented reality is also being used, and when coupled with a digital twin (a virtual model designed to reflect a physical object such as a building accurately), it can further streamline the sales and leasing process. Weikal also sees tremendous benefits for developers. By creating a 3D model, developers can share it with municipal officials and community members (that could view it on their phones), who can then make recommendations and suggestions to ensure a collaborative and less contentious approval process. He also speculates that the technology may allow developers to run simulations to determine what effects climate change and natural disasters may have on an asset. “I’m not sure if any of this will be of value tomorrow,” he says, but it’s all within the realm of possibility.
Whether the CRE old guard is ready for Web3 or not, it’s coming, and 22-year CRE veteran Tran has some advice for his colleagues. “If brokers want to stay relevant in this business, they must keep up with the trends, whether it’s Web3, AI, virtual, whatever. Otherwise, the young people coming into the business will put them out of business.”
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