Problems the CRE Industry Can Address with Blockchain Technology [Part 1]
Now is “the most exciting and interesting time to be involved in commercial real estate”, according to the CBRE Global Real Estate Market Outlook 2017.
One good reason to join this industry is its growing interest in new tech. In fact, according to Deloitte, real estate tech startups are powering the industry with new ideas:
“… cumulative investments in these startups soared from $2.4 billion to $33.7 billion.”*
*Investments between 2008 and 2017.
As part of our series on the issues common with CRE, we’re going to explore the industry problems to understand why technological change is so called for. Let’s take a closer look.
★ Problem: property search is time-consuming, unreliable and inefficient
Today, CRE search occurs almost entirely via an MLS (multiple listing service) or property portal. Using these shared databases, brokers list available properties for prospective clients to view.
While this was revolutionary, the current state of the MLS landscape has several significant flaws:
- there is no process to verify the data that brokers list for accuracy;
- there are no established and standardized guidelines for the data in the industry;
- the information is often dated and the property search is fracture. This consumes a lot of time and doesn’t help educated decision-making.
As well as that, there are endless opportunities for data modification in an existing MLS or shared database. As a result, tenants and investors struggle with seeing this as a credible source of listing data.
✔ Solution: Smart and efficient property search via a blockchain MLS
A blockchain MLS
★ Problem: Time-consuming pre-lease due diligence checks
Today, each CRE transaction goes through the hands and systems of numerous third parties. Examples include due diligence and compliance checks that are just one part in the mechanism of a CRE transaction.
Likewise, verifying the property history, previous owners and tenants, compliance records, etc. is done manually and often depends on the physical availability of the documents.
As you can imagine, failure to conduct due diligence checks and verify data can lead to tremendous losses. The CRE market in the US alone amounts to $15 trillion. It’s no surprise then that the industry is being threatened by new types of fraudulent activity that appear each year.
✔ Solution: digital identities of people and properties
A Blockchain-powered platform will allow digital identities of people and properties. This means that pre-lease due diligence can be performed upfront with near-perfect accuracy. Digital identities will also consolidate property/owner/tenant profiles and all associated data.
★ Problem: disparate and inefficient property/cash flow management
Property and cash flow management in CRE are synonymous with high costs in time and resources. CRE professionals often use disparate and antiquated systems to track payments and property maintenance costs, to report and plan.
Even more, brokers struggle to create a smooth, transparent and efficient workflow because they depend on a large number of parties to commit to their transactional obligations:
- landlords;
- tenants;
- property maintenance providers such as contractors, architects, designers, etc.;
- banks for financing or refinancing;
- appraisers;
- independent auditors;
- title companies, etc.
On top of that, brokers update at least one ledger once the money is paid or received.
✔ Solution: Smart Contracts
Smart Contracts have the potential to automate and accelerate many aspects of property and cash flow management. For example, they can automatically collect rent, pay contractors, pay maintenance costs and security deposits according to the terms of the lease contract.
