The future of dealmaking, specifically in the commercial real estate market, is in blockchain technology, says Inveniam Capital Partners’ Patrick O’Meara.
“It’s kind of like when you maintain your house so that it’s ready to be sold any day of the week,” O’Meara says. “The value is not necessarily that you’re going to sell it, but that you’re capable of selling it and socializing that data. Blockchain allows you to reprice assets on a weekly, monthly or quarterly basis using agreed-upon procedures and test it against other empiric trades of assets that might be happening globally.”
Blockchain is most widely known as the means by which cryptocurrencies such as bitcoin can function. It’s a digital, decentralized and public ledger for recording transactions. It’s also very secure, giving it countless potential applications beyond just bitcoin.
Enter the commercial real estate market. If commercial real estate properties are accessible through blockchain, O’Meara says, key data points about a parcel would become available to anyone with access to the internet.
“People complain about Google and Facebook knowing everything about us, but we get ads that are catered literally just for us,” says O’Meara, who has spent more than 20 years studying the capital market and structuring and executing M&A transactions. Inveniam has offices in Northville and New York. “That's eventually going to happen with real estate.”
One common characteristic of real estate investing is that it typically has only been available to those with large amounts of assets and the right connections, but that has the potential to change in a big way through blockchain, according to a report published last week by NuWire Investor.
“Real estate investing networks will start using tokenization to sell partial investments in raw land, single-family rental properties, multifamily buildings and even commercial properties,” the report states. “As a result, individuals won’t need hundreds of thousands of dollars to add real estate to their portfolios. For a few thousand dollars — or perhaps even a few hundred — anyone can get started. Tokenization will essentially transform the world of private real estate into a P2P equity trading exchange with coins that are securely swapped without the need for any sort of intermediary.”
This could create an influx of real estate investment dollars into smaller markets where it wouldn’t otherwise be likely to go, O’Meara says.
“It’s adding a level of trust to data so that global players can move into more markets more efficiently,” O’Meara says. “MetLife used to only buy the biggest of the big deals. And you have these smaller firms that were working on these Tier 2 or Tier 3 automotive suppliers that may only have $50 million or $70 million in revenue. It’s a really nice little business, but their access to capital was much lower. The more data that's there, the more these smaller companies can compare themselves to other data sets and onboard themselves to the new digital global economy.”
Subjective analysis will still be critical
Yet to be determined is the impact that blockchain would have on the investment bankers and real estate brokers who traditionally have done much of the legwork required to facilitate client transactions.
“They are going to have to recondition themselves and add additional value if they want to continue to be used,” O’Meara says. “The advantage with blockchain is you're not going to be able to just collect basic data. You're going to be able to collect all the data. Environmental, energy utilization, key fob data, foot traffic, occupancy certificates. Every one of those individual pieces of data is going to be able to be notarized, validated and indexed so it’s fully searchable.”
While the access to data could increase exponentially, investors and dealmakers are still likely to find great value in experienced, knowledgeable advisers who can use that data to better inform their strategic analysis of a particular opportunity.
“There are people who add great value because of their expertise or their work in structuring or putting a deal together and we're still going to need that,” O’Meara says. “To do the quantitative, you need to have qualitative data sets because not everything is empiric. Is it a good management team or a bad management team? Does the food taste good at this restaurant or does it not taste good? Are these homes ugly or is this what the market wants? These qualitative components will continue to be important.”
Time will tell how quickly the industry shifts and incorporates technologies like blockchain into its day-to-day functions. O’Meara is confident it will happen.
“If you're not adding value, the function that you just have a Rolodex to support someone, that's going to go away in three to seven years,” he says.