CBRE: Blockchain and Real Estate – Challenges, Opportunities, and Value

[00:00] Introduction

[0:13] Paul: Hello and welcome to the Blockchain Leaders Insights series from Blockchain Ireland. My name is Paul Hearns. I am co-chair of the Events and Comms Working Group. So I’m joined here today by Myles Clark, Managing Director of CBRE Ireland, to talk about blockchain and related technologies in the world of real estate. So Myles, welcome and thank you for joining us.

[0:35] Myles: Paul, thank you very much for having me.

[0:37] Paul: Tell us a little bit about your background and the real estate world generally and then how you became aware of blockchain and related technologies in that space.

[0:50] Myles: So my own background started in economics, banking, investment banking in London for 20 years, which does deal with funding real estate. But I’m not, my DNA is not naturally real estate. But when I moved back to Ireland a few years ago, it made certainly the Seabury match, which increasingly you see in real estate it is driven by funding and finance. It’s a role that had plenty of overlaps and has made a lot of sense but my background as I said and explains where I have you know developed the interest in in bitcoin is because I was in investment banking I worked on trading floors and I saw the monetary system works and operates. I went through the years of 08 and 09 and I could see that the financial industry was grappling for another thing to try and cope with when you have these implosions of risk. I was very fortunate to have a meeting in 2015 with Dan Morehead, who’s the founder of Pantera. It’s the first really crypto venture fund. And he gave me the download on Bitcoin. I’d heard of it on the fringes, but I got a very strong one-hour induction, very privileged. And from there, the penny just dropped. To have a non-sovereign, no counterpart risk, other thing, an asset. You could see that would have been incredibly helpful in 08, 09, 10. And so I always just thought, if it ever happens again, that’s an asset you want to have in your arsenal somewhere. Now, did I have this strong conviction about its price escalation over the next nine years? No. But I always think when you’re thinking about Bitcoin, it’s not so much that you think it’s going to go up, it’s that you think other things are going to go down. And that’s why it’s helpful to have as part of your overall portfolio. So that was where I got into, fascinated by the whole technology, went down all the different rabbit holes you do to understand what it is, but more importantly, what it isn’t. And from there, you quite quickly come into smart contracts and what else could you transact on a blockchain, shares, money market funds, treasuries, and then ultimately to other asset classes like real estate. So I find myself now with an investment finance background, running a professional services real estate firm that is asking these questions around, well, actually, is there an application for our clients with this new technology?

[3:26] Paul: Okay, well, that takes us very neatly to the next point then in that world of real estate. So, say, if we look at, say, you know, big commercial real estate, first of all, what are the kinds of issues that you’re seeing there or the kinds of opportunities that blockchain, DLT, digital assets generally can be applied to?

[3:46] Myles: So I guess the ultimate way or the killer app to try and illustrate how helpful it could be is to think about getting exposure to real estate at a younger age let’s say you know this cliff risk that everyone faces when they try to buy their first property and you have to save up for that deposit and you’re saving up in cash and it always seems as if the property market goes faster than you can accumulate your cash. What you would ideally like is that instead of your confirmation money going into a bank, it goes into a token of a piece of property that you will likely buy in 30 years time. And so then you’re building up exposure to the actual asset. So ideally, if it goes up in value, so do your tokens. So when it comes to making your purchase, you actually have the equity already and you’re correlated. You’re not always chasing. So the ability to buy, if, for example, your first property is going to be a two bedroom apartment, if you could buy incrementally small bits of a two bedroom apartment over a 20 year period, it really de-risks your ability to actually make that purchase. Now that is, I think, a long way down the line. Bring it more forward to maybe what is possible today is for commercial real estate, I think the real, the earlier opportunity is going to be in funding. It’s finding other liquid pools that can help develop real estate or refinance real estate, commercial real estate. And I think that’s where you’re going to have the earlier wins.

[5:27] Paul: Okay. And in terms of your industry generally, even with those potential opportunities, what are attitudes? Like how disposed is the industry towards the adoption of a new technology generally, but specifically this area? Because obviously it comes with certain perceptions and certain kind of context that’s hard to ignore. So in that way, what are the attitudes like and what are the potential inhibitors for the technologies?

[6:02] Myles: Well, I think real estate practitioners are incredibly pragmatic. And if you have a solution, they will look at it. So the issue, though, is the first question that has to be answered is, if I do my thing, purchase, sell, if I manage or if I refinance my portfolio using blockchain, is it going to be easier, faster, cheaper? Now, until you can answer those questions positively, they have no incentive, rightly, to experiment with this because it just wastes time. The current system of bank funding, conveyancing, buying and selling, as cumbersome as it is, it works. So until it looks at a pivot point that it’s going to be faster to do it and easier and cheaper to do it another way, I don’t think there’s any particular curiosity about the technology other than, well, just tell me if it’s better. And I think that’s healthy, and I also think it’s a kind of a lesson for everyone in the crypto blockchain space, which is, you might care about the technology, people just want solutions. And until it can make that jump where it just does lots of stuff easier and faster, it will be a curiosity as opposed to something actually useful. Now I think it’ll get there. But we’re still, I think, in that zone where it’s just, the retail just needed to work.

[7:32] Paul: Well, we’ve seen some practical examples already where it’s being applied. And there are a number of national authorities around the world that are applying blockchain, say, to national land registries. And the transparency, the immutability, those kinds of characteristics of the technologies are really being leveraged in those spaces. So how do you see those kinds of developments feeding through then into the kind of things that you’re talking about? So you mentioned the possibility, say, for fractionalisation, for owning a small share and being able to build incrementally with that. How does something like the land registry feed through to those kinds of developments?

[8:17] Myles: Well, I think you’re right. Because it needs all the different legs that take place during a property transaction need to be aligned, right? And so by that I mean, when you see a transaction, anyone who’s bought or sold a property knows how long it takes. And yet from the minute you see the property the apartment and you say yes I really want that and I have the funding can be six months before you actually take ownership and title right. Now blockchain in and of itself doesn’t really solve that problem right you’ve got a lot of manual, analogue legacy processes and procedures that delay this process right. Blockchain in and itself can’t fix that but you’re right if you can get all those different legs of the transaction to be on platforms themselves to be digitised starting with the land registry of the list of ownership titles now you’re starting to create a collaboration and an environment where, eventually you can concertina that down. But you’re right it’s it there’s a lot of things that have to be kind of blockchained and platformed before you can see the full benefits of it um but you’re right You can see as people get comfortable with the technology and they go that it works, those pieces will come together.

[9:38] Paul: And taking a bit of a high-level view then, what do you see as the biggest gaps at the moment and what are the biggest opportunities or the most immediate opportunities?

[9:53] Myles: So the gaps are, I would say that the technology itself, has not yet just delivered, right? So if you think about how long it’s been around, and I probably sound like a sceptic, I don’t think so. I think when you’ve been looking at it for long enough, you just become a realist. And if you think about what has been demonstrably tokenised and blockchained similar to Bitcoin, it’s very, very few things. There’s kind of two areas. The area inside the ecosystem of DeFi, which is incredibly abstract and irrelevant to anyone who hasn’t lived inside that world. That’s blockchain, what is already blockchained internally, relevant to maybe traders inside the ecosystem of Bitcoin and other tokens. Totally irrelevant to anyone else. And then what else has been inside, say, the TradFi world? You’re just starting to see it with BlackRock tokenising their treasury money market funds. Fidelity are doing something similar. You’ve got Securitize, you’ve got Ondo. These are really very successful and good platforms, but have still done just very early days, very little. Until that technology is really endogenous to the financial market, I don’t think you’re going to see other people experiment with it. So it’s just proof of concept, really, that needs to take place elsewhere in easier assets. If you think about a US Treasury, for example, I mean, it already settles T plus one, sorry, T plus one being within 24 hours, within one day. It doesn’t exist in any physical form of Treasury. It is an entry in a ledger. So if anything can be tokenised and traded on a blockchain, you can start with the US Treasury. So we’re just getting there now after the technology being around for 10 to 15 years. So it’s just going to take time, proof of concept in different asset classes before it’s adopted more widely.

[12:05] Paul: That’s a really interesting point because, again, having been around the world of technology for quite a long time, that 15-year innovation cycle seems to be stubbornly persistent. I remember speaking to somebody who was involved in developing the first consumer touchscreens. And that was pretty much the same. From the very first working prototype to some of the first available consumer devices was in or around 15 years. And that was more than 30 years ago. So it does seem to be a sort of an almost human element to the tech development cycle. So given that we are in that realm now, we may start to see more, specific use cases that reassure and highlight the capabilities of the technology. But again, maybe coming to your own perspective, what do you see in terms of the areas that you need to keep abreast of so that you can spot the potential opportunities? So are there kind of areas that you think are going to be applicable in the near future and you’re watching keenly or are you just kind of horizon scanning?

[13:32] Myles: No, no, no. I think there are. And you can see it happening now. I just think it’s happening in a way that you wouldn’t expect, right? So, and I think it’s about incentives. So if you look at why have Blackrock, why is Larry Fink championing this? It’s because you can see the huge efficiencies in middle and back office of settling securities right so you’d be amazed at the millions of people that are employed around the world and doing pretty much manual workarounds for settling very simple assets like treasuries sees that they all see it and they’re like there is huge efficiencies if this can be decentralised and it’s basically self-settling so I don’t need so it’s incentives right. And I think which what I was saying answering your early question we’re lacking those incentives in real estate it’s just not obvious yet where the savings are but they’ll come and then so what I’m going to say where will where is it earliest where you will see those kind of back doors into the asset class. So I’ll give you an example there is a new token and platform out there been launched called truly in the states and they are tokenising credit notes that are linked to real estate in the states and what they’re saying basically is because the technology cannot tokenise actual in real sense the bricks and mortar the next best thing is to tokenise exposures to real estate it’s equity it’s equity exposures that are in housing that in the states you can actually. To make this simple what I’m saying is rather than when you take a mortgage out if you have no mortgage and all your house is equity in the US, there’s established security credit notes where you can sell your equity in your house in partial form. What they’re doing is truly are collecting as many of these equity security type housing notes, credit notes, and they’re going to tokenise and launch that as a token. So what they’re saying is, right, this is a proxy and now you can get exposure to the US housing market. Now, it’s a collection of, I would say, million of securities around the whole country, but it’s a very, very good first clever attempt to try to do that. So that’s what I mean by the backdoor. What are the other proxy ways that you can create this fractionalised exposure before the technology maybe further down has figured out actually to do with bricks and mortar, if that helps answer the question?

[16:05] Paul: Yeah, well, absolutely. And again, there are a number of different industries who are taking that approach at the moment. They’re seeing those kind of small step applications that will build into more as the, not necessarily the technology develops, because I think that there’s probably quite a large sort of feature list there at the moment, but it’s not always applied all at once. So you’ll get two or three of those aspects and then it builds from there. So again, I suppose it’s that low hanging fruit approach. And once you get, a little bit of trust, a little bit of proof of value, then it builds from there.

[16:53] Myles: Well, it’s trying to get the exposures as near as you can. And what can you do today? And another example would be tokenising securitisation vehicles, CMBS, which has existed in financial markets for 30, 40 years. Again, it’s not perfect exposure to real estate, but maybe it’s the next best proxy. And at the end of the day, I do think the amount of value that’s locked in crypto at the moment, I mean, today could be a very important day if Bitcoin hits 100,000, but we’re at over 3 trillion, right? We’re at over 3 trillion of value. That ecosystem is going to have a thirst and a need for other assets, another thing. And for example, if they want to get out of the volatility of some of their other tokens, is there a role for new collateral, which is real estate backed? Or it could, as I said, it could be as simple as a tokenised securitisation platform that isn’t particularly volatile, gives you stable returns, gives you somewhere to park your money and some GDP linked exposure before you get back into Bitcoin after the next cycle in two years’ time. So there’s a lot of moving parts in what I’ve just said there, but certainly it’s getting a lot closer.

[18:15] Paul: So looking out a little further then, what are the kinds of developments that you’re seeing in the real estate world generally that you think might be leveraging these technologies in maybe the three to five year time frame as opposed to the 12 to 24 months?

[18:34] Myles: So I think it’s two things. First of all, it’s just efficiency. Again, back to the kind of Larry Fink BlackRock point. If there is a convincing way, before you even buy or sell maybe an asset, if there’s a convincing way where you can manage and run a portfolio of assets on a blockchain platform, which allows for savings, there’s one area. So before you even get into the buying and selling and tokenising, if you can tokenise your own portfolio just for you to manage it more easily, that could be a window. The secondary, I think, again, is going to be funding and financing. It’s like, what is the client’s problem? And if there isn’t sufficient liquidity or it’s very slow to engage the liquidity to refinance my portfolio, help me develop more assets, then if a tokenised base liquidity pool can give me that faster, then I think you can see development there.

[19:38] Paul: So as you’re looking at leveraging these technologies and working with technology partners, you mentioned the inherent pragmatism of the industry. So what’s your perception of the organisations that are available to work with? Because, say, sometimes the technologies come from small innovators and sometimes they come from the institutional providers. So what’s your feeling in terms of the availability of people to work with in the market as you explore how you might use these technologies?

[20:15] Myles: So you’ve definitely seen a healthy increase in VC style funding available for the type of startups that will start to attack this area. And it starts 10 plus years ago in general VC for prop tech. And now you’re seeing that prop tech money getting closer to backing very similar attempts and platforms of prop tech from technology, but blockchain driven. And blockchain run, run on platforms. And there’s examples of it here taking place as well in Ireland, if I can mention something like Reclosure and Black Manta. And others who are being funded to crack this problem. And I still think it’s a bit early, but if they get the credibility in the back end, what you really need is somebody who’s going to say, here’s the technology, it is funded, it’s absolutely trialled and tested, but you need someone who’s got the curiosity, I think, on the institutional side. You need a Larry Fink in every single sector in the world to be able to go, I get it, I like it, I understand it. And I think most importantly, I’m able to… Create a sandbox here in my huge, you know, platform of multiple business lines and multiple asset classes. I can create a safe sandbox for a startup to actually start to play with this. And then I’ll learn about it and I’ll champion it. So I think that’s where it’s happening. You definitely see the funding is there for the startups and you need to get the curious institutional counterparty to start to experiment with it.

[22:03] Paul: Well, that’s interesting to hear because we have seen major investment from some of the very large organisations. So say that in the payment industry, the likes of MasterCard and Visa have poured a lot of resources into this and some even locally in terms of centres of excellence and things like that. So it’s interesting to hear that perception because I think certainly the likes of a Blackrock and the legitimacy they bring to these things has to be counterbalanced by that small, fast-moving side as well. So that’s interesting to hear.

[22:41] Myles: And you can see something maybe like in private equity. Right? I mean, there’s some of the biggest private equity shops in the world have big real estate departments. And I know from, they are talking about Bitcoin seven years ago, how do we tokenise treasuries? How do we tokenise shares? How do I make my whole system more efficient? And eventually they will say, yeah, and how do we do this in real estate? So I would imagine, I would expect who’s got that appetite to be a bit more experimental and sees the upside, incentives that’s ever important, could be private equity.

[23:14] Paul: Hmm. Interesting. Interesting. Okay. Well, I suppose just to round off then, what’s your final thought and perhaps one or two areas that you think would be worth keeping an eye on in this context for the technologies?

[23:32] Myles: So, I think, as I said, I think I’m absolutely an advocate for this technology, but I wouldn’t be an evangelist because I just think it takes quite a bit of time. And what I’m watching, I’ve mentioned someone like Truly, also Figure Markets are doing very interesting funding and financing solutions using tokenisation and blockchain. And I think that’s where you’ll start to get the earlier wins where you start to creep in more through the back door. And actually then the pivot into, hopefully about that stage, it’s the pivot into, actually adopting the technology for day-to-day property transactions maybe becomes a little bit more trivial because all the hard work, the lessons, the experimentation, and the mistakes have been made already. So, no, it’s a very interesting time. And without a doubt. Where it accelerates is because the amount of value that’s been made in Bitcoin at 100,000, And that money ends up going down a cascade of VC. The appetite to take some of those winnings and put it into other areas, other tokens, experiment, fund VC to create this future. And it does need to be created. It’s not going to happen on its own. This is when it happens. It always happens when Bitcoin has such a strong rally that there’s opportunity for people to just deploy into other areas. So it’s very exciting.

[25:07] Paul: Very good. Okay. So Myles Clark, Managing Director of CBRE Ireland, thank you very much for joining us and for taking us through the real estate world and how it’s leveraging and interacting with blockchain technologies. So thank you for joining us on this latest edition of Blockchain Leaders Insights from Blockchain Ireland, and we’ll hopefully see you for another episode soon. Thank you.