In The Metaverse Land Rush, Real Estate Investors Are ‘Executing On FOMO,’ Not Fundamentals
Commercial real estate agent and developer Jay Gaudet’s biggest breakthrough came while watching his daughter play Roblox. When she asked him for money to buy a virtual house on the popular global gaming platform earlier this year, she sent him down a research rabbit hole.
“It told me that anything done in the physical world would have to be duplicated in the metaverse, and that spoke volumes to me,” Gaudet said. “Children are a while ahead of adults in this regard.”
Courtesy of Republic Realm
A representation of Metajuku, a Metaverse shopping experience created by Republic Realm.
Late last fall, 33-year-old Gaudet, who has 13 years of real estate experience in Baton Rouge, Louisiana, founded his own company, SuperWorld Realty, to focus on the Metaverse, the nascent series of growing interactive virtual platforms themed around a real-world land rush in recent months.
Enticing stories of massive purchases and asset appreciation have inspired many firms, brokers, and speculators trying to find a way to get into Metaverse real estate — where bits of digital space are tokenized into non-fungible and transferred like a deed — despite the technology and graphics of early virtual worlds that lag behind the hype.
DappRadar, a website that tracks NFT and virtual land sales, saw $330 million in trading volume in Q4 2021 and land on leading platforms like Decentraland and The Sandbox traded 150% and 500%, respectively, compared to purchases in just a few months earlier.
The gains have prompted many in the commercial real estate space to quickly embrace the fast-moving, high-priced market that proponents say is similar to investing in land in Manhattan 250 years ago. Even established consulting and investment firms like McKinsey publish reports on Metaverse’s investment potential and offer consulting services to top brands.
But discussions with early leaders of the virtual land sector while they are optimistic about the future of the market may dampen enthusiasm among CRE professionals who believe their skills make them natural candidates for virtual property management and development.
“Just calling it real estate doesn’t make it real estate,” said Janine Yorio, CEO of Republic Realm, whose company owns millions of dollars worth of virtual real estate spread across more than 3,000 lots on dozens of platforms including The Sandbox are distributed. “It’s software engineering. It buys a specific piece of code in what is effectively a highly interactive video game-like web experience.”
The traditional vision of vertical development and construction needs to be cast aside, said Yorio, who has a real estate developer background for Standard Hotel Group.
“In the same way, game developers would be inappropriate to build Hudson Yards,” she said. The Metaverse is more like “a hallucinogenic trip, as opposed to an elevator-up and a floor-walking thing.” Why recreate the real world?”
Gaudet said his customers are looking for something different. Gaudet’s firm offers investment advice, advice and services within SuperWorld, a platform that mimics the real world and allows participants to purchase virtual versions of real-world locations.
“This particular platform will be right there for people like me who work in this space of real estate in the real world, and even people who don’t work in this space who want to understand how to buy physical property in a digital way,” said he.
His work to date has helped clients find ways to monetize the land they’ve already bought in the Metaverse or figure out how to buy properties they might have missed in the real world but pick up in a virtual one could. He said he sees people starting with properties they are familiar with, places in their hometown or big cities like the Brooklyn Bridge or the Superdome in New Orleans.
Despite Yorio’s proclamation, traditional investors see potential in virtual ways to own existing buildings: Citi and UK investment group Abrdn are exploring opportunities to buy and sell tokens of existing property.
“Right now in virtual real estate, you see a lot of people just execute on FOMO,” Gaudet said, using the acronym for “fear of missing out.” “I want to be a part of it. I don’t necessarily know what I’m going to do with it after that, but I want to get involved.”
Courtesy of Jay Gaudet
Jay Gaudet, a Louisiana commercial real estate professional, has just launched a metaverse-based brokerage firm.
Yorio said investments in Metaverse space tend to parallel arts, entertainment and retail, and she has turned down requests from investors in the built environment.
“We’re getting calls from developers who want to build in the Metaverse and feel like they’re going to do it legitimately,” she said. “It’s already legitimate, and nobody cares about your 50,000 apartments. There is no place for them in the metaverse.”
Value in a virtual world is where brands and advertising congregate, said Andrew Kiguel, the founder and CEO of Tokens.com, one of Decentraland’s larger property owners and other leading platforms. Kiguel is also a senior owner of Metaverse Group, a virtual real estate company.
Brands are striving for a prime spot in the development of the attention economy and reaching a younger audience engaged with games. For them, the Metaverse is about billboards, not buildings.
He compares the process to pre-purchasing ad space on Facebook and Instagram to circulate through your social feed. Many of the condo and trophy residence projects are very speculative assets for him. Nobody needs your fancy virtual mansion, but the right ad placement for Gen Z consumers has lasting value.
Right now, Kiguel’s company is working on the Tokens.com Tower in Crypto Valley, which will include a convention center, a Bellagio-style fountain, and most importantly, plenty of advertising space.
Tokens.com will also help host a massive virtual fashion event in Decentraland’s Fashion District, one of the larger Metaverse platforms, where it happens to be the largest landlord. Tokens.com owns the virtual land on which this is happening and will lease it to brands looking to capitalize on the event.
“I don’t think there’s any denying that the metaverse is a real thing that people are going to gather in,” Kiguel said. “We only buy ad blocks and now own a portion of this community’s revenue.”
Yorio would disagree. For them, experience is valuable. A pioneering example of how they bring real-world real estate talent to the Metaverse, her firm’s partnership with New York City-based A-list real estate agents Tal and Oren Alexander aims to create one-of-a-kind, artist-designed Metaverse homes for… Creating high-end customers, she said.
The company’s Fantasy Island collection of virtual mansions in The Sandbox has fetched six-figure sales, and Republic Realm sold a $650,000 virtual yacht paid for with cryptocurrency in November.
“Why is Google more valuable than your mother’s website? Because more and more people are visiting and using it over and over again,” Yorio said. “Money is not the limiting factor. There’s a lot of money in this room. It’s the ability to deliver really complicated technology along with a very holistic understanding of who the end user is and why they actually want to interact with your thing. It’s immersive, interactive and social.”
While the platforms and business case for virtual land purchases have matured, it remains to be seen how much traditional real estate skills will play a role in the metaverse.
Kiguel sees a future for traditional real estate know-how, mainly in the area of leasing. He recruits associates with the task of selling virtual storefronts and explaining the value of specific spaces and properties – many of the same skills one would encounter in the traditional real estate world, particularly the ability to tell stories. This is definitely not something Gaudet lacks.
“We use the analogy of Jeff Bezos and Elon Musk and where they started with Amazon and Tesla,” Gaudet said of his pitch to investors. “If you invested in Amazon in the ’90s, you knew four generations would be taken care of by this point.”