The Great Digital Real Estate Land Grab
Decentralized country
It’s practically a closed deal.
A public company whose founder founded real estate companies is about to sign the biggest deal for land that doesn’t exist in the physical world. The transaction on a virtual reality platform called Decentraland is expected to far exceed the $ 850,000 a buyer paid for a package in The Sandbox in July, according to a person familiar with the business. The company is even considering outsourcing the purchase as a REIT – and possibly listing it on NASDAQ.
It’s a coming-out event for the Metaverse where gamers and cryptocurrency speculators have long gathered to play and trade digital collectibles. A virtual real estate industry is born and traditional real estate developers are racing for money.
The commercial center of Decentraland
Investors in virtual real estate are “very diversified and very deeply rooted,” said Ryan Freedman, general partner at the venture capital company Alpaca VC. “I think what they will do with it is currently in the brainstorming phase.”
The Metaverse concept goes back at least three decades. Novels like “Snow Crash” from 1992, whose author Neal Stephenson invented the term, and films like “The Matrix” from 1999 aroused interest in virtual worlds. The concept matured over the past five years with the advent of popular games like Fortnite and Roblox – and specifically the explosion of cryptocurrency, the backbone of the Metaverse’s value system.
The global pandemic also sparked interest in the Metaverse as imprisoned populations sought alternative realities. One finding: the recent craze for non-fungible tokens, or NFTs – unique digital assets secured by blockchain technology – that individuals trade in the metaverse.
The Decentraland buyer is a public company whose founder played a role in founding some of North America’s largest REITs, said the person familiar with the deal and declined to name it. The buyer can repackage the assets as a REIT and then return to the market to raise capital, the person said. An agreement could be reached in the next few weeks.
Granted, today’s dominant metaverse could become the next Netscape – a flop. And cryptocurrencies are notoriously volatile, with prices often rising or falling 25 percent and sometimes much more in a single day. Still, long-term speculators were typically winners: Ether, the native token of the Ethereum blockchain on which much of the Metaverse is built, climbed from just 52 cents in 2015 to a record $ 4,362.35 in May.
Today, like the early Internet, the metaverse is a fragmented field of discrete metaverse, each a finite landscape with its own programming language and basic units of size and value. Two dominate: Decentraland, which is geared towards the arts, entertainment, and e-commerce, and the Sandbox, which is primarily focused on gaming.
Investors in virtual real estate are “very diversified and very deeply rooted”,
Ryan Freedman, General Partner at Alpaca venture capital company
On a computer screen, maps of these metaverse look like a game of Tetris: perfect squares arranged in small and large, sometimes irregular formations. On the ground floor you navigate like in a normal two-dimensional video game world. You can walk around or wander around, fall into houses, arenas, and other buildings, or teleport to another location with a combination of keystrokes.
Decentralized country
“The next generation will spend much more time in the virtual world than we do, and many of them may no longer have access to physical property due to rising prices and falling availability,” said Sebastien Borget, co-founder and COO of The Sandbox . “The expansion into real estate in the virtual world, where they can sell unique locations and do large-scale developments that go beyond the laws of physics – that’s an interesting value proposition.”
Eventually, the many programmers, architects, and graphic designers working on the Metaverse will have created a critical mass of residential, commercial and entertainment venues – a three-dimensional experience that is accessible to everyone. A Memphis-based digital real estate agent can walk down a virtual street with a potential buyer from Bangalore, immerse themselves in various virtual properties, and arrange a mortgage. The agent could even visit a post-deal hangout at a virtual concert on the street.
Digital land grab
Private individuals, companies and, increasingly, real estate speculators all over the world are engaged in digital land grabbing. Because land in these metaverse is finite and speculative interest grows exponentially as the potential use cases multiply, prices go up.
The Sandbox had its largest virtual land sale in July when a buyer paid 3.2 million SAND, or the equivalent of about $ 850,000 then, for a 24-by-24 parcel (each lot in The Sandbox is one by one) . 96 meters by 96 meters long and 128 meters high). Less than two months later, the property is worth $ 2 million thanks to SAND’s appreciation in the crypto market.
The prices are particularly aggressive for the larger pieces of land or properties staked out by companies like Atari or the media franchise “The Walking Dead”. And yes, “location, location, location” applies in the virtual world: properties near major roads, properties from brands that dominate the market or already pulsating developments fetch higher prices.
“Location, location, location” applies in the virtual world
It’s not just game and media companies. Retailers and commercial property developers, many of them based in Asia, are also on the scene.
At the moment you can still buy some digital real estate cheaply. At Decentraland, a single package – the smallest unit and the real-world equivalent of about 16 by 16 meters – can cost only a few thousand dollars. The low prices won’t last long, say Metaverse investors and creators. Once one or a few metaverse has reached a critical mass of users, they have cornered the market.
“Developing virtual real estate is expensive and requires certain skills,” said Freedman of Alpaca. “As soon as a lot of people do that in a metaverse, you have density, liquidity and supply. And to do it inorganically in a new place is very difficult. “
Commercial use cases
While some commercial use cases may be years away from full realization, some early digital real estate developments reflect real-world counterparts. In Decentraland, for example, there is already a casino in operation.
The Decentraland casino
Elsewhere in the Metaverse, retail brands are looking to build virtual showrooms to enhance the consumer experience – a buzzword for commercial real estate as older brick and mortar retail brands try to stave off e-commerce – and attract the attention of younger audiences.
TJ Kawamura, property product manager at Republic Realm, a Metaverse investment platform and largest landowner in The Sandbox, said he calls daily on how to build retail experiences on the Metaverse. Some are associated with ecommerce brands and many are dedicated real estate investors.
“A lot of retailers don’t know how to reach the younger generation who spend all of their time on their phones,” he said. “The Metaverse offers you an experience-oriented opportunity to open up this sub-market.”
Kawamura, who has a background in traditional real estate, said the Metaverse is fertile ground for retail landlords as well. Digital shopping malls, where e-commerce brands can rent and build dedicated spaces, are under construction. “The traditional landlords may be moving a little slower, but they’re definitely coming,” he said.
Some companies have already built virtual offices in Decentraland for employees to interact with and others will follow, said Noah Swain, a physical digital real estate agent who now runs NFT Property Group, a virtual real estate agency.
“There are so many ways to monetize this property,” said Swain. “Some of these are similar to the methods you would use to monetize traditional real estate, such as: B. Leasing. And then there are things that you couldn’t do with conventional real estate, such as new game concepts. The possibilities are limitless. “
The future
The Metaverse landscape five years from now could look very different. In June, Facebook CEO Mark Zuckerberg said the company wanted to build its own virtual world and become a full-fledged Metaverse company. The arrival of Facebook and other tech giants will stir up digital real estate, which is now essentially democratized and collaborative.
Freedman from Alpaca is skeptical that one of the major developers of old buildings will become trendsetters or even major players in the Metaverse.
“This is not going to be SL Green Building office space and rental space. It won’t work that way. These are companies and brands that want to increase the experience. This is another point of contact between a brand and its consumers. “
Jesse Alton, a proponent of Open Metaverse, a group committed to establishing open source standards, fears the arbitrary scarcity of digital land – Metaverse doesn’t have to be finite, he said – and the steep rise in digital real estate values will alienate individual participants and ultimately stunt the growth of the metaverse.
“It’s really hard for the general public to get involved and it doesn’t get any easier,” said Alton.
The greater risk is that dominant real-world commercial companies like Facebook corner the market with a “walled garden” – a closed, proprietary metaverse that defies the public and collaborative efforts that enrich the promise of technology says Alton.
“We don’t want to bend our knees and join the Facebook cult,” said Alton. “We want to create something of our own that is open and in which everyone can participate.”
Contact TP Yeatts