MIT’s Real Disruption Series Talks Block Chain For Real EstateOctober 13, 2016 - By Mike Hoban | Photos By Katie Noble
BOSTON — The MIT Center for Real Estate resumed its cutting-edge “Real Disruption” series last week with an examination of blockchain technology and its applications to the real estate industry, specifically the impact it will have on the current title recording system. And while panelists were careful to point out the technology is still in its genesis, they left little doubt the inevitable adoption of blockchain is going to have a profound impact on not only CRE but the way the world conducts business.
“I don’t know if society is ready, but it’s coming. We are still at the forefront of all this,” said panelist Christian Saucier, chief technology officer for Ubitquity, a startup developing a SaaS (Software-as-a-Service) blockchain platform for securely recording,tracking and transferring deeds. “These technologies have not yet made an impact on the real estate space – but they’re about to.”Held at the Fort Point Room in the Atlantic Wharf Building on Boston Harbor before a gathering of over 100 CRE professionals and students, the panel was moderated by Michael Casey, senior adviser of the Blockchain Opportunities/Digital Currency Initiative at the MIT Media Lab, and included Saucier; Dan Doney, CEO of Securrency, another startup which is developing a means to securitize illiquid assets such as CRE leases; and Avi Spielman, founder and president of Joon Properties and author of the MITwhitepaper: “Blockchain: Digitally Rebuilding the Real Estate Industry.”
For those unfamiliar with blockchain (or its potential CRE applications), Jason Roy, former CTO of the Urban Land Institute, predicts that “blockchain will enable every property, everywhere, to have a corresponding digital address that contains occupancy, finance, legal, building performance, and physical attributes that convey perpetually and maintains all historical transactions.
Additionally, the data will be immediately available online and correlatable across all properties (and) the speed to transact will be shortened from days/weeks/months to minutes or seconds.” Spielman set the stage for the discussion by delivering a high-level overview of how blockchain technology works, followed by a brief overview of the current state of the title recording system in the U.S. and other common law countries.
Blockchain is essentially a ledger for managing recorded transactions, he explained, but what makes it such a transformative innovation is that the ledger is “distributed,” which means that every computer connected to the network has a complete or partial copy of that ledger. That universal access allows blockchain to create consensus mechanisms to govern the transaction verification process for the ledgers.
“Ultimately, it will be argued that a blockchain title recording system is the future of title record keeping, and will provide immediate benefits over the current title recording system – just not right now,” asserts Spielman, who advocates a gradual implementation of the new system and also cautioned that the new technology is not a panacea for the present system. “It’s more of a database, a way of verifying and organizing and keeping real estate property information, so it’s only as good as the information that goes into the system. It’s not a dispute resolution or authentication system,” he clarifies.
One of the main flaws of the current title recording system is that it is fragmented, says Saucier, with both private (title insurance companies) and governmental
entities maintaining databases that can be in conflict, often leaving no clear title to a property. “What blockchain brings that is transformative is the ability to centralize a lot of that information,” he relays. “While blockchain is a decentralized concept –meaning that the data does not reside in any one place – what we have is an entire network of computers that can agree on what that data is.” So if and when the technology is adopted, public records (now stored on a county to county basis in the U.S.) would be transferred to the blockchain database, creating a public registry that would be readily accessible by anyone.
As with all disruptive technologies, there is going to be an industry segment that is likely to be adversely impacted by the new developments. Saucier believes
that the title insurance companies will have the most to lose – as well as the most to gain. In theory, he says, the concept of title search would be replaced, because there would now be a database that was accessible to all. But he also acknowledges that the “title insurance companies aren’t going anywhere anytime soon,” given that they currently maintain and share their own title databases. So they also have the potential to harness the new technology early and offer their services – at a reduced cost – to the creation of the blockchain.
Although panelists agreed that despite its inherent flaws, the current titling system works reasonably well (especially in the U.S.), Doney named five “friction
points” that blockchain could improve and “utterly transform the way that it’s been done over the next 20 to 30 years,’ citing the aforementioned changes in titling; the use of smart contracts (computer protocols that facilitate, verify, or enforce the performance of a contract,); unlocking liquidity in real estate assets (including leases); more effective crowdsourcing, and innovative “user ship” models that will allow for a freer exchange of value.
Doney’s firm, Securrency, is a FinTech platform that monetizes excess capacity in assets such as commercial real estate leases. “What we have in commercial real estate right now is very illiquid major deals, where you can’t break apart, for example, the individual income streams associated with commercial leases and monetize those income streams,” he states. But through the use of smart contracts, leases can be risk-scored, securitized, and then sold into liquid markets – something that his firm is pioneering.
If implemented properly, Casey says that blockchain technology will substitute for “a lot of complicated (systems) that we’ve built up over the millennia” – not
only for land registry systems and records of ownership, but the “social and cultural mechanisms around which we formulate a sense of who we are and who owns what.” And because blockchain is decentralized and would not be subject to governmental re-interpretation (following regime changes,for example), “We have the potential to build the very first record of history that
can never, ever be changed.”
Real Disruption series founder and head of industry relations for the MIT Center for Real Estate Steve Weikal agrees that blockchain technology has the potential to massively transform the world as we know it, telling Real Reporter, “We’re in the very beginning of something that could be hugely disruptive in a way that the worldwide web was disruptive to the world 25 years ago.”