It’s practically a done deal.
A public company whose founder has created real-world real estate firms is willing to sign the largest land agreement that does not exist in the material world. According to someone familiar with the deal, the transaction, on a virtual reality platform called Decentraland, will far exceed the $ 850,000 a buyer paid in July for a package at The Sandbox. The company is even reflecting on its plans to end the purchase as a REIT, and possibly include it on the NASDAQ.
It’s a kick-off event for Metaverse, where cryptocurrency players and speculators have been gathering for a long time to play and exchange digital collectibles. A virtual real estate industry is born and traditional property developers are debuting to make money.
Virtual property investors are “very diversified and very pocketed,” said Ryan Freedman, general partner at venture capital firm Alpaca VC. “What they’re going to do with that, I think, is currently in the ideation phase.”
The Metaverse concept dates back at least three decades. Novels such as “Snow Crash” from 1992, the author of which, Neal Stephenson, is credited with inventing the term, and films such as “The Matrix” in 1999, aroused interest in virtual worlds. . The concept matured in the last five years with the rise of popular games like Fortnite and Roblox, and especially the explosion of cryptocurrency, the backbone of Metaverse’s value creation system.
The global pandemic also sparked interest in the Metaverse, as closed populations sought alternative realities. One result: the recent craze surrounding non-expendable tokens, or NFTs (unique digital resources guaranteed by blockchain technology), that individuals market on Metaverse.
The buyer of Decentraland is a public company whose founder played a role in the formation of some of the largest REITs in North America, said the person familiar with the deal, who rejected his name. The buyer can repackage the assets as REIT and then return to the market for capital, the person said. An agreement can be reached in the coming weeks.
Of course, the current dominant metaverse may end up being the next Netscape, a flop. And cryptocurrencies are notoriously volatile, with prices often soaring or falling 25 percent, and sometimes much more, in a single day. Still, long-term speculators have usually been the winners: Ether, the native witness to the Ethereum blockchain, on which much of Metaverse is built, rose to a record $ 4,362.35 in May since of only 52 cents in 2015.
Today, like the first Internet, metaverse is a fragmented field of discrete metaverses, each a finite landscape with its own coding language and basic units of size and value. Two dominate: Decentraland, which focuses on the arts, entertainment and e-commerce, and the Sandbox, which focuses primarily on gaming.
Virtual property investors are “very diversified and very pocketed.”
On a computer screen, the maps of these metaverses look like a Tetris game: perfect squares arranged in small and large, sometimes irregular formations. At ground level, you navigate like you would in a normal two-dimensional video game world. You can walk or run, throw yourself at houses, sandbars, and other buildings, or teleport to another location with a combination of keystrokes.
“The next generation will spend much more time in the virtual world than we do, and many of them may no longer be able to access physical property, due to rising prices and declining availability,” Sebastien Borget, co-founder and COO of The Sandbox, said. “Expanding ownership into the virtual world, where they could sell unique locations and develop on a large scale that goes beyond the laws of physics, is an interesting value proposition.”
Finally, the many programmers, architects, and graphic designers working at Metaverse will have created a critical mass of residential and commercial buildings, as well as entertainment venues, a three-dimensional experience accessible to all. A Memphis-based digital real estate agent will be able to walk down a virtual street with a potential Bangalore buyer, immerse themselves in various virtual properties and arrange a mortgage. The agent could even take a hangout after a deal at a virtual concert on the street.
Digital capture of land
Individuals, corporations and, increasingly, real estate speculators around the world are participating in a digital land grab. Because the land in these metaverses is finite and because speculative interest is being built exponentially as its possible use cases multiply, prices rise.
The Sandbox had its largest sale of virtual land in July, when a buyer paid 3.2 million SANDs, or the equivalent of about $ 850,000 at the time, for a 24-hour package (each individual plot in The Sandbox is 96 meters by 96 meters long and 128 meters high). Less than two months later, the property is worth $ 2 million, thanks to the accumulation of SAND value in the crypto market.
Prices are particularly aggressive for larger plots, or estates, that companies like Atari or the “The Walking Dead” media franchise have opted for. And yes, “location, location, location” is valid in the virtual world: plots close to major access roads, land owned by dominant brands, or developments that are already bustling are getting higher prices.
“Location, location, location” is valid in the virtual world
They are not just gaming and media companies. Retailers and commercial property developers have also entered the scene, many of them based in Asia.
For now, you can still buy some digital properties for cheap. In Decentraland, a one-for-one package (the smallest unit and the real-world equivalent of about 16 by 16 meters) can cost as little as a few thousand dollars. Low prices won’t last long, according to Metaverse creators and investors. When one or a few metaverses reach a critical mass of users, they will have cornered the market.
“Developing virtual real estate is expensive and requires certain skills,” Freedman of Alpaca said. “Once there are a lot of people doing this in a metaverse, you have density, you have liquidity, you have supply. And creating this inorganically in a new place is very difficult. “
Cases of commercial use
While some commercial use cases may take years to fully realize, some early digital property developments reflect real-world counterparts. A casino, for example, is already in operation in Decentraland.
Elsewhere on Metaverse, retail brands want to build virtual showrooms with the goal of enhancing the consumer experience, a phrase for capturing commercial real estate, as inherited retail brands aim to avoid e-commerce and capture the attention of the youngest. public.
TJ Kawamura, head of real estate product at Republic Realm, a Metaverse investment platform and the largest landowner in The Sandbox, said he makes daily calls on how to build business experiences on Metaverse. Some are affiliated with ecommerce brands and many are dedicated real estate investors.
“A lot of retailers don’t know how to reach the younger generation, who spends all their time on their phones,” he said. “Metaverse provides a more experiential way for them to take advantage of this submarket.”
Kawamura, who has experience in the traditional real estate industry, said the Metaverse is also fertile ground for retail owners. Digital malls, where e-commerce brands can rent and build dedicated spaces, are under construction. “Traditional landlords may move a little slower, but they will definitely come,” he said.
Some companies have already built virtual offices in Decentraland where workers can interact, and others will follow, said Noah Swain, a digital real estate agent who is becoming digital who now runs NFT Property Group, a virtual real estate brokerage.
“There are many ways to monetize these properties,” Swain said. “Some of them are similar to the ways to monetize traditional real estate, like leasing. And there are also some things you could do that you couldn’t do with conventional real estate, such as new gambling concepts. The possibilities are unlimited ”.
The metaverse picture in five years may look significantly different. In June, Facebook CEO Mark Zuckerberg said the company will build its own virtual world and aim to become a full-fledged Metaverse company. The arrival of Facebook and other great technicians will shake up digital real estate, which is now essentially democratized and collaborative.
Alpaca’s Freedman is skeptical that any of the major legacy real estate developers will become a trend setter, or even a significant player, in Metaverse.
“This will not be office space and rental flats for SL Green buildings. It won’t work that way. These are companies and brands that want to drive the experience. This is another point of contact between a brand and its consumers.
Jesse Alton, an advocate for Open Metaverse, a group that works to set open source standards, is concerned about the arbitrary shortage of digital land (metavers don’t have to be finite, he said) and the sharp rise in digital real estate values. it will alienate individual participants and ultimately slow down the growth of Metaverse.
“It’s very difficult for the general public to get involved and it won’t be any easier,” Alton said.
The biggest risk is that dominant real-world commercial companies like Facebook corner the market with a “walled garden,” a closed, proprietary metaverse that challenges the public and collaborative effort that enriches the promises of technology, according to Alton .
“We don’t want to bend our knees and join the Facebook cult,” Alton said. “We want to create something of our own, open, of which everyone can be a part.”