We all know many industries are making their way into the metaverse — a digital world where people appear as avatars. Users live within a world that often implements blockchain technology — whether its high fashion (virtual Gucci boutiques in Decentraland) or fine art (the NFT bonanza where the most expensive digital artwork ever sold recently went for $91.8 million).
Real estate is not too far behind. A company called Everyrealm (formerly Republic Realm), was one of the first to sell virtual real estate. In a Metaverse world called The Sandbox, they sold 100 private islands. On the first day these virtual properties hit the market in 2021, 90 of the islands sold for $15,000, and resale values skyrocketed to $300,000.
This trend is capturing the imaginations of investors who see an opportunity. The expansion includes how commercial real estate has entered the Metaverse. Fort Lauderdale-based real estate firm Graystone Company just announced they’ve created an entirely separate division and budget to buy virtual property in the Metaverse.
“We believe that the Metaverse could have great opportunities for Graystone,” the company said in a statement. “In the coming weeks we will explore purchasing property at Sandbox and or Decentraland with the goal of moving into this space. This is a long-term prospective for the company, but the time is right for us to begin looking at expanding our operations towards the future with Metaverse.”
This type of venture is still new, so Graystone is one of the first to do this. Other tech-forward CRE firms are likely to follow. But is it a good idea?
According to McKensie N. Villarreal, a commercial litigation associate at Novack & Macey LLP, a CRE litigation firm in Chicago, virtual CRE investment could be considered high-risk while the Metaverse is still in its early stages.
“The Metaverse is still under development, and there is no guarantee that it will ever become commercially successful on a large scale,” said Villarreal. “One or two of the leading worlds, or perhaps a couple of newcomers, could potentially rise to prominence in the future, leaving the others in the dust and significantly devaluing real estate in those lands — including yours if you choose the wrong one.”
She added: “Unlike physical real estate, digital real estate is not intrinsically valuable or backed by tangible assets. People buy physical real estate because they need a place to live or work; there is no need to stake a claim in cyberspace, and if the trend fizzles, or if there is an economic downturn, demand for digital real estate could dry up.”
Villarreal noted that while physical land is finite, which is fundamental to its value, virtual land can be created indefinitely with code. That means there’s no limit to the number of new Metaverse platforms that can be launched.
It also has legal murkiness. In the real world, land is tracked by its jurisdiction. In the Metaverse, however, its rights are marked by an NFT, a smart contract. One major problem could be that investors don’t read the fine print of the terms and conditions. It’s best to contact an attorney.
Other experts encouraged caution when purchasing virtual property. The Metaverse Group, a virtual real estate agency based in Toronto, are buying parcels of digital land and leasing them. Lorne Sugarman, the CEO of the Metaverse Group, is buying up virtual homes for anywhere between $15,000 and $50,000. Their aim is to be the “Brookfield Properties of the virtual real estate world.”
This buying frenzy has been compared to the great “land rush” of 1889, when Europeans settled in the U.S., except here it’s virtual. To put it in perspective, Snoop Dogg bought a house in the Metaverse and someone paid $450,000 to be his virtual neighbor. That purchase shows the kind of demand there is for this virtual real estate. The commercial properties in the Metaverse that are in high value include casinos in Decentraland (one of these casinos is called the Tominoya Casino, which is hiring virtual staff (not bots) to staff their blackjack tables, to get an idea of the ecosystem it’s creating).
Grayscale, one of the biggest crypto asset management firms, expects the Metaverse to have an annual revenue opportunity of $1 trillion a year. Anastasia Shishova, the president of Graystone Company, claimed the firm is making their initial acquisitions and developing their first project in Decentraland. She is confident they will succeed.
“I have extensive experience in traditional real estate, and properties in the virtual 3D platform can become more valuable and be redeveloped, leased or sold for profit,” she said. “This opportunity not only signifies Graystone’s initial step into the Metaverse, but also brings us closer towards the main goal to make 2022 a transformational year for our business.”