TOPSHOT – Hudson Yards in midtown New York City is pictured December 4, 2018. – Hudson Yards is the … [+]
The commercial real estate industry is still grappling with the pandemic’s longest-lingering ghosts: empty offices.
Post-pandemic, many offices now have vacant chairs last used after the first wave of “work from home.” Toronto records one of the worst commercial real estate situations, with office occupancy rates hitting almost 40%, Bloomberg reported. Cost-weary businesses that are not locked into their leases opted not to renew. In 2026, when a third of all office leases in the U.S. expire, according to real estate investment service Jones Lang LaSalle
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One prospective solution to this issue involves Real World Assets, blockchain-based investment products referred to as RWAs, at a time when real estate owners are looking for investors and solutions any way they can.
Keep in mind, it’s not just offices in crisis these days. Commercial office buildings lease to retailers who rely on workers in office towers for clientele. Without foot traffic, many of these retailers have been forced to close.
A contrary phenomenon is happening for residential real estate. From San Francisco to Hong Kong, major cities face a housing crisis, where the need for new housing is outpacing availability and high mortgage rates bar new buyers.
Unfortunately, the cost of reconciling these two issues and converting empty offices to residential properties is massive. Commercial real estate values are cratering. Interest rates are rising, and debt — the primary financier of real estate investment — is piling up. Credit tightening measures have left funds for projects dry, at all parts of the property lifecycle.
Not even mega property buyer Blackstone
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Real estate companies are desperate for new forms of revenue. The options, however, are limited. Real estate is a huge piece of the pie in the global economy — over US$300 trillion — but it’s highly illiquid, inaccessible, and inefficient to manage.
For this reason, commercial real estate has long been heralded as a prime candidate for tokenization, the process of converting real-world assets into digital tokens on the blockchain.
Real-world assets under management — including real estate — are inevitably going to end up digitized on the blockchain. In fact, it’s already happening. In July 2022, BNP Paribas used the ERC-1400 standard to tokenize a finance bond to fund energy giant Environmental Defense Fund.
That same year, global investment firm KKR
KKR
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For many investors, real estate isn’t an option. You can’t just buy into property the way you can buy into Apple
AAPL
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High minimums and costly operations make real-estate one of the most expensive asset classes, historically affordable only to ultra-high-net-worth or institutional investors. Partial ownership models have loosened barriers to entry, but only marginally. Even the cheapest, publicly-traded real estate investment funds or REITs, can require minimums of up to US$25, 000.
Modeled after mutual funds, real estate investment trusts are the closest thing real estate investing has to public equity. For investors, though, their flexibility is handicapped. On top of high minimums, REITs are time-consuming and controlled by a brokerage or underwriter. And unlike public equity, REITs only provide exposure to entire portfolios — investors can’t pick and choose where to invest capital.
Alternatives to REITs — private placements or crowdfunding — are plagued by identical problems of inflexibility and illiquidity, large upfront capital investments and hefty fees, and minimum commitment periods.
Thankfully, we have the infrastructure to change commercial real estate’s fate for the better.
Tokenization could resurrect the real estate industry by offering alternative fundraising channels accessible to a broader base of investors across the entire property lifecycle. Putting RWAs like real estate on-chain makes them usable for trading, borrowing, lending, staking, and as sustainable collateral for various protocols powering decentralized finance.
Smart contracts — self-executing programs or protocols — can automate asset transfers. Transactions become faster, cheaper, more efficient, and far less prone to human error. Smart contracts can leverage attestation technology like Ethereum Attestation Service to ensure participants meet criteria for compliance or issuer preference.
Whether on a public permissioned blockchain or permissionless network, tokenization can also bring security and transparency to real estate investing. Investors, issuers, asset owners, auditors, and regulators will be able to verify information about on-chain assets, including proof of ownership, in real time. Combined, these benefits of tokenization could bring much-needed liquidity, efficiency, and transparency to the real estate market.
The business landscape may never recover to pre-pandemic office occupancy levels, but tokenization can push the industry into new frontiers and provide the necessary funding channels for new projects.
This boom in tokenized real estate may come sooner than we think, as companies like ABC Tokens, RETokens, and Tokenise prepare to launch the first wave of tokenized marketplaces and exchanges equipped for large RWAs like real estate.
