Blockchain: How Can Commercial Real Estate Take Control?


The real estate industry is “ripe for the juggernaut blockchain revolution,” says real estate lawyer John Danahy. The only question is who will have a founding stake in the future landscape.

A blockchain is a complex set of algorithms that allows cryptocurrencies to be traded and verified electronically and smart contracts to be executed. Because the digital blockchain ledger is decentralized, with every entry encrypted and dependent on the integrity of prior blocks on the blockchain, its records cannot be altered. Importantly, the technology enables any entity to transact online with another without having to go through an intermediary, like a bank or real estate agent.

“Blockchain has the potential to improve capital efficiency in financial markets and drive a frictionless process revolution in almost all areas of life where physical assets, like property, and intangible assets, such as shares, are exchanged,” says Danahy, a partner with global law firm Squire Patton Boggs.

And when the real estate industry, the largest asset class in the world—estimated to be worth around $200 trillion—is structured around various gatekeepers, blockchain’s ability to eliminate these has immense implications for the property industry.

“Title transfer is the real estate world’s settlement system,” Danahy explains. “Equity, debt and legal title transfer could become as simple as many other online transactions, eliminating settlement risks and the delay between completion of a transaction and its registration.”

Danahy continues: “Proptech entrepreneurs and blockchain trailblazers criticize the dominance of the entrenched industry establishment—the estate agents and Realtors, title insurers and the lawyers—with their vested interests in the preservation of the ‘age-old’ system of title transfer that is out-of-date and stubbornly behind the internet age.”

It may be an industry ripe for disruption, but blockchain technology is not without its challenges. As a former IT consultant, Danahy has unique insights into how the technology could intersect with the property industry. The first challenge is the technologically difficult task of shifting title transfer and land registration from a database, one which is usually government-controlled, to a distributed ledger system.

“Because of the structure of blockchain, with each block built on the integrity of the last, all historic transactions across the jurisdiction would likely need to be recorded to the blockchain before new transactions could be added,” Danahy says. A change to a purely online system may also require legislation in many jurisdictions, which is “clearly not impossible, but requires the full support of the [legislative and regulatory entities] currently responsible for keeping the register.”

Typically, legal title can only transfer by deed. Some jurisdictions require deeds to be executed by personal signature on a paper document. Other jurisdictions go further, requiring the in-person involvement of notaries. In the United States, title to real property is generally conveyed and evidenced by the execution and delivery of a deed. The deed describes the property, terms of conveyance and manner in which the grantee takes title, and it is usually recorded in the land records for the county in which the property is located. Many states have specific deed requirements and some publish preferred deed forms. Much of the language in the deed is of legal significance and notable in that certain types of deeds and forms of ownership carry specific rights. Regulatory or legislative change would be required if blockchain is to eliminate the interface between the real and online worlds.

Driving standardization is another challenge, but Danahy says “the real estate due diligence process would benefit from a more standardized approach, driving efficiency and moving the industry toward levels of automation needed to move to a ‘click, review, buy’ approach.”

Compounding these challenges, blockchain has its own new language. Concepts like “mining,” “proof of work” and “smart contracts” are all new. “If the industry is to adopt blockchain, its concepts and language need to be understood by each stakeholder involved in the execution process,” explains Danahy. “That, or we need those who know to become integral members of the industry. A revolution indeed if we are to accept them into our collective enterprises.”

Danahy believes the challenges are many, but not insurmountable. Partnering between industry stakeholders and technology enablers is essential. Since early 2016, Standards Australia has been developing an open and transparent process for the development of international blockchain standards. And in April, Australia hosted the first international blockchain standards meeting.

In the U.S., the member-based organization OSCRE International has created the OSCRE Blockchain Initiative to explore blockchain technology in real estate. “You can’t look at emerging technology without an effective data governance program that relies on standards,” explains OSCRE International CEO Lisa Stanley. “OSCRE has been working to create that standardized approach for the last 15 years.” The organization has identified use cases and is starting pilot programs with companies that share OSCRE’s belief that blockchain isn’t a disruptor—instead, it’s a foundational change. “There is an inherent danger in doing nothing,” Stanley advises. “We encourage other organizations to join us in this endeavor.”

Tackling blockchain and extracting its value requires focus, Danahy says. “Much like the banks, the property industry has its establishment. Your time to adapt is now, before the proptech guys figure out how to do it without us.”

A version of this article originally appeared in Property Australia, a publication of the Property Council of Australia, an affiliate of BOMA International.

This article was originally published in the November/December 2017 issue of BOMA Magazine.