Should your next real estate investment be virtual?
On January 17, LA-based builder KB Home, one of America's largest built-to-order homebuilders, opened a “community” with three model homes…in the metaverse. As the term metaverse becomes more mainstream, consumers are beginning to understand that it’s not just Facebook’s new name but a pervasive new technology area that will transform some of the ways we live, work, shop, socialize…basically experience the world. Real Estate, one of the most logical first business areas because it is environments and spaces, is already off to a running start. The question is, should you be investing and if so, where? But first, a quick primer on the metaverse…
WHAT IS THE METAVERSE? Virtual and augmented reality experiences have become relatively common from home gaming to Disney rides to sales and marketing. Using 3-D goggles, consumers are able to immerse themselves in computer-generated environments, giving the sense of being “in” the game. The metaverse takes virtual reality one step further, by simulating a connection between the virtual and actual worlds, allowing you to meet and interact with other people within those environments. You can go to a meeting, have a party, attend a concert or shop at the mall. Businesses can offer services, launch products, participate in trade shows or host events. Through your “Avatar,” a virtual version of yourself, you can be in the same room with your colleagues in the workplace or socializing and engaging in a real conversation. The metaverse is not just about the physical surroundings – the structures, rooms or décor created within the metaverse – it’s about the experience. We can create welcoming environments for ourselves that will be both uplifting and improve productivity. What could be more tailor-made for real estate? So, let’s look at the potential opportunities that are coming for real estate investors and professionals and whether you should be an early investor.
1. Elevating our personal environments on a day-to-day basis. Put your goggles on and move into that home or office you’ve always dreamed of. Live there, work there, meet clients there, entertain there.
2. Selling physical real estate. We currently have 3-d walk-throughs with staging. In a metaverse environment you’re not only able to physically walk the space, but clients can bring their actual furniture and design ideas to see how it’s really going to work for them. At some point clients will be able to walk the neighborhood and visit the local coffeeshop and school!
3. For developers and investors. Creating a metaverse building, office park, subdivision, where prospective homebuyers can “see” a completed project with perfectly hedged lawns and fully furnished interiors before ground is ever broken would be a gamechanger. It would seamlessly facilitate the pre-selling process. Developers could easily experiment with different layouts within their “metaverse universe” to better meet the needs and wants of their consumers before turning the project into a reality. This in turn will decrease the likelihood of making any major mistakes in anticipating consumer’s desires. Even better, imagine never having to break ground, deal with fluctuations in material costs, permit delays, subs that stop showing up mid project or incompetent general contractors by building your project in the metaverse. For those raising money, the pool of investors will be even greater, as the metaverse real estate can offer more affordable and accessible investments than traditional brick and mortar real estate investments. While brick and mortar real estate is a finite commodity; the metaverse is infinite.
4. Retail Spaces. Currently owners of malls, department stores and retail spaces are limited to foot traffic from their regional audiences and online shopping is a flat experience of scrolling through page after page of items. In the metaverse, malls and retailers can have a global reach. The potential to stroll through the malls and stores and actually try on clothes could become a reality in the not-so-distant future. As malls are seeing a resurgence, evolving into entertainment centers, the metaverse is a natural progression.
5. Metaverse Developments. As mentioned at the beginning of this article, developers are already offering virtual parcels and creating communities as well as offices and retail spaces within the Metaverse. According to the WSJ, Republic Realm owns about 2,500 plots of digital land across 19 virtual worlds. The company’s approach to its portfolio varies from holding vacant property and waiting for it to appreciate to paying an architect to design virtual homes or malls and then hiring a game developer to build them. My guess is that architects and designers are already focused on creating custom metaverse environments with every amenity and finish you could dream of. That said, I’m sure that although the shower and sauna look fabulous, you will not have the same relaxing experience using them while sitting on your real couch.
6. Twinning. Soon it is likely that you will be acquiring both physical real estate and that same real estate in the virtual world. Your home in both places. My guess is that if a property doesn’t offer the complimentary “NFT” (Non-Fungible Token - a unique digital asset where ownership is secured on a blockchain) for its’ digital twin, it may actually impact the price of the physical. Or like certain website URLs, people will buy up the NFTs of celebrity, celebrity adjacent or other high-end properties and sell them for a premium. One of the biggest sales to date was the $450,000 purchase of a property in a virtual development called the Sandbox that was adjacent to a parcel owned by Snoop Dog. Currently NFTs have little appeal outside of the investor’s virtual portfolio. As an example, owning a limited edition NFT of a renowned piece of art is already a thing, but not something you can display or share. While you can pull out your phone at dinner and show it, you still can’t hang it on a wall. But what if you can actually have that NFT hanging on the wall of your metaverse home or loan it to the metaverse MOMA?
SHOULD YOU INVEST…
It’s a little bit of the Wild West right now, but the most exciting thing about real estate in the metaverse is the idea that real estate will not only be commoditized, but entertaining as well. I can’t think of another sector that can claim both. Real estate in the metaverse is aspirational and yet accessible to those who otherwise could only dream of owning the identical “real” real estate. The demographic makeup in cities, suburbs and rural areas would change dramatically. There’s a definite appeal in having the ability to physically live and work in a low tax region, party in NY and London, shop at the Mall of America and go to “live” theater and concerts. No longer would one need to be near a major metropolitan area or international airport.
It's always interesting to analyze potential secular changes in the real estate world. There are a lot of early-stage players with exciting visions, but it remains to be seen who will prevail, what meta communities will thrive and which will become ghost towns. For the time being Delarosa will be staying rooted in physical real estate where investment returns are real and quantifiable. Even if the metaverse becomes a way of life in the future, people still need a physical home to “rest their head.” During the Pandemic, Zoom kept us connected professionally and socially. It did not however, replace the basic tribal need for physical contact with others. And yes, through sensory technology you can feel a virtual handshake or hug, at least for the foreseeable future, this will likely be limited to an exclusive audience.
Wall Street analysts vary in their predictions, ranging from 2 to 5 years, as the current technology is mostly in the beta stage and deploying only to small user groups. To date, Mark Zuckerberg’s net worth has plummeted by $100 Billion all due to significant investment into the Meta/Facebook metaverse research arm, Reality Labs. But losing $100 Billion when you are worth $140 Billion will probably not impact his lifestyle or retirement.
At Delarosa, we are huge purveyors that all investors should have a diversified portfolio that meets their particular investment requirements. If they need cash flow and a solid return regardless of market conditions, then a real estate investment offering consistent returns, like Delarosa’s 9% annualized, should be a component of the investors portfolio. If you have disposable income and are excited by a sexy, speculative investment where returns could take many years and the odds of losing your investment are high, then by all means, saddle up your horse and head into the virtual West. You may get lucky and hitch your wagon to one of those unicorns. It is definitely the next new frontier… as for now, only billionaires can head into space.