I remember my shock upon first researching the New York City office market. The average price per square foot seemed impossibly high, even for one of the most expensive markets in the world. After a quick search I found out that New York leases calculate rental price per square foot on an annual basis. This made every rent I looked at twelve times higher than an identical California property, where we use a monthly metric.
This is a fairly simple example, but it drives home the point of how different commercial real estate data can be. Since historically most commercial property deals are done with local representation, discrepancies in data were never that consequential. That was until the world started connecting using a technology that we now know as the internet.
The ability to research markets, find deals and communicate with clients regardless of their geographic location changed the way everyone in the real estate industry did business. It also made it much more important to record information in a standardized way. Computing technology relies on consistency. Systems can be designed to perform the most complex tasks, but only if the data is delivered in a format that it can recognize. Small differences matter. A computer program might not be designed to intuit discrepancies in data like the difference in price per square foot calculations in New York versus California.
I recently had a chance to speak with Lisa Stanley, CEO of OSCRE International, a member-based non-profit organization dedicated to the development and implementation of information exchange standards for real estate. She put her thoughts on the importance of this new technology this way, “Blockchain is a foundational change, like the internet. It will transform the way real estate is managed, purchased and used.”
That is why OSCRE is in the process of creating a blockchain initiative. The project started with identifying potential use cases, and will move forward to proof of concept models and pilot projects to explore a variety of real estate applications.
But in order for blockchain technology to be put to work across the real estate industry, organizations need to have standardized data. Blockchain, much like the internet, is all about information exchange. The technology allows a distributed ledger to be created and protected in a way that all participants can rely on. For it to work all the information must be recorded in the same format.
You can’t have a discussion about blockchain without a recognition of the importance of a data governance program.You can’t have data governance without a framework based on standards.
This means that the blockchain must be built with a shared standardized data framework for effective data governance. “You can’t have a discussion about blockchain without a recognition of the importance of a data governance program.You can’t have data governance without a framework based on standards,” Lisa told me during our conversation.
I have to be honest here about the fact that I did not fully understand what a data governance program is. I figured everyone could just agree on a standardized way to record their information and could then go on their merry way. The reality, as it always seems to be, is much more complicated. Consistency in terms and definitions are critical to the implementation of emerging technologies, including blockchain. Systems must be created to ensure that the data doesn’t get entered incorrectly and any changes have to be agreed upon by all users.
OSCRE’s initiative to create an industry collaboration focused on blockchain is a first for real estate. Two of the industries that commercial real estate interacts with have already established collaborative efforts. The insurance industry has created theB3i initiative where it’s more than 45 members operate under a Memorandum of Understanding that enables them “to share costs and resources efficiently and deliver a rapid prototype development,” according to the site.
About 80 financial institutions have come together to start theR3 Collaboration. Each participating organization provides funding to use a platform that they have developed called Corda. It should be said that Corda is primarily a distributed ledger and has been criticized recently for not using the blockchain technology. Even still it reportedly allows participants to “record, manage and execute financial agreements in perfect synchrony with their peers.”
Commercial real estate has been notoriously resistant to change. If the industry wants to get ahead of the impact that blockchain will cause it will have to find ways to use the technology to its advantage, and soon. The first step is to start with the data that drives business decisions, ensuring consistency in the terms and definitions that are use in every transaction. Then they will have to create a framework for collaboration since many of the advantages of blockchain technology come from increased ability to share information through a safe channel. Finally, every company that uses a distributed ledger will have to follow a data governance plan to keep the information in its required format. Blockchain will change almost every part of the real estate industry, but only after we enact a few changes ourselves.