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Inside the Wildly Speculative World of Metaverse Real Estate

Since Facebook rebranded as Meta in October 2021, the word ‘metaverse’ has floated around more than ever, often leading to puzzled looks among non-gamers. Mark Zuckerberg’s multi-billion-dollar bet to recast the battered social media giant into the builder of the next iteration of the internet has many asking justifiable questions. The metaverse sounds like science fiction because, well, it is. The term was coined by sci-fi writer Neal Stephenson in his 1992 dystopian novel Snowcrash. It’s been a common sci-fi trope over the years of living in a virtual world, also shown in the book and film Ready Player One. But if it sounds far out compared to ‘traditional’ real estate, it helps to know that very real, large sums of money are being spent on digital real estate speculation.

First off, what is the metaverse? A simple definition is what our current version of the internet looks like, but instead, it’s fully immersive. Right now, metaverse platforms exist like Decentraland and The Sandbox, but they’re 2D and primarily browser-based. The long-term vision of the metaverse is to have enhanced virtual reality and augmented reality capabilities. An example of this vision would be to step into a virtual shopping mall, purchase a unique digital item for your avatar, and then sell the same thing later in a different virtual world.

Metaverse activities would also include attending concerts or anything else you’d do IRL, except you’re interacting with people all over the world via an internet based platform. We currently consume content on the internet, soon metaverse enthusiasts say we will experience it. All the metaverse platforms now exist separately, but the eventual goal is interoperability so users can jump from world to world. For this lofty vision to happen, there will need to be a new internet infrastructure and VR and AR tech will have to improve with higher internet speeds and super processors that handle hyper-realistic graphics.

Since Facebook morphed into Meta, CNBC reports that digital plots of land have skyrocketed by 500 percent. Digital currency investor Greyscale predicts the metaverse will grow into a global market of goods and services worth $1 trillion annually. The Metaverse Group formed recently, claiming to be the world’s first “vertically integrated real estate company focused on the metaverse economy in the world.” The company has assembled a portfolio of digital properties in the ‘Big Four’ virtual worlds of Decentraland, Somium Space, Sandbox, and Cryptovoxels. Real estate sales in those four platforms reached $501 million in 2021, according to MetaMetric Solutions, a metaverse data provider. At its current pace, metaverse real estate sales could top $1 billion in 2022.

Meanwhile, high-end retailers like Louis Vuitton and companies such as Nike and Walmart are also joining the metaverse gold rush. Walmart recently filed a trademark application and plans to offer its own cryptocurrency and NFTs in metaverse stores. And don’t forget about the celebrities cashing in. Snoop Dogg announced last year he’s planning his own virtual world on the Sandbox platform called the ‘Snoopverse’ that’ll feature “virtual hangouts, NFT drops, and exclusive concerts.” An NFT collector going by the name of P-Ape doled out $450,000 to buy a piece of digital land next to Snoop’s virtual mansion.

Big winners and big losers

Metaverse enthusiasts believe buying and selling a digital property will one day become a part of the global real estate industry. The vision is of a real estate company adopting virtual world strategies and portfolios alongside their real-world portfolios. 

A brokerage company like eXp Realty could be the first to try it. eXp is a fully remote organization with more than 60,000 agents in 17 countries worldwide. The company has built a $6 billion business without a single brick and mortar location, and in 2016 they teamed up with Virbela, a metaverse world for work and education, to develop a virtual office environment in the cloud called eXp World. Agents create their own avatars and log onto the virtual campus to conduct business. Everything from interviewing to onboarding takes place in the eXp World. It’s not a stretch then to imagine a firm like eXp having agents selling digital plots of land in worlds like Decentraland.

Other firms like Toronto-based Tokens.com and Republic Realm are already spending big money buying and developing digital land. Republic Realm, a metaverse real estate firm, paid a record $4.3 million for land in Sandbox, where it plans to create 100 islands with villas and a market of boats and jet skis. Ninety of the islands sold for $15,000 a piece on the first day and some are now being re-listed for $100,000. Tokens.com recently raised $16 million to invest in digital real estate, which it’ll use to buy land and hire staff. The company recently spent $2.4 million for land near Decentraland’s Fashion District, where it plans to host fashion events and virtual retail shops.

Just like early in the cryptocurrency days, there’s going to be big swings, and there’s going to be some big wins and some big losses.”

View Labs is a company that virtually designs photo-realistic replicas of the built world using their proprietary technology to help brokers conduct virtual walk-thoughs and attend virtual meetings. View Labs is creating its own metaverse that it expects to unveil soon. Through its 4K, 360-degree web-based video tech, the company aims to produce a more visually pleasing metaverse with better graphics than what most platforms offer. “Right now, virtual real estate investing is in its early stages, and it’s speculative,” said Bryan Colin, CEO of View Labs. “Just like early in the cryptocurrency days, there’s going to be big swings, and there’s going to be some big wins and some big losses. There will also be some big fluctuations as these platforms get built out, and the big winners start to arise.”

The value of a digital property is tied to how popular the particular virtual world is. Decentraland, one of the more popular worlds, says it has about 300,000 active monthly users and 18,000 daily users. The Sandbox boasts rapid growth with about 500,000 users and 12,000 unique virtual landowners, and the platform has attracted major brands and celebrities. 

These pale in comparison to online games like Fortnite, which has an estimated 80.4 million active monthly users. Video game platforms like Fortnite are not one of the ‘Big 4’ metaverses where companies buy digital land. But, these are immersive environments where users can make in-app purchases and should also be labeled a metaverse, according to Colin. He said investors are placing bets on the platforms that look like they’ll be big players. The investors who gobble up land now stand to make a fortune. But if a platform fails and gets abandoned, it could be a considerable loss.

Buying virtual land

Investors have been bullish on the metaverse, betting that young people used to spending so much time online will naturally gravitate toward it. But the verdict isn’t out yet on whether people actually want to spend their time in a metaverse. Twenty-one percent of Americans familiar with the metaverse are ‘suspicious’ of it, and 23 percent think it’s “tech companies trying to figure out a new way to make money,” according to a survey by Ipsos MORI, a market research firm. These opinions could change over time, much as most people warmed up to social media. And more than likely, younger generations will drive the metaverse’s growth. Skeptics only have to look at the vast engagement numbers of Fortnite to see there’s growth potential. And the money spent on in-game purchases in Fortnite shows people are willing to spend real dollars. Epic Games, the maker of Fortnite, announced in April 2021 that it was worth $30 billion.

Despite skepticism from some, digital properties are being bought and sold in virtual worlds, and there are emerging ways for real estate investors to get involved. Top sales in Decentraland for the seven days ending January 29, 2022, include a property that sold for $425,100, according to Motley Fool. The previous owner had bought the digital land in 2019 for less than $8,000. Minimum asking prices for parcels in Decentraland have recently been around 3.087 Ether, which is the equivalent of $13,675. There’s even an emphasis now on enabling people who own virtual land to monetize it through things like e-commerce and generating capital as digital landlords.

Buying virtual real estate has its own idiosyncrasies. Every metaverse platform that sells real estate has a marketplace where you buy it. The marketplaces vary with each platform, but they generally include the property’s unique coordinates on the virtual map, the asking price, and where the property is located in relation to business districts, transit, and other popular locations. There are also a couple of third-party marketplaces to buy property, OpenSea and Non-Fungible.com. These sites list virtual properties from more than one metaverse platform at any given time.

Metaverse real estate investors also get assistance from the emerging trend of virtual real estate agents and brokers. They’re hard to come by, but they do exist. They’re usually current or former IRL real estate agents who found a niche in the metaverse, you can find some of them on LinkedIn or other social media. There are currently no licensing requirements for metaverse agents, so it’s recommended to choose a local one so investors can meet them in person. The idea of metaverse brokers and real estate agents may become more popular as larger amounts of capital get poured into the platforms. Usually, the advantage of buying virtual property on the blockchain is that no middleman is needed since there’s no paperwork and everything is public and verifiable. But trading virtual assets peer-to-peer, especially for large sums, can be risky, and some users can get scammed.

TerraZero Technologies is a newer company calling itself a ‘metaverse land developer,’ acting as a real estate company of sorts for entrepreneurs and small businesses who want to do business in the metaverse. CEO Dan Reitzik says they will provide the upfront capital for people looking to buy metaverse land, and then they can pay it back over time like a digital mortgage. TerraZero has also created a tool with listings and provides information on metaverse properties available on different platforms. “Very soon, a company like Apple will go to their commercial broker, and they’ll say they want a new store in Chicago and also a new store in the metaverse,” Reitzik said. “The commercial broker will have to figure out how to get that land in the metaverse.”

Uncharted territory

When buying virtual real estate, investors first need a digital wallet to purchase the cryptocurrency for the platform they’re interested in. For example, you can buy digital land in Decentraland with that platform’s currency, called MANA, but you can’t use MANA for other metaverses like The Sandbox. Some platforms allow investors to use the cryptocurrency Ethereum, which can be used directly or in exchange for the platform’s currency. Making an offer and closing on a digital property is a breeze compared to IRL properties. In most cases, you make an offer on the platform, and the owner ejects or accepts it. Once the price is settled, clicking the buy button is all that’s left to do. Blockchain funding happens quickly and the transaction is recorded in a digital wallet, which indicates the investor holds the NFT title for the digital land.

As for appraisals in the metaverse, there’s no standard formula. Digital real estate is new, very experimental, and very volatile. Until recently, investors could buy a parcel of virtual land for a few hundred bucks on most platforms. Now, asking prices are usually a few thousand. Investing in metaverse real estate is highly speculative because there’s not much of a transaction history. And unlike real property, if the platform folds and goes offline, you no longer have that virtual land because it no longer exists.

There’s also the problem of scarcity in decentralized platforms like Decentraland. There are only so many parcels of land available, so that’ll inevitably lead to prices going higher, said Reitzik of TerraZero. Centralized platforms like The Sandbox, owned by private companies, don’t have this problem, as they can increase the number of land parcels if they want. Some say location doesn’t matter because users can quickly jump all over the virtual worlds, while others say getting a piece of digital land next to prominent attractions is an obvious benefit. Look at the aforementioned $450,000 sale price of the digital land next to Snoop Dogg’s Sandbox mansion for evidence of this.

As exciting as metaverse real estate investing sounds, it’s also extremely uncharted territory. No one quite knows how the digital land market will behave, so investors curious about virtual land buying and selling will probably be cautious about how much money they allocate to it. That’s all the more reason why the vast sums invested by some big brand names seem a little shocking. Many predict 2022 will be a year where activity in metaverse platforms ramps up even more, so more real estate investors may start taking notice. Prices for digital land parcels have skyrocketed, and they could continue to grow but any metaverse investor has to face the reality that these platforms could be abandoned making their property completely worthless. It’s a bit of a gold rush right now, and just like the real-life California Gold Rush, some virtual land speculators will make out big, and others will fail spectacularly.

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