Metaverse Real Estate – Next Big Thing or Next Big Boondoggle?

Highly prized plots of land are fetching fortunes on the biggest platforms. How do the economics of metaverse real estate stack up?

AccessTimeIconMay 23, 2022 at 2:59 p.m. UTC
Updated May 23, 2022 at 4:24 p.m. UTC
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Jeff Wilser is the author of 7 books including Alexander Hamilton's Guide to Life, The Book of Joe: The Life, Wit, and (Sometimes Accidental) Wisdom of Joe Biden, and an Amazon Best Book of the Month in both Non-Fiction and Humor.

Are you hoping to buy a home but frustrated with the sky-high prices? Are you worried the housing market is in a bubble?

Then consider a lovely piece of real estate that goes for only $4,873, as of the time of this writing. No HOA fees. No noisy neighbors. And you might even qualify for a mortgage. It’s a beautiful plot of land called “Parcel 148, -35,” and the only catch is that it exists solely in the digital metaverse of Decentraland.

This article is part of CoinDesk’s Metaverse Week series.

Metaverse real estate is booming, or at least it has for much of the crypto bull run, topping $500 million in 2021. (Where it goes now is anyone’s guess.) In The Sandbox, someone spent $450,000 to buy land next to to Snoop Dogg’s virtual “Snoopverse.” Tokens.com spent over $2 million on virtual land and has formed a metaverse real estate company. And now you can even get a metaverse mortgage, kind of. (More on that soon.)

Why do people buy land in the metaverse?

Almost everything in crypto, of course, has a whiff of the absurd. But especially for those not paying close attention to the space, the idea of “digital real estate” can seem particularly bonkers.

The short answer: People think the price of metaverse land will go up. And so far, for many, this has been a good bet. One reason is the forced scarcity. Just as bitcoin’s (BTC) total supply is capped at 21 million, there are only 90,601 parcels in Decentraland. “If it becomes a place where millions of people are hanging out, land will continue to appreciate. Supply and demand,” says Dan Reitzik, CEO of metaverse real-estate company Terrazero, which now has 30 employees.

The longer answer has to do with virtual Miller Lite.

Unlike when you buy many cryptocurrencies, when you buy virtual real estate, you can actually do stuff with it. You can build games on it. Display advertisements on it. Flaunt your non-fungible tokens (NFT) on it. Host a virtual Kendrick Lamar concert on it. Or even rent it out to others who need the digital space. All of these activities could bring you passive income.

And this is where the beer comes in. At halftime of the most recent Super Bowl, Miller Lite opened a virtual bar in Decentraland. Dan Reitzik’s company helped that come to life and “20,000 to 30,000 avatars visited over the day,” says Reitzik, who adds “the average length of time that each person interacted with Miller in the bar was 23 minutes, which in marketing is incredible.” As I’ve written about before, brands ranging from Adidas to Clinique to Fidelity are all trying to “enter the metaverse.” Many think the trend will continue. And when brands want to set up virtual shops to interact with customers, as Reitzik says, “in order to do that, the brands need to own land or rent land.”

With virtual land, if you’re willing to put in the time and effort, you can actually boost its value, similar to how in the real world, you can renovate a fixer-upper. “You can impact the future value of that asset [virtual land] by building on top of it, and that’s very different from a traditional crypto token,” says Janine Yorio, CEO of Everyrealm, a metaverse real estate company. “You’re limited really only by your own creativity and the technical limitations of the platform.”

Decentraland’s head of partnerships, Adam de Cata, says these kinds of developments are popping up all over the virtual world. “There are 5,000 parcels within Vegas City,’’ says de Cata, “and they’ve been able to host the Australian Open.”

Maybe this intrigues you. Maybe you want to invest. Maybe you can’t afford to buy any metaverse land but you’re keen to take out a mortgage.

Mortgages in the metaverse

It was Dan Reitzik’s company, Terrazero, that first offered a metaverse mortgage, leading to a flurry of mainstream headlines like Curbed’s “Now you can get a mortgage in the metaverse.” When I heard this I immediately thought of my colleague David Morris’s prescient article from 2018, “For the Love of All That is Holy, Do Not Take Out a Crypto-Mortgage on Virtual Land.” The idea sounded reckless. It’s one thing to toss a small slice of your investable assets on a risky bet with a high upside. It’s something else to buy virtual land with money you don’t have. Especially in the wake of the Terra system meltdown, it’s not hard to imagine an interlocking, highly leveraged system of metaverse mortgages that sinks the crypto economy, 2008-style.

Reitzik acknowledges that the provocative headline of “Metaverse Mortgage” is “the reason we’re on Bloomberg all the time,” but quickly clarifies that “when we launched the metaverse mortgages, we didn’t launch it to provide an opportunity for people to speculate.” He says the first mortgage was to a young entrepreneur who wanted to purchase four plots of land, and he had a specific business plan for deploying advertising boards which would generate revenue.

“We looked at it and said that this business is viable,” says Reitzik. “We gave him a two-year loan. It’s not really a mortgage.” Terrazero purchased the parcel on behalf of the client, then held the NFT (when you buy land it’s really just an NFT), and then granted him the development rights on that land. “He can build his dream, make his money and pay us off. And once he pays us off, he owns the land,” explains Reitzik. As soon as the news of the mortgage went public, Terrazero received “thousands of inquiries.” Most were for raw speculation. Reitzik ignored all of these. As he says now, “We don’t want to create a new 2008 for the metaverse.”

Even putting mortgages aside, metaverse real estate involves some sneaky risks that you don’t find in the real world. The first one is platform risk. In the real world, if you’re pondering a real-estate purchase, at the very least, you have confidence that in five or 10 years the plot of land will actually exist. Maybe that fringe-y neighborhood in Queens, N.Y., fails to appreciate as you had hoped, but it won’t simply vanish from the map.

That’s not the case in the metaverse. You’re not just betting on some pixels in Decentraland, you’re betting that Decentraland itself will still be relevant in the future. But what if Decentraland goes the way of MySpace and all the energy flows to The Sandbox? Or what if a new metaverse emerges that makes both of these obsolete?

This is why Yorio’s company – now with a team of 45 – invests in a portfolio of 27 metaverses and is tracking “a couple hundred,” including virtual worlds that haven’t even launched. Suddenly the company’s name “Everyrealm” makes sense. “You have to look at it like a VC would,” says Yorio, meaning that she’s assessing early-stage startups. “We’re looking at the team. Do they have a track record of having built something similar?” Other questions she asks: Do they know how to go to market and bring users to a platform? Do they have a unique idea? Do they understand video game mechanics?

Then there’s the tricky issue of teleportation, which is not something you think about when buying a condo in Nashville. In Decentraland, as with some other metaverses (each one is different), you can simply punch in coordinates and teleport to a location. This scrambles the normal real-estate playbook. “I don’t think the old adage of location, location, location matters as much,” says Yorio. “It matters what you build on it.”

Reitzik agrees. “Location isn’t quite as important as in the real world. What is important is that you have traffic and people are engaged.” This is why both Terrazero and Everyrealm aren’t just scooping up land and hoping it appreciates; they’re actually “developing” that land to entice more traffic. “We focus on investing, and then also thinking about how we can be productive and helpful members of the community, so that it isn’t just a wasteland of barren land,” says Yorio. “And in that sense, it is just like real-life real estate.”

Or some see it as even superior. “In the real world, I can put 20,000 people in Rogers Arena [in Vancouver] to watch a Drake concert,” says Reitzik. “But in the metaverse we could put 20 million people in there. Think about the opportunity for generating revenue and commerce based on the scalability of a virtual world.”

Nearly all of this, of course, relies on one foundational assumption: That people will care about the metaverse. And that, in turn, is effectively a bet on the growth of crypto. If the metaverse flops, your “land” is worthless. At least in the real world, if you buy a home and the market tanks, you still have four walls and a ceiling to shelter you from storms. If you splurged for Parcel 148, -35 and the market tanks, you just have a sad collection of pixels.

Is metaverse real estate speculation crazy?

I ask that of Decentraland’s de Cata. “My response is that it’s okay not to understand different communities,” says de Cata. He acknowledges that it’s not for everyone, and that “even digital ownership sounds so far from what the average person [is thinking about.]” But then again, the ethos of building a decentralized metaverse, says de Cata, is that a community is working to create content that will be owned by the users. If the metaverse is the future and we’ll all be spending more time in it, shouldn’t the land itself be owned by the users, as opposed to Big Tech?

In some sense, says de Cata, the metaverse is “no different from most other social platforms that they may use on a day-to-day basis,” such as Twitter or Facebook or Instagram. And if you suspect the metaverse today is where social media was in 2007, maybe it’s not so crazy to buy a chunk of Harvard-era Facebook.

But think twice about that mortgage.

More from Metaverse Week:

Verifiable, immutable ownership of digital goods and currency will be an essential component of the metaverse.

Executives from Adidas, Budweiser, Clinique, NARS Cosmetics and other big consumer brands explain why the metaverse is “seismic” for their businesses.

The future possibilities of the metaverse are presumably limitless, but is there anything you can do in the metaverse right now?

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Jeff Wilser is the author of 7 books including Alexander Hamilton's Guide to Life, The Book of Joe: The Life, Wit, and (Sometimes Accidental) Wisdom of Joe Biden, and an Amazon Best Book of the Month in both Non-Fiction and Humor.

CoinDesk - Unknown

Jeff Wilser is the author of 7 books including Alexander Hamilton's Guide to Life, The Book of Joe: The Life, Wit, and (Sometimes Accidental) Wisdom of Joe Biden, and an Amazon Best Book of the Month in both Non-Fiction and Humor.

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