This interview is part of our new Blockchain In Real Estate series, where we interview the world's leading thought leaders on the front lines of the intersections between blockchain and real estate.
In this interview we speak with Sandy Selman, Co-founder of CPROP, to understand how his company is using blockchain to transform the real estate business, and what the future of the industry holds.
1. What’s story behind CPROP? Why and how did you begin?
SS: CPROP was formed by serial entrepreneurs with backgrounds in commercial and residential real estate, as well as technology, marketing and finance. Co-founder Adam Koehler was previously a co-founder of a highly successful property tech start-up, Dotloop, which sold to Zillow in 2015 for over $100 million. Luke Sestito and I previously founded a data science company, Sanus Connect, that developed a breakthrough product for JLL to assist commercial real estate asset managers make better informed capital planning decisions based on holistic data aggregated from their large commercial property holdings. Having started trading cryptocurrency as a hobby, we realized the potential of blockchain to deliver transparency and trust to the data-intensive real estate sector, an industry that has lagged in its adoption of technology relative to other data-intensive sectors. We established CPROP in 2017 to develop proprietary and white-labeled blockchain-enabled applications that reduce the costs and risks associated with doing business in the global real estate industry.
2. Please describe your use case and how CPROP uses blockchain:
SS: Much of CPROP’s current work is aimed at improving the way property-related data is captured, managed, monetized and archived. In general, this data can be spread across many internal platforms as well as external commercial and government databases. Pulling selected data from these various repositories into a unified data architecture backed by blockchain has many use cases for owners and operators.
For example, there are two key points in time where commercial real estate information that is not efficiently organized and archived can impair asset management and drag down financial performance:
When a new building or property development is completed and a handover is executed from the development/construction team to the owner/operator team. In this instance, the damage may not be immediately apparent but, when management needs to respond to an event down the road, countless hours can be lost looking for data because the handover package was not safely preserved and maintained in a readily accessible archive.
When properties are sold and transition to new ownership. During the sales process, due diligence is constrained by time and availability of data. Acquirers pore through data rooms to find what they need but data gaps can slow the process and impede valuation. Data can also slip through the cracks if the acquirer utilizes different software or IT systems to manage their information than the prior owner.
To respond to this opportunity, CPROP is developing a novel data architecture, PropAbilitySM, to hold important property-related information that survives for the life of the building (and beyond), regardless of ownership. We envision a centralized database supported by a permissioned blockchain layer that can be polled to validate data and timestamps when permissioned users access the central database. Polling would take place as a background process, so users need not interact directly with the blockchain. Instead, polling would manifest as an indicator that downloaded data has been certified as accurate, along with a visible timestamp. This is what makes our approach unique – PropAbilitySM will self-certify via blockchain as to the accuracy and timestamp of its own data. In addition to the commercial sector, CPROP is developing various versions of PropAbilitySM for the multifamily, residential and industrial sectors.
3. Could you share a specific customer/user that benefits from what you offer? What has your service done for them?
SS: CPROP is actively working with real estate industry stakeholders to understand how to best address the data challenges described above. Our product development efforts are focused on creating a single, unified data architecture pulled from multiple data platforms, in accordance with legal and regulatory requirements and to cost effectively generate comprehensive property reports on demand with access related back-up information, as necessary.
For example, CPROP has partnered with Tampa Bay brokerage, RE/MAX Action First, to re-imagine the residential brokerage model in an age of discount and fixed fee seller commissions. Together, we are exploring how to leverage the licensed agent network to monetize data with which they come into contact every day. The project involves re-shaping the agent-consumer relationship so that it has a longer life, and not just based on doing a one-off property transaction. Moreover, we will be trialing a method to generate HomeFAQsSM reports with the goal of marketing them in the consumer market, as well as in the insurance, title and mortgage sectors.
4. What other blockchain use cases in real estate are you excited about?
SS: We believe a bright future lies ahead for tokenization to dominate the commercial real estate finance market. In an optimum tokenization scenario, the ownership of individual properties would be fractionalized and represented by unique property-level tokens which trade on a fully regulated securities exchange, alongside any other regulated securities. Trading tokens is extremely time- and cost-efficient because all you need is a secure internet connection. And the process is highly secure because a blockchain is used to track all trades. As a result, property level tokenization can enable investors to invest property by property, rather than being locked into pooled investment vehicles such as REITs, which dominate commercial real estate finance landscape at both the institutional and retail level. Why is this important? Because research shows that the Net Asset Value (NAV) of pooled investment vehicles is up to 20% lower than the sum of the NAVs of the individual properties within the pool. In view of the trillion dollar market cap of equity REITs in the US alone, unlocking this inherent discount would be quite a driver for tokenization.
You may ask why this has not already happened if the financial incentive is so strong. The reason is that securities regulations have not yet caught up with technology, but this is changing quickly. Financial regulators around the world are working hard to create a set of rules for security tokens and security tokens exchanges to ensure investors and issuers have the protections on which they rely and have come to expect.
5. Where will CPROP be in 5 years?
SS: We expect CPROP to have commercial partnerships with multiple industry partners from across the real estate value chain, e.g. brokerage, insurance, finance, etc. delivering blockchain-enabled products and services to the market. Whether those products relate to better management of data or are tokenized financial products, expect to find CPROP driving innovation and continuing to serve as a thought leader in the fast emerging blockchain real estate space.