Deloitte Clients: Moving Forward on Blockchain

NEW YORK CITY—Kevin Shtofman, who heads global technology strategy for Deloitte’s real estate group, says 2018 was the year for testing blockchain. He adds 2019 is the year companies are assessing its value. And 2020 will be the year the technology will be adopted on a far greater scale in the real estate industry.

In February 2018, Shtofman spoke at a CoreNet Global New York chapter event, where he provided an introductory explanation to a packed room, on the basics of what blockchain is and how it could be used in real estate. It’s the technology that enables cryptocurrencies, and in simple terms is a database. It’s an electronic ledger that records a list of transactions that cannot be edited, functioning simultaneously across multiple computers on a peer-to-peer network.

In the last year and a half, Shtofman says Deloitte has ramped up its blockchain advisory services to an even greater global reach.

The accounting giant is currently focusing on three different use cases of blockchain:

Tokenization of Assets – “This is creating a digital version of ownership representation. Instead of having a share of stock or a paper bond, we are creating a digital token that represents ownership interest in real estate,” explains Shtofman. He says it could be equity, debt or any portion of the capital stack that represents real estate ownership. “It’s taking the securities model and putting it in a token form so that it’s easy to track ownership,” he notes. Electronic shares are similar to what occurs with public stock on the exchanges, except this now allows for digital convenience with privately owned shares and private transactions.

Shtofman notes since his last CoreNet Global New York event, Deloitte has advised companies on approximately 50 tokenized offerings. But most have not been with real estate. “As far as real estate is concerned, it’s still in the very, very early days,” says Shtofman.

Benefits to tokenizing assets include reaching different funding sources beyond institutional investors, he explains. With tokenization, smaller portions can be offered. For example, a family office can participate in writing a $500,000 check—instead of the $25 million check of an institutional investor. In addition to the new potential capital pool of smaller investors, tokenized asset transactions can more easily involve other countries, expanding the geographical pool as well.

Lease Administration – This means making certain all of the lease contracts are on a platform where all the different players can negotiate the contract. Having the title transfer and payments made automatically on a blockchain would substantially reduce the administration and compliance costs. The Deloitte platform is called Building Passport. Currently, there are two brokerage firms, one being JLL and another still undisclosed, which are working with Deloitte on pilots to test out the technology for lease administration.

Smart Contracts in General – After leases are executed, after all terms are agreed upon, multiple documents need to be shared, signed and provided to regulatory agencies, and title searches need to be run. Next all the documents need to be stored and payments initiated. Money gets put into escrow and deposits are made.

“Attorneys, brokers, regulatory agencies will all still be important because you have to negotiate the front end of the deal,” says Shtofman. “But once that deal is negotiated, all of the administrative minutiae and work on the backend can be put on a blockchain and automated at much lower costs.”

And it’s not just leases, but virtually all business contracts that require various steps with multiple collaborators could be put on a blockchain.

As to future possible questions about this technology—Shtofman points to privacy issues: How much will people be willing to use the technology to make their lives more convenient in exchange for giving up a substantial amount of data privacy? “That’s going to be the big burning question in the next couple of years,” says the blockchain expert.