The new "hot" real estate market is not on the picturesque coastline and not in the hot cities of the Sun Belt - in the metaverse of gamers.
Investment companies acquire virtual land and real estate in the virtual worlds of Sandbox and Decentraland. In them, players imitate real-life - from shopping to attending concerts. Individuals and firms will spend money on the use of virtual houses and retail space. The value of the real estate will rise as the number of people in these worlds increases.
Investor interest in virtual real estate has grown since Facebook was renamed Meta Platforms Inc. and plans to focus on online worlds - Metaverse.
Large purchases of virtual land
Republic Realm is engaged in real estate development in the metaverse. In November 2021, the company paid $4.3 million for land in the Sandbox world. This is the largest recorded sale of virtual real estate. The NonFungible organization monitors virtual land sales. Republic Realm bought virtual land from Atari SA, which specializes in video games. Both companies announced joint plans for the development of some properties.
Earlier in November 2021, a subsidiary of Canadian investment firm Tokens.com paid about $2.5 million for land in the Fashion district of the virtual world of Decentraland.
"It's like buying land in Manhattan 250 years ago when the city was under construction," said Andrew Kiguel, CEO of Tokens.com.
What happens in the virtual world
Virtual worlds are usually created by video game developers. The user's avatar can walk around the city, buy clothes or a painting for his virtual home in a store. In virtual worlds, there are apartments with living rooms. Users communicate with their real-life friends' avatars. Participants pay with cryptocurrencies. They gamble in virtual casinos or travel on virtual yachts.
Real estate investors:
● sell houses next to users' friends or virtual attractions,
● develop retail space for lease to virtual retailers.
Land ownership is registered using NFT tokens - digital identifiers that act like actual documents. Real estate sales are usually carried out in a cryptocurrency that is unique to each metaverse.
Investing in virtual real estate is risky
The real estate retains some value even during a market downturn. The value of virtual real estate could drop to zero if the metaverse goes out of style and people stop visiting it.
"If I buy a virtual building for 40 ETH, and then Ethereum drops from $ 4,000 to $100, that's a fundamental risk. There is no such risk when buying physical real estate," said Zach Aarons, general partner at venture capital firm MetaProp.
To reduce the risk of Republic Realm:
● buys land in several different virtual worlds,
● runs two real estate investment companies focused on virtual real estate,
● owns 2,500 plots of virtual land in 19 worlds.
"... we buy land either directly from the creator of the world, or from third parties through public listings and off-market transactions. In some cases, we decide to just sit on vacant land and wait for an increase in value. In other cases, we pay an architect to design virtual houses or shopping centers. And the game developer for building them, "says Republic Realm co-founder Janine Yorio.
Zoning rules restrict virtual developers. Too active development can lead to oversaturation of the market, although in the metaverse, buildings can violate the laws of physics and float above the ground.
Republic Realm employs an asset management manager:
● handles complaints from tenants and requests to change the terms of the lease,
● rents the mall to avatar clothing retailers,
● manages a village of 100 villas on private islands.
Tokens.com shares are listed on the exchange
The firm is developing an 18-story skyscraper in Decentraland to be leased to lawyers and cryptocurrency exchanges for events or advertising.
Tokens.com plans to develop real estate on its virtual land plot in the Fashion District of Decentraland and lease it to fashion companies for events and trade.
“We can create the equivalent of Rodeo Drive or Fifth Avenue, where Gucci and Adidas will appear,” said Mr. Kiguel.
ETF Providers Create Metaverse Funds
Bloomberg drew attention to the creation of investment funds in companies associated with virtual worlds. Zuckerberg called this nascent segment of Internet technology "the next frontier."
The Roundhill Ball Metaverse ETF (META) launched in June 2021. META raised $664 million in cash in November and now manages $866 million. Management fee is 0.75%.
At the end of October 2021, a small fund, the Fount Metaverse ETF (MTVR), was launched.
In December 2021, First Trust Advisors LP applied to launch the Indxx Metaverse ETF. The fund plans to track technology companies in emerging and developed markets and will use passive management. First Trust is one of the largest sellers of thematic funds - with $150 billion in management.
New Metaverse funds appear in South Korea and Canada. Analysts estimate the metaverse market at $800 billion by 2024 - an annual growth rate of 13%. The industry is still in its infancy - the potential is not fully understood.