Join the metaverse land rush

It is 11.15 am on a Tuesday and I am taking a walk through Soho. An enormous all-seeing eye, raised high on neon-pink tentacles, gives me a quick glare. Above, the dinosaurs roar. Otherwise, the streets are empty. This is not the Soho of London, or even the SoHo of New York. This is Soho Plaza in Decentraland. Welcome to the metaverse, where the biggest land rush since Oklahoma ’89 is taking place. “It’s like buying land in Manhattan, 250 years ago,” says Andrew Kiguel, chair of the Metaverse Group, one of the world’s first virtual real estate companies. Which is perplexing to many who have spent their careers in real real estate. As one says: “The whole property market is driven by the fact that it is a real asset. It’s in the name, for goodness sake!” Metaverse land isn’t tangible. It is lines of code, representing 3D spaces in a virtual web of worlds that some, including Facebook, say is the future of the internet. These digital spaces will be where we meet, play, work and shop. And these lines of code will be the next generation’s offices, schools, malls, nightclubs and museums. If that all sounds a bit too Matrix, take a breath. Because it’s going to get weird. The idea of buying “land” in digital worlds isn’t new, as those who remember Second Life will know. But with the arrival of blockchain technology and the non-fungible token (NFT), something has changed. The blockchain is essentially an open ledger in code form, which tells you when a digital thing was created, by whom, how much was paid for it and so on. And, vitally, you can’t edit it. That then allowed the rise of the NFT. Those bits of digital art that sell for millions? Those are NFTs. And so is the “land” in the metaverse. By creating it on the blockchain, each plot becomes unique – non-fungible – and the prices have soared. When fun pays dividends Just over $8.3m (£6.1m) was spent on “land” in Decentraland in the past week. Over the past four years, sales have totalled more than $160m, while in another world, The Sandbox, $350m has changed hands. That’s the same value as 57,000 acres of real prime arable land. Most of this has been in small(ish)-scale deals. But in July last year a newly formed outfit called Republic Realm broke all records, spending nearly $1m on a slab of “land” in Decentraland. The person behind the deal was a property professional – Janine Yorio, the former head of real estate development for André Balazs, the developer of the Chiltern Firehouse. How did Yorio move from real to virtual? “I made an app,” she says. A real estate investment app called Compound, to be exact, which, in 2020, was bought by investment platform Republic. Yorio had often felt like an outsider in real estate – “as a woman, as someone who doesn’t come from a real estate family”. At Republic, among the “weirdos” of crypto, as she affectionately calls them, she felt among kindred spirits. “Some of my colleagues and I began buying metaverse real estate on weekends,” recalls Yorio. “Just for fun.” Her first purchase was a little plot in Decentraland for $900. She set up a team from the real estate and crypto departments. It was meant to be a side line. “We thought it would be one of many things we were working on. We didn’t know it was going to be the thing.” The growing interest and rising values proved hard to ignore. In 2021, the team became Republic Realm, first a part of Republic and then, in just a few months, a company in its own right. It signed the final papers for the spin-out last week. Within months Yorio’s outfit spent a record $913,000 on 259 parcels in Decentraland. Part of this has since become Metajuku – a metaverse shopping plaza inspired by Tokyo’s Harajuku district. By September, Republic Realm had set up a fund and was investing off its own balance sheet. The deals multiplied until it had bought more than 3,000 plots across 24 metaverse worlds. “What we didn’t know was that Facebook would change its name to Meta,” Yorio deadpans. The social media giant’s major bet on Web 3.0 caused digital land values to soar. The cryptocurrencies the worlds are built on spiked. Suddenly everyone had heard of the metaverse and NFTs were moving into the mainstream consciousness. And a rival firm was emerging – the Metaverse Group. The NFT real estate company already owned land in the major blockchain-based metaverses including Decentraland, Somnium Space, The Sandbox, Cryptovoxels and Upland. It had caught the attention of Andrew Kiguel, the Canadian founder and chief executive of crypto and NFT investor Tokens.com. In October, just before Facebook’s announcement, he bought 50% of the Metaverse Group for $1.7m. In mid-November, after Facebook’s announcement, Kiguel spent another $2.8m to take his stake to 70%. A week later, Metaverse Group smashed Republic Realm’s record, spending $2.43m for an estate in Decentraland’s fashion district. But while the amount of money spent by Kiguel’s team was far higher, the amount of “land” they bought was much smaller – less than half the size of the block bought by Republic Realm. Twice as much money, for half the land. “It’s a very good price,” says Kiguel. “I think we could get two to three times that today. Maybe five times. But we want to keep it. We view that land as priceless.” Drawing in crowds Despite Kiguel’s crypto credentials, he too is “proper property” to the core. “I was an investment banker [at Canada’s GMP] for 20 years and my primary focus was real estate,” he says. “We look at this the same way a real estate buyer in the physical world would look at the commercial or office sector,” he says. Take his Decentraland deal. “We bought that piece of land barren. But now it is being developed and has a tenant.” In March, the Fashion Street Estate will host what Kiguel believes will be “the biggest fashion show in history”. That isn’t entirely unlikely. In October, Decentraland hosted an electronic dance music festival. Some 50,000 people visited. With some of the world’s biggest fashion brands lined up for his show, Kiguel believes they can pull in 10 times that number between 24 and 27 March. “What will that be worth to advertisers and brands? They’ll want product placement, concession stands…” And Kiguel, as the landlord, will charge rent. So how much rent can you charge for a building that doesn’t exist on a plot of land that isn’t real? “We don’t know,” he says. “This has never been done before. It’s not like we can look at the plaza across the street and say ‘Hey, what are those guys charging?’ We are trying to take a methodical approach. We have paid this much for the land, so we need to charge that much for it. And we are also looking at things like naming rights.” His vision is long-term. In the future, he sees the area full of shops and luxury brands and throngs of people wanting to interact with them. “It’s going to be the Bond Street or the Fifth Avenue of the metaverse.” But the short term, is about proving the business model: “I don’t want to lose a client because we are trying to get an extra few thousand dollars in rent.” Kiguel’s deal still holds the record in Decentraland. But within days an even bigger deal rocked the metaverse, with 14 acres in The Sandbox selling for $4.3m. Re-enter Janine Yorio. It was, and still is, the biggest deal ever. Republic Realm bought the block from computer game publisher Atari, and, in effect, became its development partner. “We’re like a traditional real estate developer,” states Yorio. “We own the dirt, only in this case, it’s code – lines of code on a software platform.” Yorio is cagey about what she will build in The Sandbox, other than to say that it will be “awesome” and “a little bit unexpected”. But she is confident that $4.3m won’t be the record for long. “We haven’t seen a $10m transaction or a $25m transaction yet. But I’m sure we will.” And will that be her? “Maybe.” But unlike Kiguel, Yorio doesn’t want to be a long-term digital landowner. “People don’t only invest for income,” she says curtly. Indeed, her fund only has a three-to-five-year life cycle. “At the end of that we will have to sell the portfolio, either as a whole or in pieces.” Maybe that’s when the $25m deals will come; when Yorio sells up. But both Yorio and Kiguel say they are adding value by developing their land, such as with Yorio’s Fantasy Islands in The Sandbox. In Decentraland’s Crypto Valley, Kiguel is creating his metaverse head office, the Tokens Tower. One of the great things about building in the metaverse is that, as well as not needing planning permission, there is no gravity. “We are going to have a slide all the way round the outside,” he says, gleefully. “And the logo will float above it and slowly rotate. And there will be these electrical things on the roof…” And if they want to build another one somewhere else, they can just copy and paste. How’s that for a modern method of construction? “I still have a lot of colleagues and friends in traditional real estate,” Kiguel says. “And they are suffering.” He predicts a future when most shopping is done online, in the metaverse. He sees education – from primary schooling to medical training – running from the metaverse. He foresees that people will work from home, but take their meetings in the metaverse, leasing out space in places like Tokens Tower. “Traditional office space? I’d hate to be the owner of that.” So, is owning virtual real estate a safer bet? “Oh, hands down.” Blank canvas It is all heady stuff, and I’m almost ready to swap my hard-earned fiat currency for crypto and buy some digital acres. I pay another visit to Decentraland, “‘walking” from Genesis Plaza to Kiguel’s Fashion Street Estate. It forms the south-eastern part of the Fashion District. Yorio’s Metajuku is just down the road. I climb the steps of a nearby Frank Lloyd Wright-style house – it is for sale, naturally – to get a better view. But there is nothing to see. Nothing but a winter landscape, strewn with Christmas trees and snowmen. Candy canes and lollypops sprout out of the ground. It is the seasonal “skin” for undeveloped plots. I trot around the corner to Metajuku. It is also empty. A thought strikes me. An outfit called Digital Currency Group has also invested a huge chunk of change buying land in Decentraland. It joined up with Jamestown to recreate One Times Square, hosting a virtual party on New Year’s Eve. When the ball dropped there were tweets of avatars partying like it was 2099. But so far DCG has been curiously quiet about how many pixel-people actually attended. Let’s assume, while we wait for them to get back to us, that it at least equalled the 15,000 attending the social-distanced bash in the real world. So how many people are there now? I “teleport” to the coordinates (-106, -119), wishing I could do the same in the real world. It is empty. Not empty like Canary Wharf on a weekend, but utterly devoid of people. It seems abandoned, like a wild-west ghost town or Roanoke. I fire up an app that lets me see how many people are currently in Decentraland – 1,910. Spread over 90,000 plots. I check back in at different times of day for over a week. The highest it goes is 2,310. This is the problem with investing in the metaverses right now. Despite the hype, not much has been “built” and there are very few people there. “It’s in its infancy,” says Yorio. “A lot of these platforms haven’t even launched yet.” That includes The Sandbox, where she just spent $4.3m. “You’re buying and building before the platform launches. There’s no guarantee. It’s highly speculative.” But Yorio is certain the metaverse is the future of the internet. “It’s already here,” she insists. “It’s janky and it’s hard to wrap your head around but the metaverse is just what happens when the internet grows up.” For proof of this, watch how the younger generations already use the internet. The games they play are often vast interactive worlds. “They don’t communicate through social media. It isn’t interactive enough. They want to be able to walk through an immersive environment, having live audio chats. And that is the metaverse. They’re already there. Just because we haven’t adopted it yet doesn’t mean that it’s not real or it’s not here.” And the fact you can own it, develop it, sell it and charge rent makes it a valuable property. “I am highly optimistic and confident in our plan to buy virtual real estate,” says Kiguel. “This is going to be a multi-trillion-dollar industry. It will touch everything in our lives.” And that isn’t hyperbole, he says. “In five years, people will look back and say: Wow. People were talking about this and we were sceptical?” The people who are resistant, he says, are the same as those who doubted the internet and social media. “I’m not looking to convince them. You don’t like the metaverse? No problem. There’s other people that get it.” For those on the fence, he says this: “Think of it as pre-purchasing advertising space in the next version of social media.” “It’s a bit like buying billboards,” agrees Yorio. Only they are interactive and 3D and described in real estate terms. But in on sense these lines of code are exactly like real estate. Once you’ve bought land in one metaverse, you can’t simply pick it up and deposit it in another if that becomes more popular. Kiguel thinks of each metaverse as a city. “In our world there are various cities where you would want to own real estate.” But what it all comes down to is whether people visit and whether they keep coming back. In the brave new world of Web3.0, the virtual real estate pioneers may make handsome returns. Perhaps these digital realms will become the cities of the future, while we are locked in our physical homes by another pandemic. And perhaps one of these metaverses will be the next Manhattan. But it could also be the next Roanoke. Because there is no way to know which ’verse will become the favourite and which ones will fail. All you can be sure of is that, like all investments, the best time to buy was yesterday. Kiguel thinks he could get five times what he paid for his Decentraland estate. But that first plot of “land” that Yorio paid $900 for in Decentraland. It’s now worth 13 times as much. © Main image: Shutterstock; Decentraland: Shutterstock; Soho Plaza and Barren land: Decentraland To send feedback, e-mail piers.wehner@eg.co.uk or tweet @PiersWehner or @EGPropertyNews