SETTING STANDARDS FOR THE FUTURE OF REAL ESTATE ASSET VALUATION

The word on everybody’s lips these days when it comes to tokenization is valuation.  And with good reason.  Investors are wary these days and want to be sure they’re backing a solid asset, while asset owners want to ensure fair valuation so they can leverage their property to the greatest benefit.

When we’re talking about turning a real-estate asset into a token, there are two ways that valuation comes into play.  First is valuation of the underlying property, which is essential because obviously this is what is being digitized to create the token.  But second is valuation of the token itself, which will vary depending on a number of factors—including perhaps most prominently the underlying value of the property, but also risk, secondary market conditions, and many other issues.

Properly valuation at both these stages is essential to help determine the stability, liquidity, and long-term payoff for both asset owner and investor.

To help stay at the leading edge when it comes to real estate asset valuation and what this could mean for tokenization, I’ve has been meeting with industry leaders throughout Europe, the U.S., Asia, and elsewhere.

While in London recently, I sat down with two representatives of RICS, the professional organization creating international standards when it comes to valuation, management and development of land, real estate, construction and infrastructure.  I met with Andrew Knight, RICS International Data Standards Director and Alexander Aronsohn, RICS Director of Technical Standards.

These two leaders are looking for ways to integrate technology and create standards recommendations for their existing network of professionals.  RICS hopes to develop, enhance and gain adoption of data standards for information exchange between service providers, technology companies and end-users of data in the built environment and valuation sectors – something that very much parallels my own goals.

We used our time together to chat about some of the emerging technologies that could be used for valuation of real estate assets, along with the most glaring gaps that currently exist in the current valuation sector.  For example, there’s often a massive lack of data available in the commercial real estate space (including residential data such as rent figures), trends at the macro and micro level, other local developments, including infrastructure projects that could affect local commercial real estate.

Current models often can’t take these factors into consideration, in part because companies aren’t motivated to share this data, creating a black box around each property which makes it impossible to ascertain the full “big picture” of the asset’s value.

Given how crucial this information is to both parties when setting up a tokenized asset, as leading RICS executives are aware, they are hoping that technology will soon play a major part in streamlining the collection and availability of this kind of data, creating a better basis for valuation.  One of the most promising is blockchain, which will simplify data collection in a private, encrypted database; emerging AI technology could be paired with the blockchain core to mine the data for any relevant factors before a token’s initial valuation.

In this scenario, property owners’ privacy is protected, but asset owners and prospective investors gain a better picture of whether or not the property is a wise investment.

Rather than just guessing and stabbing around at the darkness, creating standards and harnessing the latest technology will ensure the most accurate possible valuation.  And that, in turn, will go a long way to improving professionalism in the valuation sphere and boosting confidence when it comes to asset-backed security tokens.  Which means all stakeholders come out as winners.

Stay tuned for the latest developments in real estate investment and valuation.  I’ll keep you up to date by sharing all the news as it becomes available, and explain clearly how it could affect you.  And if you have any questions, please get in touch anytime.