Metaverse Real Estate - the next big thing or the next big con?

Do you want to buy a house but are frustrated by the horrendous prices? Are you concerned that the real estate market is in a bubble?

Then you should take a look at a beautiful property priced at only $4,873 at the time of this writing. No HOA fees. No noisy neighbors. And you might even qualify for a mortgage. It's a beautiful property called "Parcel 148, -35," and the only catch is that it exists exclusively in Decentraland's digital metaverse.

This article is part of CoinDesk's "Metaverse Week" series.

"Metaverse real estate" is booming, or at least it has outlasted much of the crypto bull market, topping $500 million in 2021. (Where it's going now, no one knows.) In the Sandbox, someone spent $450,000 to buy land next to Snoop Dogg's virtual "Snoopverse." Tokens.com spent over $2 million on virtual land and created a Metaverse real estate company. And now you can even take out a Metaverse mortgage.... sort of. (More on that shortly.)

Why do people buy land in the metaverse?

Almost everything in the crypto world has an air of absurdity, of course. But especially for those who don't follow the field closely, the idea of "digital real estate" can seem particularly crazy.

The short answer: people believe that the price of metaverse real estate will go up. And so far, that's been a good bet for many. One reason is forced scarcity. Just as Bitcoin's total supply is capped at 21 million, there are only 90,601 parcels in Decentraland (MANA). "If it becomes a place where millions of people stay, the land will continue to increase in value. Supply and demand," says Dan Reitzik, CEO of Terrazero, a Metaverse real estate company that now employs 30 people.

The longer answer has to do with the virtual Miller Lite.

Unlike buying many cryptocurrencies, you can actually do something with virtual real estate. You can build games on it. Put advertisements on it. Show off your NFTs on it. Put on a virtual Kendrick Lamar concert on it. Or you can even rent it out to others who need the digital space. All of these activities could provide you with passive income.

And that's where the beer comes in. During halftime of the last Super Bowl, Miller Lite opened a virtual bar in Decentraland. Dan Reitzik's company helped them get started. "20,000 to 30,000 avatars visited the bar during the day," Reitzik says, "and the average time a person spent in the bar was 23 minutes, which is incredible in marketing." As I've written before, brands from Adidas to Clinique to Fidelity are trying to enter the metaverse. Many believe this trend will continue. And if brands want to set up virtual stores to interact with customers, as Reitzik says, "brands will have to own or rent land to do it."

If you're willing to invest time and effort, you can actually increase the value of virtual land - much like you can renovate a house in the real world. "You can influence the future value of that asset [virtual land] by building on it, and that's very different than a traditional crypto token," says Janine Yorio, CEO of Everyrealm, a Metaverse real estate company. "You're really only limited by your own creativity and the technical limitations of the platform."

Adam de Cata, head of partnerships at Decentraland, says these types of developments are popping up all over the virtual world. "There are 5,000 lots in Vegas City," de Cata says, "and they were able to host the Australian Open.

Maybe that intrigues you. Maybe you want to invest. Maybe you can't afford to buy a piece of land in the Metaversum, but you want to take out a mortgage?

Mortgages in the MetaverseIt was

Dan Reitzik's company, Terrazero, that first offered a metaverse mortgage, leading to a series of headlines, such as Curbed's "Now You Can Get a Mortgage in the Metaverse." When I heard that, I immediately thought of my colleague David Morris' prescient 2018 article, "For heaven's sake, don't take out a crypto mortgage on virtual land." The idea sounded reckless. It's one thing to bet a small portion of your investable assets on a risky bet with high profit potential; it's quite another to buy virtual land with money you don't have. And especially after the collapse of Luna, it's not hard to imagine an interlocking, highly leveraged system of metaverse mortgages sinking the crypto economy, 2008-style.

Reitzik acknowledges that the provocative headline "Metaverse Mortgage" is why we keep seeing it on Bloomberg, but quickly clarifies, "When we launched Metaverse Mortgages, we didn't do it to give people an opportunity to speculate. The first mortgage went to a young entrepreneur who wanted to buy four lots and had a specific business plan for putting up billboards that would generate revenue.

"We looked at it and said this business was viable," Reitzik says. "We gave him a two-year loan. It's not really a mortgage." Terrazero bought the parcel in the client's name, then held the NFT (when you buy land, it's really just an NFT) and then granted him the development rights to that land. "He can build his dream, make his money and pay us off. And when he pays us off, he owns the land," Reitzik explains. As soon as news of the mortgage became public, Terrazero received "thousands of inquiries." Most were about pure speculation. Reitzik ignored them all. As he says now, "We don't want to create a new 2008 for the metaverse."

Even setting aside mortgages, metaverse real estate carries some insidious risks that don't exist in the real world. The first is platform risk. In the real world, if you're thinking about buying a property, you can at least trust that the property will still exist in five or ten years. Maybe the outlying area in Queens won't develop the way you hoped, but it won't just disappear off the map.

That's not the case in the metaverse. Not only are you betting on a few pixels in Decentraland, you're betting that Decentraland itself will still be relevant in the future. But what if Decentraland goes the way of MySpace and all the energy goes into the sandbox? Or what if a new metaverse emerges that makes both obsolete? That's why Yorio's company - a

now a team of 45 people - is investing in a portfolio of 27 metaverses and pursuing "a few hundred," including virtual worlds that haven't even launched yet. Suddenly, the company's name, Everyrealm, makes sense. "You have to look at it like a VC," Yorio says, meaning she evaluates early-stage startups. "We look at the team. Have they already built something similar?" Other questions she asks: Do they know how to go to market and how to get users on a platform? Do they have a unique idea? Do they understand the mechanics of video games?

And then there's the thorny issue of teleportation, which you don't think about when you're buying an apartment in Nashville. In Decentraland, as in some other metaverses (each is different), you can simply enter coordinates and teleport to a location. This throws the normal real estate playbook into disarray. "I don't think the old adage of location, location, location is that important," Yorio says. "It's what you build on it that matters."

Reitzik agrees. "Location is not quite as important as it is in the real world. What's important is that you have traffic and people are engaged." For that reason, both Terrazero and Everyrealm don't just buy land and hope it will increase in value; they "develop" that land to attract more traffic. "We're focused on investing and thinking about how we can be productive and helpful members of the community so it's not just a wasteland of barren land," Yorio says. "And in that sense, it's just like real estate in real life.

Some even see it as better. "In the real world, I can get 20,000 people into Rogers Arena to see a Drake concert," Reitzik says. "But in the Metaverse, we could put 20 million people there. Just think of the revenue generation and commerce opportunities that come from the scalability of a virtual world."

Almost all of this, of course, rests on one basic assumption: that people will be interested in the metaverse. And that, in turn, is practically a bet on cryptocurrency growth. If the metaverse fails, your "land" is worthless. If you buy a house in the real world and the market collapses, at least you still have four walls and a ceiling to protect you from storms. If you decided to buy parcel 148, -35 and the market collapses, all you have is a sad collection of pixels.

Is real estate speculation in the Metaverse crazy?

I ask de Cata of Decentraland. "My answer is that it's OK not to understand different communities," de Cata says. He acknowledges that it's not for everyone and that "even digital property sounds so far from what the average person thinks about." But then again, de Cata says, the ethos of building a decentralized metaverse is that a community is working to create content that will belong to users. If the metaverse is the future, and we're all going to spend more time in it, shouldn't the land itself belong to users, as opposed to Big Tech? In some ways, de Cata said, the metaverse is no different from most of the other social platforms they use every day, like Twitter, Facebook or Instagram. And if you suspect that the metaverse is today where social media was in 2007, then maybe buying a piece of Harvard-era Facebook isn't so crazy.

But think twice about that mortgage.

More from Metaverse Week:href="https://www.coindesk.com/tech/2021/08/03/a-crypto-guide-to-the-metaverse/">A Crypto Guide to the Metaverse

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The future possibilities of the metaverse are probably limitless, but is there anything you can do in the metaverse right now?