Getting Real About The Metaverses

During the pandemic, we all clung to the cliché “whatever doesn’t kill us makes us stronger.” Hopefully, for most of us that will turn out to be true.

The pioneers of the emerging metaverses—yes, there’s more than one, and ultimately there may be hundreds of these virtual plat-forms—have had their near-death experience in the second half of 2022, and they’re hoping for the same outcome.

The domino-like collapse of cryptocurrency in the wake of the biggest Ponzi swan dive since Bernie Madoff—Sam Bankman-Fried’s “I don’t know where the money went” Houdini act at FTX—wiped out the value of the non-fungible tokens (NFTs) that were the primary currency used to buy space (a.k.a. “land”) and virtual toys on the most successful metaverse platforms like Decentraland, Sandbox and something called Bored Apes.

Blockchain-generated NFTs have lost 97% of their value in the crypto collapse—and the other 3% is on life support.

To put this in real terms—even though we’re talking about luxury goods that only exist in pixels accessed through VR headsets—anyone who bought a virtual “condo” or “yacht” from Decentraland when the platform’s MANA tokens peaked last year at $5.90 each will be lucky to get a dime for each of the hundreds of thousands of tokens they purchased to get the “deed” to the virtual property.

As this is being written, MANA tokens are trading for 38 cents.

As an NYU School of Professional Studies blog that tracks metaverse developments noted, the NFT economy has essentially collapsed on itself. “The magnitude of FTX’s bankruptcy will have long-lasting consequences on the general public’s trust in cryptocurrencies, NFTs and the metaverse,” the NYU blog said.

This much is certain: you won’t be hearing anyone in the CRE community hyperventilating about a “land rush” on a metaverse anytime soon, for the same reason that you won’t ever see MLB umpires wearing FTX patches on their shirts at the World Series again.

Sufficiently chastened, metaverse developers are dropping the hype for what they’re now modestly calling “version 1.0” of the metaverse—forget the prattle about web 3.0—and they’re leveling with us about the timeline for metaverse development, which is likely to be a slow slog for at least the next five years.

In terms of CRE, the metaverse pioneers are opening up about how they always thought it was a bad idea to create replicas of the built world on virtual platforms—which are all about immersive, “game-ified” experiences in hallucinogenic “worlds” that are familiar only to online gamers.

The metaverse platform developers are admitting that the FOMO night sweats some CRE execs were having was a bad dream: you’re not going to miss anything if you take your time to understand what the technology potentially can do while the platforms, user experienc-es—and users of any type—catch up to the hype.

These virtual visionaries also have a warning for the CRE world: Be careful what you wish for.

IN A METAVERSE, BUILDINGS ARE “BORING”

Even in the heady days of metaverse hype—let’s call it Metaverse B.C., meaning before the crypto collapse—metaverse developers were not enamored with where CRE folks wanted to go with the emerging virtual platforms.

One of the earliest adopters, Atlanta-based CRE developer Jamestown, created a virtual version of its One Times Square property and held a virtual New York’s Eve party at the end of 2021. When the event drew 20,000 participants, Jamestown announced it would build virtu-al replicas of other high-profile properties from its built portfolio, including Ponce City Market in Atlanta.

Metaverse developers were not impressed.

“If you’re going to build an exact replica of a major building, that’s boring. It’s not really going to be something that’s going to bring someone back [to the platform],” Lorne Sugarman, CEO of Metaverse Group, says.

“It has to be game-ified, it has to be fun. It has to have different elements to it,” Sugarman said. “Does it have to be crazy? No, as long as it has a game-ified experience and all those things that make us want to go back.”

Jesse Klein, managing director of metaverse developer Everyrealm, said the company believes replicas of the built world won’t hold their value in the long-term.

“A lot of what we’ve seen to date are companies that are building virtual twins where there is no true utility for those properties. It’s just ‘come and see what we’ve built in the metaverse.’ That’s the type of metaverse that we don’t see holding value in the long term,” Klein says.

Metaverse developers aren’t using anything like digital-twin proptech to lay the foundations of “property”-oriented developments on the “land” they’ve purchased on the 30 or so virtual platforms that are under development, including the handful that have launched in the past two years.

These pioneers have assembled A-teams of experienced game designers as well as CGI magicians from special-effects wizards like Marvel. They’re focused primarily on event- and entertainment-oriented applications that can be “game-ified” as immersive experiences—like Decentraland’s FashionWeek virtual runway, which engaged several major retail brands—in virtual storefronts that allowed avatars of at-tendees to view themselves wearing virtual clothes being displayed—and drew more than 100,000 attendees.

“We’ve purchased land in multiple metaverses, but in most cases our team of software designers, game designers and 3D animators cre-ate experiences for a company that wants to do something with their brand and then we’ll launch that experience for them in a virtual world,” Sugarman said.

Metaverse Group recently bought Decentraland’s music hub, where the company staged a concert on its “land” that drew 17 performing artists from around the world.

The pioneers of virtual worlds are comparing this stage of metaverse development to the earliest days of the internet in the mid-1990s or to the introduction of the iPhone a decade later—before the multitude of websites and apps were developed that made the technology in-dispensable.

“We’re at the point where the content really isn’t there. It’s the early days. The content and the technology need to catch up with this space,” Sugarman told us.

In Metaverse B.C., they would have put it this way: “It’s like buying land 250 years ago, before anything was built on it!”

The virtual platform developers now are desperately awaiting what they hope will be a watershed event for metaverse technology in 2023, when Apple is expected to unveil its first VR headset.

RETAIL, OFFICE SECTORS MOST SUITED TO METAVERSE APPS

Of all the CRE sectors, metaverse developers believe that expanding from the built world into the emerging virtual world is a natural pro-gression for the retail sector. They also see opportunities to develop virtual office applications that can expand the definition of hybrid work.

According to Klein, the exponential expansion of e-commerce during the pandemic has primed retailers to take the next step into experi-ential VR.

“The metaverse is the next version and enhancement of the internet.

From a retail perspective, it makes more sense for companies to create a more immersive type of retail experience, and you can certainly do that in the metaverse,” he told us.

“There are some interesting experiences you can create for your office or on the retail side. You can create some opportunities for your tenants, as well as loyalty programs,” Sugarman said, “You can draw traffic from the real-world experience to the virtual world and vice versa, which is really what the key is.”

“You can create a virtual office where there’s a much better experience than on Zoom, where there are integrated tools that you can use that let you create a town hall environment or livestream your CEO speaking to people across the world in a much more immersive experi-ence than a typical Zoom meeting,” he said.

According to Klein, there are virtual working platforms under development where you put on a VR headset and suddenly you have five or six screens in your view, as well as other sights and sounds you wouldn’t have access to in a static physical office.

“Whether that creates a more productive working environment is still to be determined,” he noted.

Now that the hype around metaverses has been staunched, the metaverse developers are advising commercial real estate companies to take the time to understand what the virtual world potentially can do for their businesses—and to beware of unintended consequences.

“There’s not really the rush to jump in right now because you don’t have a lot of people using these platforms, so you’re not missing out,” Klein said. “But companies that understand where this is heading could potentially have a leg up in devising a strategy for complementing their existing business model with metaverse strategies.”

Referencing Simon Property Group—the largest mall owner who has pioneered “experiential” malls in the physical world—he said: “If you are a retail developer like Simon, you want to understand what the next generation of the internet is potentially going to look like and how that’s going to impact shoppers in general.”

Sugarman suggested that now is the time for commercial real estate players to “dip their toes in” and learn about virtual platforms. “There are opportunities [for CRE], but this is something that will take some time to develop,” he said.

However, the pioneers of the virtual world also warned the captains of the built world not to forget the disruptive nature of commercial breakthroughs associated with the Internet as they contemplate jumping into a metaverse:

Before CRE owners and operators create that experiential virtual shopping mall or virtual office on a metaverse platform for their tenants, they need to make sure the tenants won’t decide that the virtual experience is so good that they no longer have any use for the built portfolio.

“They need to get involved in a way that doesn’t dilute their existing business,” Klein said.