Remember the Metaverse? It seemed like a good idea at the time.
It all started in 2021, when Facebook rebranded to Meta and pledged $10 billion to build technology that could make reality totally virtual. You’d use their robotic hand and wear their high-tech glasses and — most relevant to real estate — work and hang out in not-physical spaces.
“The next platform will be even more immersive — an embodied internet where you’re in the experience, not just looking at it,” Mark Zuckerberg wrote in 2021. “We call this the metaverse, and it will touch every product we build.”
Never mind that other tech behemoths had failed to introduce their own “mixed reality” tech years earlier, Zuck’s big announcement kicked off the next fad. Roughly two months later, Microsoft struck a $69 billion deal to buy gaming company Activision Blizzard with plans to stake its claim on the metaverse, and by the summer, Apple was preparing to launch a reimagined headset backed by new software tools and stacked with content developed by Hollywood directors.
Real estate ventures soon followed.
Search the word “metaverse” in The Real Deal’s archive, and you’ll find no shortage of hyped-up headlines: A Miami brokerage peddling virtual mansions; a Canadian investor launching the first metaverse REIT; a management company hosting the famous New Year’s Eve ball drop in a virtual replica of a Times Square building.
But like most fads, this one didn’t change everything. The hype died, leaving casualties in its wake. Apple rolled out its headset at $3,500 a pop, but few bought it. Disney and Microsoft laid off employees working on metaverse projects, while Microsoft shut one of its virtual reality worlds.
And no one is talking about shelling out big bucks for a home in the metaverse in the real estate chatter anymore. Instead, they’re writing off their losses.
Just a few months ago, the parent company of residential brokerage eXp Realty discontinued its metaverse arm, known as Virbela, and in November, sold it back to its founders, Alex Howland and Erik Hill, in exchange for a measly $252,100 — the cost of their canceled severance payments, according to a filing with the Securities and Exchange Commission.
“The worst part is that people are buying real estate in these places,” investor Mark Cuban remarked about the metaverse in a 2022 YouTube video. “That’s just the dumbest s**t ever.”
“Did I say it was dumb? That’s not strong enough.”
The rise and fall
As 2021 came to a close, real estate companies saw dollar signs. The world was still living socially distant as a result of the pandemic. Tech giants were dangling billions to fund a virtual world that was an appealing alternative to in-person life, and both commercial and residential firms wanted a piece of the action. That year, buyers spent $500 million on virtual real estate in a metaverse platform known as Decentraland.
Jamestown LP, which manages a portfolio of Manhattan office buildings including One Times Square, created a digital replica of the famed office building, the site of the annual New Year’s Eve ball drop, and rang in 2022 with a virtual version of the event. Just last month, the company introduced Times Square Island in Fortnite, a place where players can play games and watch this year’s virtual New Year’s Eve ball drop.
A virtual casino called ICE Poker opened up in Decentraland, drawing hundreds of digital tourists at a time. Animoca Brands, a gaming company, teamed up with Planet Hollywood to buy a virtual plot in The Sandbox, another metaverse platform, to open a film studio.
Then-top Douglas Elliman brokers Tal and Oren Alexander vowed in 2021 to be the first luxury brokers in the metaverse, teaming up with metaverse developer Republic Realm, which spent $4.3 million on a digital estate. (It’s unclear how the partnership panned out for the Alexanders, who are now facing federal sex trafficking charges and were in custody in Miami at the time of publication.)
Other firms began cloning their listings and attempting to sell them as part of the deal for the real-world property. In Miami Beach, Inhouse Commercial, in an effort to attract a tech company buyer, partnered with Metaverse Group to develop a digital twin of an aging office building to sell alongside the property in a $25 million package deal. (It’s unclear how much of that value was for the virtual twin.) Another developer in South Florida, Sierra Development, sought to do the same thing in the residential space, creating virtual replicas of luxury homes to sell alongside the real thing.
But land values in the metaverse began plunging in the second half of 2022, oddly coinciding with declining home sales across the country. Falling cryptocurrency and NFT (an acronym for non-fungible tokens) prices prompted land values to drop 80 percent in just six months.
Venture capital funding funneled toward metaverse and virtual reality companies also plummeted between 2022 and 2023 and continues to remain low compared to investments in the space in 2018 and 2019, even before the boom in interest, according to data from Crunchbase.
Experts in the space chalk most of it up to timing. At the time of its rise to prominence, the metaverse’s hype way overshot the technology’s capabilities. Plus, the end of the pandemic sent people back into public spaces. The craving for virtual escape diminished.
“This was more about timeline mismanagement,” venture capitalist Matthew Ball told the New York Times last year. “The intense focus on the metaverse within a short period of time, with some arguing it was here now or was about to be, was bound to disappoint many.”
The future of real estate in virtual reality
There may still be room for real estate in the digital world — though for at least one company trading in it, the key to survival has been distance from buzzwords.
“We very specifically have tried to stay away from the word ‘metaverse’ this whole time,” said Erik Braund, founder of Katmai Tech. “For me, the metaverse means a big, goofy headset and a cartoon version of me and a cartoon version of you and maybe some nausea about 30 minutes into the experience.”
Katmai is a virtual commercial space that functions much like an in-person office. The platform lets users move through rooms in the digital office and approach their coworkers, creating a “water cooler conversation” atmosphere that can’t be replicated on platforms like Zoom, though it also has video-conference-hosting capabilities.
Braund says while major companies are calling workers back to work, some small businesses around the country do still rely on virtual spaces because they don’t want to limit their hiring potential with in-office requirements or pay for expensive office leases.
The company also contracts with large firms to build virtual replicas of their spaces. Starbucks recently enlisted Katmai to re-create its original location in Pike Place for its anniversary, and loyalty program members got to explore the virtual coffee shop and play games to earn points.
Braund insists his company is different from many of the other ventures launched during the metaverse moment. As proof, he pointed to the Starbucks engagement and another with Brookfield. Both firms wanted their spaces for specific and limited purposes, not to be all-encompassing virtual worlds, fully formed but empty, just waiting for avatars who never arrive.
“You don’t want to be a solution chasing a problem,” Braund said. “Let’s not build it just for the sake of building it.”