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Bitcoin Has Bit Part in Apartment Industry

Bitcoin Apartment Industry
January 2018

Several apartment firms now accept bitcoin for rent payments and property transactions.

A few apartment owners and managers are attempting to cash in on the bitcoin craze, accepting the wildly volatile crypto-currency as rent payment and property transactions.

Admittedly, many in the industry are as bewildered about the currency as they are about its screaming valuations that are nearing $17,000. Through November, bitcoin has appreciated by nearly 1000 percent during the past year.

What's Bitcoin?

Bitcoin is a digital monetary unit that is coupled to a globally decentralized payment system. Transfers are processed directly between users over the Internet without the need for a central processing unit. A bitcoin transfer is handled in transactions that work similarly to a bank transfer, just without a bank.

The payer only needs to know the bitcoin address (comparable to a bank account number) of the recipient to transfer a given amount. All of these transactions are recorded in a blockchain, which is a kind of public register. 

Additionally, bitcoins can be exchanged for currencies such as the U.S. dollar through online bitcoin exchanges and payment processing systems, writes Retail Dive. Bitcoins are fully open sourced and decentralized, with regulation coming from heavily peer-reviewed cryptographic algorithms and are generated through a mining process, where powerful super computers solve complex equations to unlock Bitcoins from the predetermined finite supply. The market value of bitcoin is based on supply and demand.

Ah, supply and demand. Wildly fluctuating in value daily through its high-speed trading channels, for some, recalls the 17th-century Dutch tulip bulb craze, the 1999 dot-com crash or god forbid, Beanie Babies. Bitcoin lately has been both loudly dismissed and jubilantly exalted by financial professionals of all stripes. Some suggest its bubble will burst “tomorrow” and others predict its value to reach $40,000 by the end of 2018.

During an industry event in December, senior executives from Top 50 apartment firms say that their companies have not yet explored the use of bitcoin because it hasn’t been in demand from their residents. In terms of large-scale applications, one said that institutional investors would avoid financial transactions using something as volatile as a cryptocurrency.

Here’s Where

City Stables in Baltimore began accepting rental payments in bitcoin in mid-2017. In a redeveloped walk-up in Baltimore, a one-bedroom apartment was renting 2.5 bitcoin to cover one full year’s rent upfront as a payment option, instead of the $1,050 per month listing price. Ben Schwartz of VacancyFillers.com, a local apartment placement company, began marketing the apartment on East 22nd Street in mid-November. The listing features the bitcoin logo.

“The owner (Nathan Gertner) wanted to do this,” Schwartz says. “He’s a 20-something owner who is techy and into bitcoin. When you do the math, if you bought bitcoin a while back when its value was much less than today, you’d get a really good deal on your rent. I’ve checked listings in my market everyday on a lot of sites like Craigslist and Zillow and I’ve not seen any other apartment listed that accepts bitcoin.”

Gertner, who studied for his MS Degree in Real Estate Finance at NYU, manages a portfolio of properties in the Northeast. He says he is attracted to the “cheap, fast” process of accepting cryptocurrency compared to dealing with bank transfers, ACH payments or other traditional methods.

“Cryptocurrencies minimize the hassle and time I, as an owner go through receiving and sending money versus traditional methods,” Gertner says. “Accepting the full payment upfront helps our residents using bitcoin balance their portfolio and convert their Cryptocurrency to a year’s worth of rent.”

VisionApartments, a Swiss-based global rental management company that offers furnished apartments for short-stay travelers, has had 15 guests pay rent with bitcoin during the past month, primarily in Switzerland, Germany and The Netherlands, but none in the United States so far.

“It’s an exciting technology, we wanted to be an ‘early-mover’ on this,” Bastiaan Don, Vision’s Group Head of Communications, Development & IT, says. “At this point, it’s not really why we are accepting it, but why not. We began taking it at the start of the year, but most of those who have did so in the past few weeks during this craze.”

Guests using it are credited with the bitcoin value at that moment.

“They lock in and get that rate for 5 minutes; that is quite fair, no one has complained,” Don says.

Vision has more than 1,000 apartments in Europe and also lists availability in Chicago, Boston, Dallas, Jersey City, Los Angeles, Miami, Philadelphia, Northern California and New York.

Stayawhile is a membership-based, short-term (30-day minimum) rental firm with furnished apartments in major U.S. urban markets and Europe listed at $2,300 to $6,000 per month. Along with credit cards, it touts bitcoin as a payment method option atop its homepage in October. Through the first two months, no one had used cryptocurrency for payment, its COO Janine Yorio said Nov. 28.

CRE Buyers & Sellers

Because the bitcoin concept potentially can save time and cost by removing the transactional “middle-man,” there is an attraction among dealmakers. Developers in Dubai, Turkey, Britain and San Diego have reportedly priced apartments in bitcoin.

Sequoian Investments is accepting bitcoin as a monthly payment and Globe Street reported Nov. 29 that Sequoian “recently brought to market for sale a residential development site at 1942 Boundary St. in one of North Park’s largest undeveloped vacant lots, which is ready for medium density housing; the owners will be accepting digital cryptocurrency as payment from prospective buyers in the form of either bitcoin or Ethereum.”

CNN Tech reported in early September that bitcoin users would have early access to purchasing 150 apartments in a new Dubai development. At that time, bitcoin was valued at just less than $4,600, and Aston Plaza and Residences offered studios for 30 bitcoin (approximately $138,000) and one-bedroom apartments for 50 bitcoin ($242,000). Once a buyer decides to go ahead with the purchase online, the bitcoin price is fixed for 15 minutes, the article states.

The Industry’s Talking

While market speculators are driving up interest (and the value) of bitcoin, real estate professionals are speculating that this investment industry darling will not significantly penetrate rental-housing operations or transactions any time soon.

In September, cryptocurrency was offered as a roundtable discussion at the “Planning for What’s Next”-themed MFE Conference. The gathering attracted about 15 attendees who were more curious than conversant about the topic.

Led by apartment industry consultant Donald Davidoff, D2Demand Solutions, the conversation became more of talk concerning Money 101 than a brainstorm of potential ideas on how bitcoin could become applicable to the rental housing industry. Attendees, it seemed, left skeptical.

“I can see how it might be used in the ‘for-sale’ market, I just don’t see our industry changing very quickly on this,” Davidoff says.

Says one apartment industry technology veteran, “When you have a digital, international currency that 99 percent of the world doesn’t understand, the level of transparency and fluidity makes sense (and is really essential to create trust in money that sort of doesn’t exist). The fact that Mr. Jones in Unit 3201 at Rolling Meadows Apartments still owes his $1,410 by the 3rd of the month may not be worth the catastrophic database change [for property management software engineers].”

To use bitcoin, one must hold an account with Coinbase, the largest U.S. exchange for this global currency. Coinbase added 100,000 accounts over a three-day period in late November, bringing its total to 13.1 million. By comparison, brokerage firm Charles Schwab has 10.6 million active accounts, The Wall Street Journal (WSJ) reports, adding that approximately 60 percent of all bitcoin trading is now conducted via the Japanese yen and only 20 percent based on the dollar.

With bitcoin behaving more like a commodity than a currency also is causing apprehension. Valued higher than all but 25 companies in the S&P 500, its market cap exceeds Boeing, General Electric and Disney.

Property management software companies, when asked if, how or when a bitcoin-type transaction could happen within rental housing, kept an open mind.

Ryan Byrd, Chief Information Officer and Vice President of Engineering at Entrata, says, “Blockchain promises to securely and verifiably streamline transactions between people and, in the case of the Internet of Things, between devices (or between people and devices.) Those transactions are protected via cryptography from tampering and deletion.

“I believe (like Harvard Professor Marco Iansiti) that significant transformation of business by blockchain technology is many years out, because the technology underpinning blockchain is foundational, not purely disruptive, and so it will take time for that technology to take hold because the very foundations must change as well. That said, Entrata continues to explore and adopt technologies like blockchain as they provide value.”

Others suggest that bitcoin could become relevant in Internet of Things (IoT)-type transactions—and we’ve had a glimpse of where that technology is heading—it’s not one that has a firm and reliable platform for information exchange—at least not yet.

Problem-Solver?

Iansiti, who leads Business Administration, Technology and Operations and the Digital Initiative at Harvard, writes in Harvard Business Review: “Contracts, transactions and the records of them are among the defining structures in our economic, legal and political systems. They protect assets and set organizational boundaries. They establish and verify identities and chronicle events. They govern interactions among nations, organizations, communities and individuals. They guide managerial and social action.

“And yet, these critical tools and the bureaucracies formed to manage them have not kept up with the economy’s digital transformation. They’re like a rush-hour gridlock trapping a Formula 1 racecar. In a digital world, the way we regulate and maintain administrative control has to change.

“Blockchain promises to solve this problem. The technology at the heart of bitcoin and other virtual currencies, blockchain is an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.”

Stayawhile’s Yorio adds, “As crypto-currency becomes more mainstream, people want to spend their digital assets on real-world goods and services. We want to transform how residential real estate is used by the modern consumer. We’ve already removed the fax machine and the notary from the equation. Now we’re modernizing payments, too.”

Although Yorio admits that the number of people who will want to pay with bitcoin or Ethereum today may be relatively small, the management team “believes strongly that crypto-currency payments represent the future of not just the real estate industry but of the entire consumer landscape.”

Paul R. Bergeron III can be reached at 703-797-0606 or via email.