Michael Reuter – Datarella

“Change is already on the horizon: regulators and lawmakers are developing guidance and thus enable market players to come up with new products and services.”

— Michael Reuter

Michael is a serial entrepreneur who incorporates an extraordinary structured way of problem solving, business judgement and passion for building up new businesses. 25 years in building companies and cross-functional strategy, innovation, and transformation programs make him an experienced industry expert. As  a member of the RAAY Real Estate Supervisory Board he supports the management in leveraging blockchain technology for the real estate industry.

Additionally, Michael is the founder & CEO of Datarella – building Enterprise Blockchain Solutions. It serves as the foundational, underlying protocol for digital business transformation with converging technologies, such as AI, autonomous machines, AR and VR.

As a supervisory board member of RAAY Real Estate GmbH, Michael Reuter works in close collaboration with RAAY RE supervisory board’s chairman, Thomas Meyer, CEO of Wertgrund Immobilien AG. Their expertise in blockchain & real estate combined opens up for completely new possibilities.

Q: Michael, tell us a little bit about your background.

We founded RAAY Real Estate (RAAY RE)  in 2019 – a joint venture of Wertgrund Immobilien AG, Hammer AG and Datarella GmbH based in Munich. Whereas Hammer AG and Wertgrund Immobilien AG are experts in real estate development and funds in both, commercial and residential real estate, Datarella provides blockchain industrial blockchain solutions.

Q: How did you get involved in blockchain & real estate?

We got involved in blockchain very early on in 2015 when we by chance stumbled upon a project in which we had to manage decentralized data in real-time. After Ethereum, the second biggest blockchain in the world was launched early in 2015, we won a tender by the United Nations World Food Programme in early 2016. That brought us to working on a very distinct Ethereum based payment system in a Jordan refugee camp for Syrian refugees. We launched the system on 1 May, 2017, with 5,000 participants.

Today, there are over 500,000 participants in the network and we have grown and developed the system further in cooperation with other divisions within the United Nations.

Q: How are you implementing blockchain technology to the real estate industry ?

Beside the Building Blocks project with the UN, we have projects with German industrial players, s.a. Bosch, Siemens, Merck, etc.. Additionally, last year we decided to join forces with Hammer and Wertgrund because we are seeing lots of opportunities in bringing blockchain to the real estate industry. Instead of selling blockchain-based solutions to these companies, we agreed on joining forces and establishing the joint venture RAAY RE.

In our view, Blockchain technology offers a wide range of business-oriented solutions and tools that can be leveraged by real estate companies. That said, RAAY RE is offering solutions in 4 different domains:

1. ID (identity)
2. Tokenization
3. Market
4. Transaction

Q: What fascinates you about blockchain in real estate ?

In real estate, there is enormous room for improvement in the process of digitization: many complex processes can be streamlined, many new, innovative products, s.a. tokenized investments can be offered to new target groups. We are thrilled to see what we can achieve with blockchain technology in this industry.

Q: How does blockchain change real estate ?

Change is already on the horizon: regulators and lawmakers are developing guidance and thus enable market players to come up with new products and services.

Blockchain in real estate is still in an early stage and you cannot really sell the technology itself to people, you must sell its benefits. So, we started by pointing out the benefits of blockchain technology for real estate. Our experience over the last couple of years has been in making complex processes more streamlined, getting intermediaries out of overly complex processes, rather than developing  so-called killer apps. So that is what we decided to do and we came up with some very interesting products that can make processes in the real estate industry more efficient. We are able to streamline real estate assets. We make investments available for anyone, globally, in an efficient way, more fungible, and on short notice.

You have a lot of parties involved if you want to sell a share in a fund in Germany in a highly regulated vehicle. What we try to achieve is that we get a more efficient process by using blockchain and tokenization. You have a lot of parties involved if you want to sell a share in a fund in Germany, in a highly regulated vehicle. What we try to achieve is that we get a more efficient process by using blockchain and tokenization. We try to cut out the parties involved like the depositary or capital management companies which are a law if you want to sell shares and funds in Germany.  What we try is to cut them out and to make it more efficient and save some money which we can then add on the yields of the residential underlying assets talking about efficiency and saving time and money with the use of blockchain technology.

Q: What is it that you could use saved time and money for ?

Using unused time is easy. Let’s look at our first product, Connex Coin (www.connexcoin.de), a token representing a junior loan against a premium commercial real estate asset. Connex Coin allows for participation in real estate investing within minutes. In contrast, ordering a share in a regulated German fund could take weeks. So, using blockchain technology offers a lot of advantages for investors – you can buy tokens in minutes. In the near future, you will be able to trade them, globally, through exchanges.

In June 2020, there is no regulatory framework in Germany, or Europe, to trade security tokens but this will change in early 2012. So that’s a big advantage for investors to have tradeable assets in their hands, that they can use as an add on the yield the investor gets from his investment.

Q: What other benefits are there in blockchain for real estate ?

It’s like raising the tide for everybody. We are adding more efficiency to the investment process, more liquidity, more trading volume, and that should be a benefit for everybody.

Q: What other products are there to leverage blockchain technology in real estate ?

Other products we are aiming for to leverage blockchain technology further in real estate markets are crypto wallets. So if you want to send and receive tokens or coins, you need to have some kind of a digital wallet. And since we have built and developed our first wallet in 2018, we are quite experienced in working with different technologies and ways to store, send and receive digital money.

Wallets will play a central role in the process of tokenization and investing in real estate. By implementing incentivization schemes, s.a. Coins for Steps, or Coins for Climate, we are addressing the very basic human desire of being rewarded for specific activities. This can be leveraged by landlords to incentivize tenants.

Q: Do you see a holistic solution evolving that shows the whole real estate market as an ecosystem within the next 5 – 10 years ?

From a technological point of view this is clearly feasible. While the technology is ready and can be leveraged, there are legal and regulatory constraints. The experience of our first tokenization process, i.e. to act in a fully regulatory compliant way, the process was quite strenuous. Some parts of this process could be replaced by blockchain technology. But, of course, due to regulations that’s not possible at the moment. However, regulators as well as lawmakers are very keen to learn about blockchain technology and its potential impact. They are interested in jointly working and creating a framework of regulations and laws, that makes it easier for everybody to come up with processes like tokenization.
So, if you ask for a holistic solution, I would say not in the next five years. So you will not succeed in substituting the land registry with blockchain, even though it would be technologically feasible. Instead we will see small and sequential improvements triggered by blockchain technology. I’d predict that within the next 10 years we will have a fully compliant solution for real estate assets on the blockchain.

Q: What other challenges are there in blockchain in real estate ?

Blockchain offers technology that enables new products and services that have to comply with existing regulations. Regulators are lagging behind the technological development and RAAY RE is one of the partners of regulators and lawmakers that supports them to understand the technology and to develop regulatory and legal guidance for the market.

Q: COVID-19 is enhancing the use of technology in  general. What opportunities does this have when it comes to the adoption of blockchain in real estate ?

As we have seen, although COVID-19 is a great problem for the society, it’s an opportunity for creating interesting use cases for technologies such as blockchain and AI.

Obviously, people pay in contactlessly more often. So that is one aspect of using digital tools, s.a. smartphones and apps. This paves the way for digitization of payments. Payments are a huge driving factor for blockchain adoption, as well. So in that way, it also paves the way for blockchai, itself.

COVID-19 in general does not favor manual or human activity, but instead favors machine computer activity that is based on blockchain technology because it has the ability to automate many processes and lets machines communicate with each other.

Q: What are you focusing on right now ?

We are currently focusing on streamlining the tokenization of real estate assets and onboarding new customers to the RAAY RE Smart Wallet.

Q: Where can you see synergies with other sectors ?

There are strong synergies with DeFi (Decentralized Finance), since regulators and lawmakers create guidance for assets in general.

Q: What are your thoughts on the future of blockchain?

Blockchain is already fundamentally changing the internet as we know it.

As I said before, in connection with real estate we see really big opportunities with blockchain technology – not only in tokenization, which is, as Michael said, the low hanging fruit at the moment – we see it in all management aspects like bookkeeping. This is a big issue especially in residential real estate where we have thousands of tenants and thousands of payments each month. They have to be registered somehow and kept in databases. So, there we see a lot of potential for the blockchain.

And as Michael said before, in all aspects like communication data gathering, for all aspects of the property, like technical aspects, e.g. the water temperature in the heating system and so on.

When you were asking the question before, where do we see a holistic approach in 10 years? We don’t see it as far as you said including notary etc – in this concern we have regulation problems, but we see it in the management of a property. So with blockchain, we have a platform that allows us to integrate data management, tenant communication, investor communication, sets of shares of properties with tokenization. So that might be a realistic approach to real estate management. That’s what we see and that was the reason why we teamed up with Datarella and blockchain technology.