Digital real estate as an asset class
How is it valued?
Real estate is traditionally valued in two ways:
- The income method, which determines a value based on the income the asset generates.
- The comparable sales method, which looks at similar recent transactions.
Yorio explained that "the comparable sales method is the most applicable because there isn't a lot of income being generated yet. What we look at are the most recent transactions in that particular metaverse to see what other people before us have paid, what the averages have been, what’s the high price, the low price. We look at it on a rolling basis, so the last 30 days, last six months, and try to understand which direction the market is moving in."
How is virtual real estate developed?
Yorio’s team is not only buying virtual land, they’re also developing it. She said, "There is a point at which it resembles the real-world real estate development process. Then there's a point at which it goes totally in a different direction. We hire a real-world architect. We give them a mood board just like you would if you were building an office building or a hotel or a house...The architect does sketches just like they would in the real world... In the virtual worlds, you take those artists, the architect's drawings, their 3D designs, and you give them to a video game developer."
Just like any other asset class, investing soundly into virtual real estate requires diversification. How do you do that in the virtual world? Well, you scatter investments across different virtual worlds, or metaverses.
Yorio touched on this in the interview: "We're not placing all of our bets on any one specific metaverse, we're betting on the category generally. Toward allocating and spreading bets across a wide variety of metaverses that have already launched, metaverses that are still in the planning board in order to make sure that when winners start to emerge, we have little pieces of all of them."
Institutional investors are getting involved
Realm has drawn serious institutional investor interest as well. Yorio said, "A lot of people who you would think, let's say, ‘Oh, this is hogwash’. They're actually taking a really serious look at it, which I think is really exciting."