Jeff Piltch: Hey, everyone. I'm Jeff Piltch, one of the writers at Millionacres. Thanks so much for tuning into a special spotlight feature today. Today, we're with Janine Yorio, a senior executive at Republic, to talk about their new digital real estate fund, Realm. Janine has been with Republic since June 2020. Previously, she was founder and CEO of Compound, a fintech company that was named one of Inc. Magazine's 50 world changing start-ups to watch. Compound was backed by notable VC firms such as NEA and Founders Fund. Last summer, Compound was acquired by Republic, which is how Janine ended up there. She has a tremendous background as an institutional real estate investor, so really excited to dig into what's happening in digital real estate today. Thanks so much for being here. Welcome, Janine.
Janine Yorio: Thanks for having me.
Jeff Piltch: I think the best way to start is if you could dig in to talk about what the Realm fund is in digital real estate overall, and we can go from there.
Janine Yorio: Sure. The Realm fund is an investment product that's designed to give individual investors exposure to digital real estate as an asset class through a really diversified portfolio. For people who are unfamiliar with digital real estate, at its most simplistic form, it's basically the land inside crypto-based video games. They're video games that are very unlike traditional video games because they don't have a stated objective. You're not there to kill as many people. There's literally no goal. Your whole purpose in these games, which call themselves metaverses is just to exist and to do things. One of the things you can do is buy land inside them and develop on it, just like you would in the real-world. You can build the house, you can build the building, you can build a stadium. Because of that, and because of the crypto layer that has created an economy inside these games, the digital real estate itself has an intrinsic value to it, and that value has been really well-received by both people that use these metaverses and then speculators who've been investing in the games and in the real estate inside them.
Jeff Piltch: Cool. There's so many directions we could go from here, but I'm curious when is the fund actually launching, and what's step 1 in a fund like this? Where do you go?
Janine Yorio: It's still such a nascent space. Republic, which is the firm that I work for and the sponsor for the fund is run by attorneys. Republic was started by the former general counsel of Angeles. We have a really large in-house legal team, so everything we do has an eye for legal compliance, which in crypto is not typical. The first thing we had to do is figure out, what is this asset? How can we sell it, syndicate it, manage it, what do we call it? How is it treated? How is it looked at? We've taken a very conservative approach in that the SEC treats different asset classes differently and how you can raise capital for funds or investment vehicles that invest in those different asset types, and when an asset is deemed to be a security, there are different rules. We've taken the approach in order to be conservative that we're going to act as though digital real estate is a security, not an asset. Because of that, we're limited in the number of investors we can take into the investment vehicle to 99 people. To answer your question, the vehicle has already launched. It was a very quiet launch. We knew when we did it, we had a very limited number of spots, so what we did was make it invitation-only to people that we know, people that we have existing relationship with, and more importantly, people that truly understand what it means to invest in crypto. Because yes, it's called digital real estate, but it behaves nothing like real-world real estate. We tell all the investors in this fund that a very likely outcome is total loss of principal, which I promise you when you invest in a real estate deal is not usually something you hear. Those things had to happen. We had to make sure that we have the correct legal framework for what we're doing. We wanted to make sure that the investors that we brought in truly understood the volatility and speculative nature of this asset class. We have been closing in capital. We have been very actively deploying it. We're already starting to develop some projects in the metaverses.
Jeff Piltch: Got it. That's super helpful. I'd like to dig in, how do you then value a piece of digital real estate? With a traditional investment, like let's say your single-family house or commercial real estate or something, it's based on the cash flow that you can generate from the asset. How do you guys think about that and how does the industry work in that regard?
Janine Yorio: Real estate can be valued in a few different ways. Usually, if you get a professional valuation on the real-world, there's the income method, there's also the comparable sales method. In the metaverse today, 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 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. Now, as you probably know, crypto has been having a moment, metaverses has been along for the ride, so everything has been growing. That won't always be the case, so inevitably there will be bumps along the way, and so part of what we're being very mindful about is making sure that we understand the movements in the market, and that we do follow the individual land sales as they occur because the shifts in crypto can be really, really fast. They can cause whiplash. We want to make sure we stay on top of exactly what's happening, who's transacting. You can't always know who, but you can know what, and understanding if all of a sudden things change and that signals to us that we need to reevaluate the portfolio and consider rebalancing it. How is real estate valued? There are a couple of different ways. First of all, the most valuable metaverse today is called Decentraland. Decentraland has been around the longest. It is based on the Ethereum blockchain. They have the biggest metaverse that has launched this far. There are others that are in the works that are in various different stages of launching, but that one is the farthest along. It's also one where when you buy real estate in these metaverses, you usually have to convert more traditional cryptocurrencies like Bitcoin or Ethereum into the local currency for that metaverse. For example, in Decentraland, they have their own currency, it's called MANA. Now the beauty of MANA and one of the reasons why MANA has increased in value so much recently, in my opinion, is because it's on Coinbase. A lot of the other local currencies are not yet available. They're not traded on Coinbase, so they're just less accessible to investors. One of the best things arguably about Decentraland aside from their first-mover advantage, aside from the fact that it's a pretty good platform, is the fact that their currency itself, which is the basis for their entire economy, is on Coinbase. That is the only metaverse for whom that is the case. That's a big differentiator between that and even the others that the market is very excited about, but they're harder to access. You have to convert Ethereum to some other currency through Uniswap, through a different wallet, a lot of times they're not available to US investors, so there are all these different hoops that somebody who wants to speculate in these other metaverses has to jump through. You don't have to do all that to invest in Decentraland.
Jeff Piltch: Got it. Can you talk a little bit more about Decentraland, and just so that people can conceptualize who's behind it, maybe risks associated with it, the blockchain nature of it, just things that a common person still learning about what this is might ask?
Janine Yorio: Depending on the age of the viewer, they might be familiar with previous metaverses. First of them was the Sims in SimCity. In 2003, one called the Second Life launched, and that one's had a really good run. They also have their own economy inside the game. People have invested heavily, they build things. This newest wave of metaverses are different because they're built on the blockchain. That has a couple of benefits. First of all, the entire concept of blockchain and cryptocurrency is that it is meant to be decentralized, so no one person or company holds the keys to it. A lot of times people will ask if you invest all this money in Decentraland and the developers decide to walk away from it, they're bored, they're not making money, whatever the case may be, they just throw in the towel, they turn off the lights. Presumably, in a Decentralized ownership structure, no one individual or entity can do that. Rather, they relegate the power inside that metaverse to what's called the DAO, decentralized autonomous organization. That group of people each holds keys to that metaverse so that no one person can unilaterally decide to shut it down. The addition of crypto also means that it's very easy to transact in these economies and to buy and sell things and convert the currency back to US dollars, US dollar tokens and other currencies that have real-world value. That's also novel for these metaverses, like people that have children might be familiar with Minecraft or Roblox where there are economies inside the game, like Roblox has Robux, and US dollars can be converted to Robux. I know this because my children hit me up all the time to do it. Converting Robux back to dollars though is impossible. There's no two-way transaction, and the allure of the crypto-based economy is that you can convert to MANA, and then you convert MANA back to Bitcoin or back to US dollars. That's the allure, is this interoperability of the currency and the assets inside these economies that give people comfort in investing large sums of money into them.
Jeff Piltch: Got you. I'm sure you get this question all the time. Do you think there's any correlation between, or what the correlation is between people being stuck inside for the last year and something like this taking off and what that potentially means for the future?
Janine Yorio: The trend was already in place prior to the pandemic like Zoom was around before the pandemic.
Jeff Piltch: Sure.
Janine Yorio: Zoom is the killer app of the pandemic. In some ways, the metaverse has been really helpful for people who needed to socialize, especially young people. The non-crypto-based metaverses like the one inside Minecraft or Roblox or Fortnite where there is this virtual world has become a really important way of socializing for children who have been basically not able to attend school or play with their friends for over a year. The trends were already in motion and the pandemic just amped it up a notch and made the growth go from 0-1 and to all of a sudden exponential. The use cases are becoming more and more obvious. Even right now, this is a meeting you and I would probably take in-person before the pandemic. But over the past year, we've learned that we can have a perfectly normal-seeming interview without me having to get on a plane or driving to go meet you, which is great. This whole notion of socializing virtually has been something that people have been doing for a while and now it's cracked the mainstream. That's for metaverses as well. The next wave we're going to see in metaverses are things that people want to do in the real world but are hard across big distances, like dating, like attending conferences where people are coming from big distances to do them. We've seen that happen in Decentraland already. You have things like, I think it was yesterday or the day before, Atari opened their casino in Decentraland. In the real world, if you and I were going to go meet at a casino in Vegas, we would have to fly there.
Jeff Piltch: [laughs]
Janine Yorio: Last night you could go to a casino in Decentraland, and all we have to do is turn on our computer and go to a certain website. There is a real allure now that we understand that there are a lot more things we can do without leaving home than we ever thought was possible. It may ultimately result in the unraveling of society as we know it, or it might give us a lot more free time. We might all become marathon runners because we've unlocked all of this time that we used to spend actually shuttling back and forth to places to meet people or go to conferences or take meetings. I think the opportunity is really enormous. I see it time and again with my children for whom interacting virtually is basically their social media. Their avatar are a lot like our social media presence, and our social media feed is their chat function inside the metaverse. The way that they interact with these games isn't foreign. It's totally innate and totally a natural for them. In six years, my son will be a grown-up, and I think that this is going to be a very natural way for him to connect with friends, to connect with colleagues, to discover new products, to make buying decisions. Things that feel very unnatural to us now, the way that e-commerce felt unnatural to people 20, 25 years ago.
Jeff Piltch: Is that what then takes virtual real estate to potentially then behave more like true real estate where it can generate cash flow?
Janine Yorio: Yeah, I think so.
Jeff Piltch: What does it take to get there?
Janine Yorio: Right now you have to have a mix of scarcity and utility in order to increase value. Once the scarcity is widely perceived, then the value will increase to a level where companies that want to access the metaverse, it doesn't make sense for them to buy the land. Right now you can buy a parcel of land at Decentraland for $8,000. Pretty much any company in America can swing that. Even a pretty modest mom-and-pop store, if they deemed it to be worthwhile, oftentimes, they spend that much on a website. As those prices appreciate, at some point, it will make more sense for people to rent, for companies to rent. That's the point at which we shift from one where it's almost like the Wild West where everybody is running out and planting a flag to stake their claim, to the point where a lot of people staked their claim, prices have risen, and the companies that want to participate in that economy decide that renting is a more cost-efficient way to do so. That's the point at which you can start charging rent and charging users, tenants, what we call them the real world, the users in the virtual world, to access your land.
Jeff Piltch: Got you. As you talk about this, I'm picturing a world where you're going to like the virtual mall and you stop at Foot Locker and go to some other store and go to the virtual food court and have a pizza delivered to your house while you are on your way to the casino, is that the vision? Is that where you think things are going?
Janine Yorio: Have you seen the movie Ready Player One?
Jeff Piltch: I haven't, no.
Janine Yorio: You have to watch it because I know you're big into this space. It is a family movie, it's a children's movie, but it's about a dystopian future where people neglect their real life and they spend their entire day wearing VR goggles, living in a virtual world. There are characters in that movie where one of them is disabled. But in the metaverse there, a big, strong robot, so you can pick what the world sees you as in the metaverse. That's very seductive, and we've seen that on social media. You can be one person on social media and a total house cat who is a frumpy, isolated person in real life. The metaverse takes that and puts it on steroids. I definitely think that this whole idea of discovering products and living out some fantasy version of yourself in the metaverse is where we are headed. In fact, we're developing a shopping mall in the metaverse now that will have tenants just like a regular mall. The tenants will sell wearables that a avatar can wear in the metaverse. There are fashion brands. I don't know if you know this, but there are fashion brands that design fashion today that is never sown, you can never touch it. It's strictly a dress or a hat or an outfit that you can wear virtually. You can wear it in your Instagram feed or you can put it on your avatar and wear it in the metaverse. Again, it sounds crazy, but not if you've been playing Fortnite the last five years spending money on skins. It depends very much on your perspective and your entry point into the metaverse. If you're coming at it three decades into your life, it sounds more crazy than if you grew up with this whole idea that I got the skin, that there was a limited quantity of, and so I walk around Fortnite and I look a certain way. So digital wearables at the virtual shopping mall, spending real-world money, hanging out with your friends, doesn't sound off if you're familiar with those behaviors already.
Jeff Piltch: It sounds like, you said Ready Player One, it makes me think of Black Mirror, but hopefully, it will be like a good episode of Black Mirror. [laughs]
Janine Yorio: It is an action movie, so it takes a turn. But they do a really good job. Hollywood is oftentimes really good at painting a picture of the future. They give you a lot of sense of the possibilities. As the graphics quality becomes more photo-real, as VR becomes something that's less clunky, you can really see how we'll be able to do lots and lots of things. The most obvious of which is taking virtual business meetings. This still feels very version 1.0. It's very flat. We both talk at the same time. We can't sidebar with somebody else in the meeting. There are better alternatives already to this. Then the metaverse takes that improvement and makes it impressive.
Jeff Piltch: Interesting. Earlier you were talking about you're developing a shopping mall right now. Can you go into what it takes to develop a property? Are there developers out there that are software developers that specialize in building different things in a metaverse? Can you dumb that down?
Janine Yorio: 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. I want it to look like this. The architect does sketches just like they would in the real world. Then in the real world, you bid it out to a contractor, and you'd have this horrible 12 months of cost overruns and leaky basements and all sorts of, the unions, terrible things that happen. In the virtual worlds, you take those artist's, the architect's drawings, their 3D designs, and you give them to a video game developer. That is the point at which it crosses over. That 3D developer takes that architect's plans and builds it for you using that particular metaverse's development software or something else to build the 3D version. It's pixelated obviously for that particular metaverse to make that vision real inside the metaverse.
Jeff Piltch: Got it. I imagine that industry is super nascent too. Is that something you guys are planning on touching on at all like financing the construction, so to speak?
Janine Yorio: We do all of it. We have a cadre of architects we work with. We have a 3D game developer group that we work with. But development costs today are still modest enough that there isn't a whole economy around that. I envision, in the future, when people are building multi-million-dollar builds, that might be different. But again, you can build something extremely elaborate in pixels that would be maybe physically unfeasible in the real world. I saw somebody was building a zero-gravity house or a zero-gravity building. Literally just hovers. You can't do that in the real world. In the metaverse, that costs the exact same amount to develop as a whole home brick building that looks like any other because it's fake; it's all rendering. The cost of development is a function of the time it takes to build it and your creativity. It doesn't become exponentially more because the building has more metal planes or glass walls the way it would in real life.
Jeff Piltch: Got you. In that regard, when you buy a parcel of land, are you owning it vertically and infinitely all the way down, so you can have 1,000-story basement?
Janine Yorio: You can't dig yet. It depends on the metaverse. Every metaverse has different rules. The rules can be modified by the DAO. They have zoning just like you would in the real world. Depending upon how big of an assemblage you have, determines how tall you can build something. You can't build an infinitely tall building on a really small piece of land, just like you can't in the real world.
Jeff Piltch: So that helps with the scarcity?
Janine Yorio: Yeah. Exactly.
Jeff Piltch: I know it's still early, but have we seen any cases where there's a Metaverse that is gaining wide adoption and then there's a bad actors something or like people don't think it's cool to be there anymore and everyone ditches it or has that happened yet, or is there a fear of that?
Janine Yorio: For sure, there's a fear of it. I think we've seen a little bit of that play out in the Second Life. It's not so much that people left or just plateaued. I think that in order to keep users in anything technology-base, you have to keep iterating, you have to keep giving people more content or more things to do as we keep evolving. That's one of the reasons why at the level of our investment vehicle, it's so important for us that we're very diversified. We're not placing all of our bets on any one specific metaverse, we're betting on the category generally. Toward allocating and spreading vets 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 winner start to emerge, we have a little pieces of all of them.
Jeff Piltch: Got you. Then in that regard, how much time and money do you plan on spending as opposed to just like working on your individual assets, working on building ecosystems because that seems like that's probably a huge part of it. What does that look like?
Janine Yorio: We want to be mindful that everything we do is additive to the community. We definitely don't want to just buy land and sit on it because that's bad for everybody inside the metaverse. The more that there's land that has nothing on it, the less likely it is to capture users and retain them. We want to contribute to the ecosystem. That being said, I don't think any one entity can cause the ecosystem to take off or salvage of failing ecosystem. It really is about collaboration and enough sense that there is really good content, really good energy happening so that lots and lots of people decided to throw in. We're seeing that happen across many of the metaverses. If you go to Decentraland day-to-day, people are investing heavily, and not always in dollars. Some of these people are creators and are building it themselves and are spending a lot of time to make really cool things. In Sandbox, which is another Metaverse we're really bullish on, there are a lot of corporate partners that have invested heavily, and they have said they intend to build fairly elaborate things in the metaverse. We're excited to see as these platforms launch, what exactly is being done. It's still a lot of these Metaverses are all pre-launch so there's a lot of talk and a lot of hype. But people are spending real money, and their intend is to do things that are really cool.
Jeff Piltch: Yeah. I guess one of my last questions here would be, you have a very strong career as an institutional real-estate person. You're obviously very passionate about, realm and digital real estate overall. But what are the big couple of things that made you want to really dig into this?
Janine Yorio: First of all, my belief in venture capital is that it's not hard to predict the future if you look at what children are doing today. As a parent, I see my children completely addicted to living a virtual life in video games. I know for sure with 100 percent conviction that this is the future. I do not know how exactly it will look or which company will dominate. But I know for a fact that their lizard brains are so addicted to this way of life that I can't compete with it. They'll go without eating. [laughs] They clearly are completely addicted to these programs in these virtual lives that they live. I have no doubt that this is the future. I just historically throughout my career have enjoyed doing things that are really bleeding edge. I'm probably always a little early. I am just addicted to this vision of the future, and I think it's so exciting, and then I think more innately. I come from a family of architects, so I think my family has this desire to mar the earth and be creative and leave behind this legacy and steel in stone, and there's an opportunity to do that now in the metaverse where people, they get there early, and you can buy large assemblages and build the Taj Mahal or the Great Pyramids or whatever it is you have in your mind. It's feasible today, and it may not be in the future because at that point, it might be too expensive or they just may not be enough undeveloped land in order to do it there.
Jeff Piltch: Yeah. No. That's awesome. What just stood out to me there is that you think about this right now, more of a venture-fund style type of investment. I assume you think that one day, we're going to get to a place where there's like institutional investors in here or do you think that will happen? If so, how far off are we? I guess there's so many unknowns. I'm rambling with that question, but do you know what I mean?
Janine Yorio: We have institutions in our fund, I'm sorry, it's not a fund, it's an investment vehicle. We have institution already that again, a company founded by lawyers. We have institutional investors. I just got off the phone with one of the largest asset. In fact, just today, I spoke to the largest asset manager in the US by AUM, and I just got off the phone with has to be top 3. All wanting to understand better what it means, how this relates to the crypto trend generally. Yesterday, Grant's Interest Rate Observer wrote about digital real estate, and they are incredibly conservative and tend to be negative and lots of new things. So even people that are skeptical about crypto and don't understand entirely, they can fundamentally understand this because it's like the land inside video games and who doesn't know people that are addicted to playing Madden or whatever their video game is of choice. That's a multi billion-dollar industry already advertising to people, and that's completely static and it doesn't offer all of the opportunities that this does. 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.
Jeff Piltch: That's frankly, it clicked for me, personally. I was like I'm learning about this space, but this was super interesting and helpful. Janine. I really appreciate the time.
Janine Yorio: Of course, thank you. Good to talk to you. Thanks Jeff.
Jeff Piltch: Thanks everyone for tuning in. Hope you enjoyed today's show. If you have any questions, feel free to drop us online at firstname.lastname@example.org. Thanks everyone. Awesome.