Tech Firm Closes First Metaverse Mortgage For Acquisition In Decentraland

In what’s being touted as a first-of-its-kind transaction, a venture capital firm has taken out a mortgage to occupy space within the metaverse.

Canadian technology firm TerraZero, which was founded last year to capitalize on burgeoning demand for the virtual community concept, offered financing for the approximately $30K deal. The undisclosed borrower acquired two parcels in Decentraland, one of about 10 major community platforms within the metaverse, where each digital parcel runs about $15K, TerraZero CEO Dan Reitzek told Bisnow.  

“The price of the land, even though it’s virtual, is increasing rapidly and soon will not be available at a reasonable price,” Reitzek said. “We want to bridge the gap between the real world and the metaverse.”

Through TerraZero’s mortgage platform, the firm acquires parcels and establishes monthly loan payments for the client, during which the borrower can occupy and operate its parcel, but the nonfungible token is held by TerraZero until it is paid back. The NFT is then transferred to the client, similar to a deed. 

“Within these different metaverse worlds, there is a finite amount of real estate,” Reitzek said.

At Decentraland, for example, there is a 90,000-parcel cap that cannot be increased — investors have snapped up those parcels over the past year, and, in turn, have sold them to companies and people looking to set up shop. On Decentraland, some parcel sales toward the end of 2021 were trading for 150% of their purchase price from months prior.

TerraZero’s first deal has a repayment term of two years, with the VC firm using the space to conduct business and hold meetings with other members of the metaverse, Reitzek said.

Each metaverse community, such as The Sandbox and SuperWorld, has its own theme, look and feel. Decentraland focuses on consumer interests, with customers able to virtually shop at retail stores and listen to music. While augmented reality technology appears to be the primary means to interact in the metaverse realm, individuals can also take a tour through Decentraland via their desktop. 

TerraZero has its primary office in Vancouver and workers in LA and Chicago, but is headquartered in the metaverse, Reitzek said. It owns hundreds of parcels throughout different metaverses — it says in press materials it is "Metaverse agnostic" — including in Decentraland, where it owns concert venues and an office tower it rents out space to clients and holds meetings. 

Each parcel has restrictions decided by the larger Decentraland community, such as height limits and capacity constraints. For its office "building," TerraZero acquired four parcels, “which allowed us to go five stories high and have hundreds of people at one time,” Reitzek said. 

As the metaverse gains in traction, companies are sprouting up to meet demand from individuals and businesses looking to get a piece of the virtual real estate pie. TerraZero, for instance, was spun off from crypto mining company DMG Blockchain Solutions in April to focus on “the next version of the internet,” Reitzek said. 

Whether they are attracted to the potential financial returns or afraid of missing out, commercial real estate players are getting in on the metaverse, which some claim is akin to investing in Manhattan 250 years ago. 

In addition to its mortgage platform — which it ultimately wants to grow to include $100M deals with larger companies looking for multiple metaverse locations — TerraZero is launching a data analytics platform that will help prospective buyers target prime locations. 

“We wouldn’t consider ourselves a real estate company, we are first and foremost a technology company that can help provide” metaverse solutions, Reitzek said.

But it does develop properties from concert stages to retail storefronts; it built out its office project in a six-week process that included TerraZero architects and 3D modelers. 

“We can design and build it, and then deploy it in the world of their choice,” Reitzek said.