Real and Unreal Estate: The New Land Rush

April 1, 2007

It’s been a good year for Remus Zaoh.

Several of his commercial properties — mainly offices and retail centers — are leasing up steadily, and he just purchased land on which to erect a model building for a $25 million townhouse project under development in Dunedin, Fla.

The first of the 26 units in the Dunedin project, called San Ruffino, is scheduled for completion by June, but the developer’s already receiving steady traffic from interested buyers thanks to well-placed marketing materials Zaoh has located in some of his commercial properties. In fact, hits to the development’s Web site went from just a handful a day to more than 200 once Zaoh’s marketing took effect.

Zaoh is also getting kudos from a loan originator with American Home Mortgage who’s been attracting a lot of traffic to his Web site thanks to space he’s been renting from Zaoh.

After Zaoh mentions these successes, he raises his arms, kicks off with his feet, and flies off into the sky. Below him stretches the property on which one of his office buildings is located.

Zaoh is an avatar — a virtual representation — of real-world real estate practitioner John Clayton, a sales associate with Charles Rutenberg Realty in Clearwater, Fla. Clayton’s something of a pioneer in marketing real-world property (like the condo development in San Ruffino) in Second Life, one of the fastest growing online environments in the world today.

As Real as Money in the Bank

For the uninitiated — and that would be most people — talk about making money in a virtual environment has an unreal quality to it. But there’s nothing unreal about the money the early adopters in this business are earning.

More than 1,200 people were earning at least $100 a month in Second Life in December 2006, according to economic statistics tracked on Second Life, and almost 150 were earning at least $2,000 a month. Just under 100 people were earning at least $5,000 a month. And one person, Anshe Chung, the avatar persona of a person who lives outside of Hong Kong, was earning some $20,000 a month in 2006 almost entirely from buying and selling virtual real estate. This real estate is pixels on a screen that live only in the computer servers operated by the founder of Second Life, Linden Lab in San Francisco.

“Chung is one of the first legends in Second Life,” says Clayton, who’s been a Second Life “resident” for about a year and a half. He nets about $3,500 a month from his operations there — buying and selling virtual property, marketing real-world property, and putting his computer design skills to work constructing virtual buildings for clients.

Linden Lab CEO and founder Philip Rosedale (a streaming media pioneer as chief technology officer of RealNetworks, the company that created RealPlayer and RealAudio in 1995) envisioned Second Life as much different from other virtual environments, such as SimCity or World of Warcraft, that exist today.

First, it was never designed to be a game; instead, it was intended to be a platform in which residents could carry out virtual lives. Part of the software that enables people to live in Second Life allows residents to access 3-D modeling tools for making clothes, furniture, buildings — anything they can conceive — and retain intellectual property rights to their creations.

Second, it was always intended to be a microcosm of a real-world economy, in which residents could buy and sell the goods and services they create, and convert their money into dollars.

Where the Internet is Going

Judged by Second Life’s growth since its launch in 2003 — with residents joining at a rate of several thousand a day and nearing 3 million in early February — the vision is at the very least an exciting curiosity. “Second Life isn’t overhyped,” Fortune declared in its Nov. 10, 2006, issue.

To many analysts, the reason this virtual world isn’t the latest technology fad but something more enduring is because they see this platform driving what the Internet will look like to all users in 15 or 20 years. To Clayton, the logic of a virtual world becoming tomorrow’s Internet makes compelling sense. “Second Life is what a truly social Internet looks like,” he says.

By that he means that Second Life and other virtual worlds, such as Entropia Universe (www.entropiauniverse.com),allow people to visit locations together, talk to one another, meet other visitors at various locations, talk to them, and form relationships. Nothing quite like that can happen in today’s 2-D Internet platform, despite the addition of video, audio casts, and instant messaging.

“When you go to a Web site today, you don’t know who else is on that site, searching for material,” says Clayton. “You could be looking at mortgage information and not know 1,000 other people are looking at that information at the same time.”

The virtual world, say its proponents, creates a new dynamic: You can join each other in searches, meet people with similar needs, and confer with others.

Substitute “virtual location” for “Web site” and the dynamic changes completely, says Clayton, who can see real estate brokerages, mortgage companies, and developers building virtual offices and staffing them with avatars to answer questions.

Young people today are entirely comfortable navigating virtual environments and will naturally gravitate to a 3-D virtual world, because they’re becoming steeped in the Internet as a social environment, say analysts. Therefore, it may be an important realm in which to cultivate tomorrow’s buyers and a way for companies to gauge interest in products (like planned property developments) and services by rolling them out virtually first.

Getting Started

If you see possibilities in marketing real-world property in Second Life or even selling pixels as a virtual real estate pro, it’s not as simple as going to a Web site and jumping in.

Second Life maintains a presence on the World Wide Web, at www.secondlife.com, but that’s strictly a resource site, the place to create your account and learn whether your computer has the right graphics hardware and computing muscle to power your avatar around the world.

From the site you download software to your computer that opens the door to the virtual world. That software is free, but if you need to upgrade your graphics card or add computing power, it can cost you. Expect to pay $70 to $225 for upgrades, depending on the graphics card or other hardware you get. If you hire someone to install the new hardware for you, that’ll cost you, too, typically a few hundred dollars.

Once you’ve set up an account and entered the portal, you’re given an avatar and the option of keeping it as-is or creating a unique appearance.

Your arrival is to an island that includes tutorials on changing your appearance and powering your avatar around the world. You can walk, you can run, you can fly, and you can “teleport”—i.e., beam yourself to different locations using a Google-like search engine.

Depending on the type of account you create, you’re provided with some seed money, known as Linden dollars, whose value, originally set by Linden Lab, fluctuates against the dollar. In February about 270 Linden dollars equaled $1.

To buy raw land or improved commercial or residential real estate right away, you might need more than what’s provided when you join. To raise your account balance, you can use your credit card to inject dollars, which are converted to Linden dollars. Alternatively, there are ample ways to earn Linden dollars, including by “working” for other avatars. One popular job for residents who are still learning the ropes is “camping”: You park your avatar at someone’s location and earn money just for being there. Location owners are willing to pay for parked avatars because the more avatars at their location, the better their search engine ranking is within Second Life. A search engine at the site helps you find locations and products.

If you’re adept at making virtual things — clothing, furniture, buildings — you can sell what you make and earn money. Buyers simply click on what you’ve made and select an option that transfers Linden money from their account to your account.

Armed with an account, you can start your property shopping—there are signs advertising land for sale just as in the real world, or you can check classified ads integrated into the Second Life search engine.

“As in the real world, it’s all about location,” says Clayton, who owns about 25 “sims” of land, with each “sim” representing roughly four acres. On a portion of his land he’s built office buildings, retail space, and in one case a condo project. But he flips most of his land after making improvements that increase its value.

In late January he sold a small parcel for 105,000 Linden dollars (about $395) that he bought in October 2006 for 35,000 Linden dollars. It had an oceanfront view, but it was too hilly to make construction of a building practical, so he leveled part of the plot and added a waterfall.

Land or improved property close to high-traffic hub areas — the search engine tells you where these are — command the highest price. Most of these popular areas are in sectors labeled “Mature.” That designation doesn’t necessarily mean there’s adult content; it means adult content isn’t prohibited, so it’s possible avatars could open an adult business such as a lingerie store.

Outlying areas with little traffic can be bought cheap, maybe a few thousand Linden dollars for an acre. The upside is, if you develop and market that area and it becomes popular, the value of your property skyrockets, like the oceanfront property Clayton sold.

Bridge to Reality

For Clayton, the virtual holdings are an interesting aspect to his business, but his sights are firmly set on the real world. He’s used his background in computer-assisted design to launch a sideline business, at www.bizarrefishstudio.com, to become a 3-D model builder for his real-world clients, including the developer of San Ruffino. The model sits on virtual land he bought for the developer, and he invites avatars to tour two model townhouse units. If they like what they’ve walked through, they can go to the developer’s Web site for more information.

The 3-D model was too new to have attracted much traffic in early February, but the success of Starwood Hotels, which created a 3-D model of one its newest brands of hotels, known as “the aloft” line, points to a demand for this type of promotion. “You can see the marketing potential of Second Life for real-world businesses,” says Clayton. “It’s a marketer’s dream.”

A dream, he adds, firmly rooted in virtual reality.

Civil Rights Milestone

At a Feb. 27 ceremony, NAR leaders presented $1 million to the Martin Luther King Jr. National Memorial Project Foundation. “Having the financial commitment from the REALTORS® is very important to our efforts, but having their everyday commitment to enable people to live their dream is crucial. We thank NAR for the contribution and their commitment,” said Harry E. Johnson Sr., president and CEO of the foundation.

At the ceremony, from left, were Malcolm Bennett, president, International Realty & Investments, Los Angeles, and founder of the Minority Apartment Owners Association; Stephen Hoover, a member of the NAR Executive Committee; Henry Ray Jr., a member of the NAR Board of Directors; Pat Vredevoogd Combs, 2007 NAR president; Clifford Turner, president and CEO of the National Association of Real Estate Brokers; E’Toile Libbett, a member of the NAR Board of Directors; U.S. Rep. John Lewis, D-Ga.; and Eric Friedman, broker-owner of Friedman Group Ltd., St. Louis.

Robert Freedman

Robert Freedman is the former director of multimedia communications at NAR.

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