Upland is a blockchain-driven video game in which players use real (fiat) money to invest in virtual real estate. The first of its kind, Upland could change the real estate world by introducing virtual purchases. Continue reading to learn more about Upland and why it matters in the real estate community.
What is Upland?
The real estate investing simulators of yesteryear (we’re looking at you, Rollercoaster Tycoon) shared one central problem: all of it wasn’t real. Fictional assets, fictional currencies, fictional profit and loss. Games like that can make for great entertainment, but the structure is too different from the true/actual world of real estate investing to supply many applicable insights for real-world investors.
Upland is different.
Upland’s developers describe it as a metaverse game, meaning that it sits at the intersection of physical and virtual realities. Here’s how it works: the founders and developers of Upland recreated virtual versions of real-world assets in major U.S. cities. Users acquire titles to these by spending fiat currency to acquire UPX, a custom cryptocurrency used for in-game transactions, which occur between the game’s real-life players.
Ownership of the virtual assets is verified by NFTs. The game system doesn’t account for every kind of real estate transaction, but the engine does offer users a wide variety of acquisition, development, and revenue options.
Players acquire and develop virtual properties that emulate real-world assets, earn returns on them, and trade with other players — partly for satisfaction and clout, like a more traditional game, but also with the prospect of real-world returns. Players can cash out, exchanging their UPX for fiat currency, and take the returns on virtual property all the way to the (very real) bank.
It’s very cutting-edge, very cool, and very real.
What Makes Upland Interesting
First, mapping Upland assets to real-world properties suggests traditional acquisitions considerations. The knowledge of players who actually know something about the actual metros’ real estate markets can influence the parallel universe created by the game.
Players have to consider real-world issues like development opportunities, opportunity cost, cap rate compression, neighborhood dynamics, target markets, and appreciation and depreciation. Real-world considerations that affect how real estate investments make money matter in Upland.
The developers also manage the game’s monetary system. They control the money supply, baseline rental values, and interest rates. While this somewhat negates the idea of a true free-market simulation, it also introduces more considerations real-world real estate investors face (e.x. how the Fed can impact investors, inflation or adjusting interest rates).
Of course, there are a few caveats. First, the game doesn’t include the whole world. Although investors can invest in multiple major city markets, it’s unrepresentative as a general picture of how real estate investing works.
Second, Upland isn’t the real world. Virtual reality could never imitate real world problems and solutions. Many stakeholders influence IRL real estate markets including investors, policymakers, renters, home-buyers, employers, and more. Upland represents only two categories of interests: investors and the developers (who act as a quasi-government).
Upland is also a virtual real estate environment. The in-game assets are tied to real-world addresses, but there isn’t any financial connection between the real world and Upland’s simulation of it.
That comes with a few interesting implications.
First and most important, there’s no underlying basis for valuation because the virtual assets have exchange value, but no use value. The world of Upland doesn’t include human decision-makers who rent apartments, office space, or retail space, or buy homes.
In real markets, consumer and investor demand influence prices. Although virtual assets can generate real-world returns (e.x. NFTs in general), they still do not have use-value. These assets might get solid valuations because investors compete to acquire them, but you can’t use them to generate economic value apart from investor demand.
Second, although Upland’s players can earn real-life returns, those returns aren’t really a function of the market forces at work in real world markets. There’s a few reasons for this:
- The devs set the interest rates and return values for properties. Renters and home-buyers do not exist — just investors competing to acquire property. Returns are determined by the combination of price appreciation (which is market-controlled) and rent values (which are largely not).
- Real real estate investors analyze cap rates, the cost of capital, and things that impact tenants’ checks. Those forces are critical and absent from Upland (at least so far).
- Incentives are shaped when every player in a market is interested in the same asset. Upland doesn’t include the effects that other assets (like, say, T-bonds) might have on real estate; every player’s entire in-game wallet is dedicated to the pursuit of a single asset class, which means prices are never influenced by non-real estate events.
The most interesting thing about Upland is that there’s actually an answer to these conceptual criticisms: the real-world investors who spend real-world cash to purchase assets in Upland rather than investing in real world assets. In that sense, there are second-order market effects in Upland. It isn’t, and can’t be, a truly closed universe because (a) the prospective returns associated with non-virtual assets actually do compete with the valuations of Upland assets, and (b) the economic forces that affect players’ real world finances impact the Upland economy.
Another interesting consideration: real-world assets are experiencing competition — in the form of opportunity costs — from assets in Upland. It might sound far-fetched when the game has fewer than 100,000 daily active users, but it’s totally possible that in a not-too distant future, demand for the physical buildings in San Francisco fluctuates because of the superior or inferior prospective returns associated with their virtual counterparts.
Why Does This Matter?
Upland is a fascinating case study about truly virtual real estate investment. Real estate is a great asset class because it is tangible, physical, and an indispensable human need. Upland’s real estate doesn’t benefit from those forces: it’s nonessential and non physical.
It’ll be interesting to watch how developers react to player choices: how they adjust rates, the money supply, rent baselines, etc. Additionally, developers will intervene if the market starts to go sideways. As an effectively private government whose actions could actually cause real people to make or lose money, it’s a riveting political experiment.
Concluding Thoughts
Upland is very cool. It’s just the kind of experimental development in real estate that makes us wonder how the rise of crypto, DeFi, and virtual reality will impact what is still ultimately a pretty traditional industry.
But, for now, it’s a pass for us. That’s because Upland is ultimately an NFT market wearing a real estate suit. The assets might look like houses and sit on virtual streets, but they ultimately don’t share many of the properties that make real estate investing unique.
That means returns on Upland are highly speculative. Like most blockchain-based projects, earning returns via Upland is largely a function of predicting demand for novel assets that aren’t to normal market trends and analysis.
It’s a fascinating experiment that we’ll be watching with interest, but for right now, we think it’ll behave much more like an NFT exchange than a real estate market — because, for right now, that’s what it is.
