Editor’s note: This story kicks off our three-part series on virtual real estate worlds. Find out why these worlds are not just games, and what entices people to pay real money for land in cyberspace. (See Part 1: The next big (cyber) land grab and Part 3: The real estate worlds of cyberspace.)
You probably wouldn’t think of an asteroid as a real estate developer’s dream.
But Jon Jacobs has big plans for this asteroid: 1,000 apartments, 200 shops, a night club, and plenty of profits from mining and hunting activities. Even though this grand resort project will be built on a virtual asteroid in cyberspace, Jacobs said he views it as a solid investment — and that’s why he paid $100,000 in real-world money.
Jacobs, of Miami, said he plans to release the apartment units slowly into the marketplace, probably over the course of 18 to 24 months, and he also plans to gradually phase in the commercial space. “I expect the prices will go up quite dramatically, so I don’t want to flood the market off the bat and lose all my potential profit to resellers,” he said in a recent e-mail message.
“Let’s just think of the space station as a very large virtual shopping mall built on an asteroid. I anticipate grossing well in excess of $100,000 within the first two months, although I’m not rushing to take my money out.”
The space station, dubbed “Club Neverdie,” is a part of “Project Entropia,” a game that allows players from around world to interact in a three-dimensional fantasy universe powered by the Internet. It is part of a growing genre of games known as massively multiplayer online role-playing games, or MMORGs. These virtual worlds are taking real estate to a new extreme, as millions of computer users throughout the globe now populate a range of digital realms that have unique currencies and thriving economies.
Jacobs, known in the “Project Entropia” game as the character “Neverdie,” said he believes the market for virtual land and housing is virtually untapped.
“More and more people with significant amounts of money are looking to find ways to get involved in virtual reality and the property market is a business model they can relate to,” he said. “Virtual reality is in its absolute infancy. There will be hundreds of thousands of different businesses that will eventually be well-suited to a virtual environment. And most of those businesses will need to be built on virtual land.”
There are definitely some parallels between developing real estate in the real world and in the virtual world, Jacobs said, adding that he has consulted with Craig Robins, the owner of a Miami-based real estate development company. “I like the idea of innovative real estate development (and) cutting-edge architecture combined with a cultural relevance.”
In the “Project Entropia” universe, real estate prices have grown about 500 percent since last summer, Jacobs said. He plans to sell some real estate in the early stages of developing the space station, while holding back a “fair portion” for rental. Housing prices in “Project Entropia” should rise as game developers add new functionality to housing, Jacobs also said.
Jacobs said his real-world real estate dealings financed his purchase of the virtual space station. In 2002, Jacobs bought a home in Miami’s “Design District” for $195,000. He purchased the home with a low down payment and a high interest rate, and refinanced in September 2005 based on an appraised value of $450,000. “So I have made a wonderful profit,” he said. “I used cash from my (refinance) to purchase my virtual real estate. I think making money from my house has taught me to be bold when it comes to acquiring real estate.”
There are now more than 340,000 registered accounts for “Project Entropia,” said Marco Behrmann, director of community relations at MindArk, the Swedish company that developed the game, and the projected “gross national product” for the “Project Entropia universe” in 2005 is $150 million, or about three times higher than in 2004.
Behrmann noted that an earlier purchase of virtual property in “Project Entropia” — an island that sold last year for $26,500 to a character named “Deathifier,” has already proved profitable for that player. “The success story with Treasure Island (which proves that virtual real estate is hot) shows that this is just the beginning of a new era of investments,” Behrmann said.
Because there is a real cash economy within the virtual universe — 10 “Project Entropia Dollars” is equivalent to $1 — the game’s developers seek to “maintain a stable environment … An economy that changes will cause disruption and trust issues. We are therefore very reluctant to change any area of Project Entropia that we have put onto the live system,” Behrmann said. There are about 1,650 square miles of land area within “Project Entropia,” which makes this virtual world slightly larger than the state of Rhode Island.
There is a property rental market in “Project Entropia,” and there are also auctions and “land grab” events through which people can fight for land ownership and management rights that last for a six-month period. Also, property is traded between game participants. Currently there are fixed land uses for property, though Behrmann said that developers are planning to introduce a system through which participants can re-zone areas “and change (property) appearance and functions, like in the real world.”
Sergio Kretschmann, a “Project Entropia” participant, said he purchased an apartment in the game world for $25, and he pays a $1 monthly maintenance charge. It’s far cheaper than a house, which also includes land, though it’s on the continent of Ametheria, which is not a particularly desirable location because it “is still being explored and has no ‘safety net,’ meaning other players can kill you on this land.” Houses are a way to show off to other players and also can serve as storage and shop space, he said, adding that he sublets a part of his apartment to another player for 25 cents a month.
Apartment values will not likely rise until developers add more functionality to them, he said, “but I’m convinced they will go up and (I’m) considering buying a few more soon.”
In addition to the familiar pursuits of money and real estate, virtual worlds offer participants a chance to be somebody who they are not in real life.
“Why would anyone trade in this life for virtual life? Starbucks worker — starship captain,” said Edward Castronova, an associate professor of telecommunications at Indiana University and author of “Synthetic Worlds,” which details the cultural and economic impacts of online virtual worlds.
There are over 5 million people worldwide playing a single fantasy MMORG called “World of Warcraft,” the game’s developer, Blizzard Entertainment, announced in mid-December. And there are millions more who participate in other virtual worlds.
“One thing that’s surprising is how serious this is. It’s now my career,” said Castronova, who also serves as director of The Arden Institute, an academic center devoted to the study of synthetic worlds.
If MMORGs continue to grow at the rate predicted by some industry experts, “It will really rewrite our lives,” he said. One Web site, Mmogchart.com, tracks the growth of MMORGs, though some corporations are protective about subscription data, and the site bases some estimates on insider tips.
To get ahead in these virtual worlds, people can invest a lot of real-world time and money. Among a sampling of recent eBay listings for virtual world real estate: an island in the “Second Life” virtual world with bids above $4,000; a “Trammel Ice Isle Castle” in the “Ultima Online” virtual world with bids above $650; and a “Baja Castle House” in the “Ultima Online” world with bidding above $395.
While virtual worlds may not have the same risk of natural disasters that occur in the real world, Castronova said there is another wrinkle: If a virtual world is not successful, the developers can literally pull the plug. No more virtual real estate, no more virtual money. No more virtual residents. All gone.
As virtual worlds evolve, residents may at some point seek some assurance that their assets will be protected in the event of such a digital Armageddon, he said. For example, it may be in the interest of smaller virtual worlds to establish “transfer protocols” so that residents could simply pick up their virtual belongings and move to another virtual world. “It would provide a measure of risk protection. It would be a useful service,” he said.
Already, there are examples of virtual worlds that have gone kablooey.
Risk is a part of the synthetic landscape, but so is opportunity. “Virtual reality is a new frontier, a place for the bold and pioneers. The rules have yet to be written,” said Jacobs, a.k.a. Neverdie.
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