Investors’ interest in virtual real estate got a boost last month after Facebook renamed itself Meta Platforms Inc. and said it would focus on online worlds, commonly called the metaverse.

That interest reached a new peak on Tuesday when Republic Realm, a firm that develops real estate in the metaverse, said it paid $4.3 million for land in the world Sandbox, the biggest virtual real-estate sale publicized to date, according to the company and to data from the website NonFungible.com, which tracks digital land sales.

Republic Realm bought the digital land from videogame company Atari SA and the two firms said they plan to partner on the development of some of the properties.

That acquisition broke a record set just last week by a subsidiary of Canadian investment firm Tokens.com Corp., which said it paid around $2.5 million for land in the world Decentraland’s Fashion District.

“This is like buying land in Manhattan 250 years ago as the city is being built,” said Andrew Kiguel, chief executive of Tokens.com.

These virtual worlds, often created by videogame developers, include cities where a user’s avatar can stroll and shops where they can buy a new winter coat or a painting to hang on the walls of their virtual homes. These digital worlds feature apartments or lounges where users can hang out with avatars of their real-life friends. Participants pay in cryptocurrencies to gamble in virtual casinos or to indulge in more extravagant pursuits such as virtual yachts.

Real-estate investors are looking to sell homes that are close to users’ friends and virtual attractions. They are also developing retail spaces, which they hope to lease to virtual retailers for rent priced in hard currency or cryptocurrency. Ownership of land is recorded through so-called nonfungible tokens, digital identifiers that act as de facto deeds. Property sales are usually done in a cryptocurrency unique to each metaverse.

The investments can be risky. Unlike actual real estate, which tends to retain some value even during a market downturn, the value of virtual properties could fall to zero if the world they are in goes out of fashion and people stop visiting it.

Prices can also be slammed by the volatility of cryptocurrencies, said Zach Aarons, general partner of the real-estate-focused venture-capital firm MetaProp. “If I buy a building for 40 ETH, and then ethereum goes from $4,000 to $100, that’s a fundamental risk that I’m not really taking when I’m buying a piece of physical real estate,” he said.

Republic Realm is trying to reduce the risk by buying land in a number of different virtual worlds, said co-founder Janine Yorio. The company says it runs two real-world investment vehicles focused on virtual real estate and owns about 2,500 plots of digital land across 19 worlds. Ms. Yorio said she spent a decade as a real-estate investment executive, first at NorthStar Realty Finance Corp. and then at the Standard Hotels, before switching to the financial-technology industry.

The company either buys land directly from a world’s creator, or from third parties through public listings or off-market deals, Ms. Yorio said. In some cases, it decides to just sit on the vacant land and wait for it to appreciate. In others, it pays an architect to design virtual homes or malls and a game developer to build them.

As in the physical world, zoning rules limit what and where a company can build in the metaverse and, in theory at least, too much development could lead to a market glut. But unlike in the real world, metaverse buildings can defy the laws of physics by appearing to hover above the ground.

“And then we charge rent, just like a regular landlord,” Ms. Yorio said. The company employs an asset manager to deal with tenants’ complaints and change requests. Its developments include a mall, which it leases to retailers selling fashion for avatars, and a master-planned community of around 100 villas on private islands that it sold to individuals.

Tokens.com, which is publicly traded, is currently developing an 18-story skyscraper in Decentraland that it hopes to lease to lawyers or cryptocurrency exchanges, which can use the building for events or advertising.

It is looking to develop properties on the land it bought in Decentraland’s Fashion District, which it wants to rent out to fashion companies as event and retail space.

“We can create something that’s the equivalent of a Rodeo Drive or Fifth Avenue, where the Guccis and Adidases will come,” Mr. Kiguel, the CEO, said. – wallstreetjournal.com

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