Modernizing Commercial Real Estate Lending

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Modernizing Commercial Real Estate Lending

Tech’s ability to build agility in an evolving market is well known, but not universally applied.  In commercial real estate lending, for example, the current process reflects a bygone era of finding and closing financial deals.  It takes, on average, 3 months to close a commercial real estate loan.  Brokers are still expected to call individual banks in pursuit of deals.  As late as 2019, 43% of US banks still used COBOL, a programming language older than the internet.

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Extended timetables for dealmaking aren’t merely annoying.  When deals take months to form, it’s rare for either side to get exactly the deal they wanted.  Furthermore, the creeping pace means lenders are also slow to react to changes in market demand or risk.  As shown by last year’s pandemic and resulting recession, conditions on the market can change rapidly.  Reliance on legacy technology hinders commercial lending’s agility and performance.

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Commercial And Multifamily Real Estate Lending Expected To Grow

Now in 2021, commercial and multifamily lending is expected to grow by 11% to $486 billion.  As the industry grows, it will also change to suit a new era of expectations.  In offices, companies will rethink how spaces are used now that more employees work at least partially remote.  Data centers will proliferate as demand for cloud and networking services increases.  The revival of leisure travel will increase demand in some areas even as other properties transform for alternative use.  As the usage of commercial real estate transforms, why should the lending process remain stagnant?

The stakes are real; if banks don’t adapt to the times, they could become iced out of commercial lending entirely.  Already, alternative platforms like Crowdstreet and Fundrise have over $1 billion invested.  According to the Forbes Real Estate Council, “reluctance to adopt new technology can stand in the way of innovation, and this, in turn, can lead to unintentional and potentially hazardous forms of disruption.”

Finance Lobby offers an agile advantage for commercial real estate.  Their process is simple: lenders and brokers enter their criteria for loans simultaneously.  Once numerous entries for both are in the system, an advanced algorithm can match brokers and lenders to deals of best fit.  All information lenders need rests in one convenient place, lenders can update loan criteria instantly as appetite changes, and bidding and negotiating are streamlines as a result of pre-clearance.  Both lenders and brokers are spared precious time and effort.  Everyone benefits from increased deal speed and safety.

Commercial Real Estate Lending

Infographic source: Finance Lobby

Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)www.valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver
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