Modernizing Commercial Real Estate Lending

Banking tech has been behind the times for years now, but the global pandemic accelerated the need for change. Learn more on how modernizing commercial real estate lending can now become the norm in our infographic below:

Modernizing Commercial Real Estate Lending

How Tech Can Build Agility In An Evolving Market

Banking Tech Is Behind The Times

Commercial real estate lending hasn’t changed in decades

In 2019, 43% of US banks still used COBOL — a programming language created before the internet, that isn’t readily compatible with modern technology

• 92% of residential borrowers start their lending journey online
  • In 2015, just 20% relied on websites
• 74% use an online portal to work with their lender
• 43% complete their entire application online

• Commercial lenders’ slow adoption of technology puts them at a disadvantage
  • Digital mortgage players are on the rise — more than 25% of loans are direct-to-consumer originations
  • Most borrowers say an exceptional customer experience is almost as critical as getting the best rate
  • Alternative lending platforms threaten to cut banks out entirely
    • Crowdstreet: Over $1.25 billion invested
    • Fundrise: Over $1 billion invested
    • Yieldstreet: Over $375 million invested
  • “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.” — Forbes Real Estate Council
• How Traditional Deals Are Made

On average it takes 3 months to close a commercial real estate loan

• 1 Borrower finds an investment property and identifies their loan needs
• 2 Broker sources a loan, calling individual banks to find deals
• 3 Lender decides if their interests align and begins months-long due diligence
  • If approved, borrower may accept the loan terms and proceed to closing
  • If declined, borrower begins again with a different lender
• The Problem

After months of negotiation, it’s rare to exactly the deal they wanted

• Commercial borrowers wait weeks or months for a loan decision
• Lenders are slow to react to changes in market demand and risk
• Brokers and lenders spend a lot of time negotiating terms
• Lenders rarely get all the information they need upfront

• Commercial Real Estate Lending Needs Tech

Call Out: Reliance on legacy tech hinders agility and performance

• Manual processes slow down the lending cycle wasting valuable time
• Clients want banks who can anticipate their needs, but the data lags behind
• Brokers call lots of lenders until they find the right one – but this process leads to missed lender opportunities

“Ignoring technological change in a financial system based upon technology is like a mouse starving to death because someone moved their cheese.” – Chris Skinner, Author of Digital Bank, ValueWeb, and Digital Human

2020: Changes In Commercial Real Estate

• As the economy adapted to a global pandemic, commercial real estate faced new challenges. Today:
  • 33% of Americans work from home full time
  • 59% of retailers concerned with rising rent costs

• The lack of tech brought commercial real estate to a near standstill
  • Retail and office spaces sat empty
    • 20% retail vacancy* in the 2nd quarter of 2020
    • 17% office vacancy rate* in the 4th quarter of 2020
    • -305% hotel occupancy* from November 2019 to November 2020
• What Does The Future Hold?
  • Changing Leasing Demand
    • In 2021, commercial and multifamily lending will grow by 11%, reaching $486 billion
      • Offices: Companies will rethink how spaces are used, with more employees working remotely at least part of the time
      • Data centers: The shift to remote work will increase demand for cloud and networking services
      • Retail: The shift to e-commerce will continue with more stores operating as mini-warehouses for curbside and delivery services
      • Hospitality: Leisure travel will increase demand in some areas, while other properties will transform for alternative use
      • Industrial: E-commerce continues to drive demand for distribution sites, logistics warehouses, and storage spaces
• Lenders are still interested in deals with strong, long-term value
  • How lenders define a quality property investment will look quite different in 2021 and beyond

Through 2020’s dynamic market changes, residential mortgage lenders barely missed a beat by using technology

Commercial lenders need digital solutions

Finance Lobby: The Agile Advantage For Commercial Real Estate Lending

• Process

FinTech lenders process mortgage applications 20% faster, with no increase in defaults

• Lenders enter their criteria
  • Asset types: Office, retail, multifamily, industrial, etc.
  • Geographic regions: Micro to multi-state
  • Dollar amounts: Min-max range
• Brokers enter loan details and borrower preferences
  • Dollar amount
  • Location
  • Preferences and sensitivities like time to close, recourse, rate, etc.
  • Asset type
  • Occupancy

• Advanced algorithms match brokers and lenders to perfect-fit deals
• Benefits

99% of lenders believe that technology can help improve the commercial mortgage application process

• All the information lenders need in one convenient place
  • No need to chase down missing information
• Lenders can instantly update loan criteria as appetite changes
  • Only see deals that match your preferences
• Bid and negotiate digitally to reach a deal more efficiently
  • Deals are already matched to bank requirements
• Lenders & Brokers Save Time And Effort
• Results: Increase deal speed, safety, and soundness — Everyone benefits
  • Borrowers have a better, faster experience
  • Brokers & lenders have time to close more deals

Prepared for the unexpected. Join the future of commercial real estate lending with Finance Lobby

Sources

https://www.mckinsey.com/industries/financial-services/our-insights/banking-matters/competing-on-customer-experience-in-us-mortgage https://www.nerdwallet.com/best/investing/real-estate-crowdfunding-platforms

fundrise.com

crowdstreet.com

yieldstreet.com

https://www.forbes.com/sites/forbesrealestatecouncil/2021/02/10/15-technology-trends-disrupting-real-estate-today/?sh=67d9960842ae

http://www.c-loans.com/pre_joomla/processing_time.html https://www.money360.com/mediacoverage/the-benefits-of-fintech-in-commercial-real-estate/ https://www2.deloitte.com/content/dam/Deloitte/us/Documents/financial-services/us-commercial-lending-digital-transformation.pdf https://thefinanser.com/2016/02/augmented-finance-far-more.html/ https://www.usnews.com/news/national-news/articles/2021-02-12/majority-of-americans-work-remotely-a-year-into-coronavirus-pandemic-poll-finds https://ilsr.org/affordable-space/https://www.statista.com/statistics/194102/us-retail-vacancy-rate-forecasts-from-2010/https://www.us.jll.com/en/trends-and-insights/research/office-market-statistics-trendshttps://www.statista.com/statistics/206546/us-hotels-occupancy-rate-by-month/https://www.millionacres.com/research/commercial-real-estate-investing-statistics/https://www2.deloitte.com/us/en/insights/industry/financial-services/commercial-real-estate-outlook.htmlhttps://www.cpexecutive.com/post/commercial-multifamily-lending-to-increase-11-to-486-billion-in-2021/