Technology has been hailed as the solution to an ever-expanding range of business problems, with fintech now disrupting almost every sector of the financial services industry.
The commercial real estate (CRE) industry is no exception. Nearly every skyscraper, shopping mall and office property owes its existence to capital from a CRE lender. But just as several enterprising tech companies have disrupted the consumer lending market, tech-enabled alternative lenders are continuing to transform the CRE market. As the founder and CEO of a technology-enabled direct CRE lender, I’ve experienced firsthand how technology has impacted, and will continue to impact, commercial real estate. Over the past several years, alternative lenders — including tech-enabled direct lenders like us, non-bank lenders and marketplace lenders — have effectively leveraged technology to create a more efficient and streamlined CRE sale and financing process.
The evolution of the CRE market has revealed the many benefits of technology but also its shortcomings. While the financing process is faster, easier and more transparent, there are still some parts of CRE lending that are dependent on human interaction.
For years, the traditional process of securing a commercial real estate loan looked something like this:
• Borrower identifies a need for additional capital for a new or existing CRE project and then spends several weeks gathering financial details such as balance statements, projected cash flows and potential risks.
• Borrower completes a loan application and applies for a loan at a bank or alternative lender.
• If there is an alignment of interest regarding the project and terms, the lender begins its extensive due diligence process — which can take months.
• If approved, the borrower reviews the final loan terms and agrees to a specific payment schedule and proceeds toward closing.
• If declined, the borrower goes to another lender and repeats the process.
This process only became more complicated when financial regulations such as the Dodd-Frank Act and Basel III imposed stringent capital requirements on banks, impacting a potential source of funding for all but the largest and most creditworthy of borrowers. So instead of having the flexibility to review different loan offers, many smaller borrowers now found themselves forced to choose between a bad offer and no offer.
But thanks to technology, the CRE market is now booming.
Just as technology helped transform…