cre finance

Matching Algorithms are Changing the Way Commercial Real Estate is Financed

A recent reported estimated that the 2017 total dollar value of commercial real estate was between $14 and $17 trillion. An asset class this big has a direct impact across economic sectors and geographies. According to PwC and ULI’s 2019 Emerging Trends in Real Estate Report, technology is commercial real estate’s biggest disruptor. Furthermore, the U.S. Bureau of Economic Analysis recently stated that the real estate industry represents thirteen percent of our country’s GDP.

From multifamily buildings to multi-tenant developments, hotels and mixed-use properties, project stakeholders are looking towards the latest and greatest in technology to elevate the end-user experience. Yet real estate has been one of the slowest industries to change, partly due to the antiquated finance process.

Although the financing needs of each of these projects is highly nuanced, the historical methods of fulfilling those needs has not been. Objectives are and have always been transparent: borrowers want access to the capital they need; and lenders want to finance the project type, size, and location they prefer.

Simply put, commercial real estate financing has severely lagged behind in innovation and as a result, client experience. The value of the deals we service has increased decade after decade, but in general, the methods deployed to secure the funds has not evolved.

Until now, mortgage brokers have primarily relied on a “spray and pray” approach. Each opportunity was blasted to hundreds of lenders, without consideration of their intent or interest to lend on that specific property type, location, or amount.

For example, a $5 million dollar retail deal on a quiet Main Street in Suburbia USA would make its way across the desk of Joe Lender who only considers $10 million dollar-plus mixed-use projects in located in the heart of highly trafficked urban areas. On the other hand, the new-to-the-business developer of a $7 million dollar multi-family building that would bring construction jobs and affordable housing to a community, did not have the necessary connections for financing consideration, and the project was never able to even break ground. This approach is inefficient for everyone involved.

Commercial financing has always been a tedious word of mouth numbers game riddled with inefficiencies. While it did sometimes work, it was often more an exercise likened to finding a needle in a haystack, than a seamless multi-million dollar transaction.

Compounding matters, the antiquated methods also created artificial barriers for new entrants lacking an army of originators. Smaller borrowers often do not have access to the resources to find the best capital fit for their deal.

With all of this in mind, I created Remissary, a new platform that matches commercial real estate borrowers and lenders. We want to introduce advanced technology to the commercial lending landscape but do not overlook the importance of high-touch personal interaction to oversee and navigate towards solutions as needed.

Technology provides the ability to formalize institutional knowledge, remove inefficiencies, improve information flow, and increase access. It allows us the ability to build powerful databases that ensure a deep understanding of the buyer’s capital needs, and the lender’s tolerances and preferences. Technology replaces the “spray and pray” approach with powerful algorithm that delivers perfect matches — from three to five on-target recommendations for a deal, rather than 50+ bad ones. And once that match has been made, technology provides the means to track documents and work collaboratively, in real time, to successful completion.

Technology touches on all aspects of our world. While it adds efficiency and convenience, some may feel that there is an element of human connection lost, and that first-class service is simply not possible. I believe the opposite to be true, and that in many ways, service can be improved. When technology is used to create more efficiency and better matching, service can focus on the parties’ needs and completion of the deal.

Commercial real estate is ready for change more than almost any other industry. The future of commercial real estate finance is bright. Commercial real estate professionals from both the borrowing and lending sides have everything to gain by embracing technology: perfect matches, cost savings on deals, and new opportunities in a changing industry.

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