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Q & A With Yulia Yaani of Commercial Real Estate Lending Marketplace RealAtom

One of the things that sets real estate apart from other asset classes is the appetite for lending. The entire property industry runs on investors’ desire to lend money on properties because of the perception of the lasting value of a real asset. In the residential property market, at least in the U.S., there are institutions that will purchase securitized loan portfolios. In commercial real estate, where the assets are a lot more expensive and exponentially more difficult to value, a lot of loans are created and held by private lenders. This means that a borrower needs to find a way to get in front of the multitude of family office and mid sized money managers that are looking to put debt on commercial properties.

Any time there is a lot of money involved in a market where the two sides have difficulty finding each other there is an opening for a digital marketplace. The commercial lending marketplace is no exception. One of the marketplaces trying to connect borrowers with lenders is RealAtom. The companies tech-forward approach to creating a lending marketplace for commercial properties won them an award at last years MIPIM PropTech New York.

To understand more about the changing commercial loan environment I talked with Yulia Yaani, founder and CEO of RealAtom. She was able to enlighten me about the growing technological empowerment of the borrower/lender relationship and how the interaction on her platform can show some of the bigger trends affecting the industry.

Propmodo: Tell us a little more about where you came up with the idea for RealAtom and shat caused you to take the leap and turn that idea into a business?

I have worked in commercial real estate for over 17 years, first for Related Group in Florida, and later for a global private equity real estate firm after receiving my MBA from Columbia. I’ve been very entrepreneurial through my entire career with three previous startups under my belt.

One of those startups was an online hard money lending platform. We raised several million dollars from high net-worth individuals and became a source for commercial real estate lending opportunities online.

As a direct lender, we immediately experienced what it’s like to receive hundreds of loan requests, only to find a few that fit our lending criteria. We spent a lot of time siphoning through these loan requests and realized that the rest of the commercial property lending industry was doing the exact same thing.

This was our ah-ha moment. We were turning away perfectly good loan applications just because our lending criteria was limited. From my previous experience with a large developer and a private equity investor we, as borrowers, would have had issues with finding right lenders in a timely manner. Now, as lenders we also had trouble finding the right match. We realized there was a big opportunity to use the power of AI technology and machine learning to build a platform where borrowers and lenders can meet efficiently.

Our immediate advantage was that my co-founder, Masha Sharma was a tech and AI wizard with 20 years in innovative technologies. We decided to build a series of algorithms to match CRE borrowers with relevant lenders. That was the beginning of RealAtom, a marketplace for commercial real estate loans. RealAtom was formed –  “Real” for real estate, and “Atom” as the metaphorical building block of the commercial real estate lending universe. Our mission is to be an indispensable service at the core of CRE lending for borrowers, lenders, and brokers nationwide.

Propmodo: What were some of the biggest challenges you found when starting an online platform for commercial real estate loans?

One of our first challenges was to prove to both borrowers and lenders that a technology solution can deliver better/faster/cheaper opportunities in a traditionally relationship-driven business like commercial real estate finance.

We’ve gained a lot of traction on both sides of our marketplace, demonstrating there is a real need for a technology-enabled solution.  On the supply side, we’ve built a network of over 2,500 lenders within the first 18 months, including giants like Wells Fargo, alternative online lenders like Money 360, to the agency and institutional lenders.

Our next goal in lender acquisition is to focus on community banks and credit unions. With a more relaxed regulatory environment, these groups are looking for more commercial real estate lending opportunities. RealAtom is a natural fit for them because we attract qualified borrowers across the country in all geographies, not just the larger metropolitan markets that get the most attention from larger lenders. We provide a real opportunity for ALL commercial loan officers who want to have an alternative pipeline of relevant loans.

One of our other challenges has been in the platform design and user experience to improve the entire funding process, from evaluating multiple offers, negotiating terms, and accepting term sheets at a faster and more efficient rate than traditional methods. We’ve spent a lot of time collecting user feedback from our initial borrowers to make sure we’re continually improving our technology and service offering. There is a fine balance needed to combine a fully automated platform while providing value-add services from industry experts. It is important for us to understand our customers’ needs in order to build a tech-enabled debt origination service where both, CRE borrowers and lenders bring repeat business over time.

Propmodo: Being the marketplace for real estate loans obviously gives you access to a lot of different deals. What have you seen in your marketplace that surprised you?

First, lenders are looking for more relevant deals and direct access to borrowers. As I mentioned before, lenders are overwhelmed with irrelevant loan requests with the average success rate of less than 10%. Many lenders across all loan and property types will agree that they have to review 1 billion in loan requests in order to produce $50 million in loans. What surprised me is how fast lenders are getting used to applying technology win right business.  price the deals and issue term sheets.

We are observing an increasing appetite from lenders for faster online transactions and deal flow. They price the deals, issue terms sheets and help us build new exciting tools to make their life easier. We believe things are moving fast because RealAtom offers lenders direct access to  the right borrowers.

Another interesting observation is that quite often borrowers are coming to the platform to “feel the market”. Borrowers post a loan request on the platform,  channeling it to their own lenders they already have a relationship with, as well as complement it with outside lenders to make sure they are getting the best terms. A couple of things that do not stop to surprise me are first, that 83% loan requests posted on RealAtom get competitive offers and second, that borrowers, and lenders, use and like the tools that we are constantly building. Borrowers seem to really like the efficiency of our Carmax style negotiation engine that gives an enhanced transparency into what market has to offer, or simplicity of a set of tools that help both, analysts from larger companies or less sophisticated sponsors, create a beautiful marketing collateral that any lender can understand and appreciate.

The most popular deals on the platform so far have been around $3-$20 million and divided in two groups. The first being the plain vanilla refinance and acquisition across all asset types. Basically deals that do not require complex structuring. For example, office or industrial properties with solid tenants and good DSCR. The second group is multifamily.  Most of the agency lenders on the platform, on top of traditional and alternative lenders are constantly looking for multifamily deals. Borrowers like that with RealAtom they do not need to talk to dozens of lenders through dozens of separate email channels. RealAtom brings all those communications together in one secure and reliable funnel. No more submitting 15 loan packages to 15 different lenders: one gorgeous package, multiple lenders, one communication channel, numerous competitive offers. The ease of communication that RealAtom provides helps bring those two types of deals in front of the right lenders delivering value to both, borrowers and lenders.

One thing I want to mention is that we are an efficient platform with numerous lenders, we are not miracle workers. Some of the borrowers are still having hard time of getting accustomed to a raising-interest-rate environment . Those sponsors continue to expect 3% and 4% interest rates for 5 and 7 and even 10 year terms. I have to say that those days are gone.

Propmodo: How do you think commercial real estate lending will change because of technology?

I find that the commercial real estate lending industry is poised to undergo a transformation similar to that of the advertising and travel industries in the early 2000s.  Those industries were traditionally relationship-driven and dominated by agencies, but they were completely transformed by new entrants like Google, Facebook, Expedia and Kayak, which provided immense value to customers at dramatically lower costs. Now over 40% of the advertising and travel industries are digital. I expect the same trends in commercial real estate lending as the industry innovates and adopts online platforms to operate more quickly and efficiently. Yes, many transactions can be complex, but I foresee that the industry will be completely transformed over the next ten years, maybe sooner, as more and more people adopt online technologies

I believe there are a couple of forces that will help bring about major change in lending for commercial real estate.  First, big data is bringing insights and transparency to CRE lending, which traditionally suffers from a lack of transparency. As access to data expands through an array of cost-effective tools, smaller players will be able to more quickly benefit from meaningful information that helps them act on new opportunities. This is leveling the playing field for businesses of all sizes and creating new types of companies and services in the industry.

Second, we’re going through a generational shift. Millennials want the convenience of speed and efficienciency and are willing to adopt online technologies at a greater rate. I believe that as millennials age and make up a larger proportion of leadership within lending in the real estate space. They will adopt online platforms for the benefits over traditional methods, like wider reach, speed to execution and cost reduction.

RealAtom is at the right time in this transformation and poised to scale quickly. In the first 20 months alone, we’ve created a very large and engaged community of lenders, and processed over $900 million in loans at substantially lower costs to our customers. Our technology allows us to scale fast, and we are excited to take the commercial real estate lending industry into the future.

Propmodo is a global multimedia effort to explore how emerging technologies affect our built environment.

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