The Upsides, Challenges of CRE Fintech

Innovative tools are streamlining finance, yet hurdles remain.

Multiple factors are thrusting financial technology, or fintech, closer to the mainstream in commercial real estate financing. But with all the benefits technology offers in speed, simplicity and paperwork reduction, CRE lending still rests on involvement of humans.

Factors in fintech’s ascendency are many, including a COVID-era desire for contactless, technology-enabled business transactions and the goal of reducing the reams of paper involved in a transaction. Another factor is CRE borrowers’ expectation that loan processes will be expedited, as they have been in home mortgage and alternative business lending, said Noah Grayson, strategic financing advisor at Real Estate Bees, a boutique real estate lender specializing in commercial real estate financing, SBA lending, business lending, and tech-based loan origination.

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William Sankey, CEO of Northspyre. Image courtesy of Northspyre

William Sankey, CEO of Northspyre. Image courtesy of Northspyre

Grayson is also president of St. Cloud, Minn.-based South End Capital, a national, non-conforming lender founded in 2009, which this past June became a division of the $2.2 billion financial institution Stearns Bank N.A. Many loan processes at South End Capital and Stearns Bank involve financial technology and automation, he said. For instance, the company’s partner portal offers a 60-second registration process, 24-7 lead tracking and a co-branded landing page, trackable referral link, API (Application Programming Interface) access and more.

“CRE lending for us and many lenders is almost unrecognizable from what it was five or 10 years ago,” he noted, adding South End Capital today uses APIs, conditional automations, e-signature software and client documentation and status portals, to name a few. “Five or 10 years ago, just having an online application put us at the forefront of innovation in the CRE space.”

CRE fintech tools offer an array of services, said William Sankey, CEO of Northspyre, which has facilitated more than $30 billion of project capital for borrowers and grown five times since 2020. The list includes tools linking owners to financiers and lenders, solutions that automate entire loan application processes for borrowers, and online marketplaces that allow buyers to transact on moderately priced commercial buildings virtually. In the last five to 10 years, technologies coming to market have powered AI, automation and data analytics to enhance the process of managing project capital, vendor contracts, draw requests and budgets for real estate developments, he said.

Inclusion enablers

“Fintech lenders are frequently viewed as enablers of financial inclusion, providing services to people who traditional lenders have underserved,” said Lyle David Solomon, principal bankruptcy attorney at Oak View Law Group in Chicago. “The innovative, non-traditional methods of money sharing have allowed investors to prosper, while also allowing those who may not qualify for a typical loan to get the money (needed). … The field is vast, constantly expanding and appears to be here to stay. However, the new technology may bring unanticipated financial losses or other negative consequences.”

Others agree downsides exist. Underwriting commercial real estate loans usually demands the expertise of people experienced in weighing endless considerations that go into loan approval, from property location and type, the fitness of the borrower, cash flow generated by the property and the loan’s financial details.

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Lowe's Global Technology Center. Image courtesy of Lowe's

Lowe’s Global Technology Center. Image courtesy of Lowe’s

“CRE lending is a complex process,” Grayson said. “Each transaction is different and has numerous moving parts. It usually requires a significant manual component to think through, structure and process a CRE loan request appropriately. Fintech is most successful when the lending process and path is more standardized, the way it is in home lending or small business lending where there are fewer variables.”

Lack of universal technology solutions in the industry represents another problem, said Lucas Rotter, CEO of CRE appraisal software solution Valcre.

“As this industry has evolved its automation, the tech stacks used to solve specific business functions lacked compatibility with those from different departments,” he said. “Disconnect between various systems undermines the efficiency gains in one business function because of redundancies of the same efforts in another department.”

Spreadsheets remain

For most real estate lenders, technology is the space between their capital and their borrowers or financial partners. The number of lenders actually leveraging fintech is still “strikingly small,” Sankey said. The average lender continues to perform real estate loan administration from spreadsheets. “While there are technologies on the market that allow lenders to improve processes, such as tools like Built, there are also solutions like Northspyre that improve reporting and draw requests on behalf of borrowers,” he added.

“Together, early category leaders managing the real estate financing space are bringing new opportunities and efficiencies to commercial real estate financial partners.”

The pandemic has been a catalyst for accelerated technology adoption in the commercial real estate industry, and fintech has ridden that wave, Sankey said. “Firms are increasingly seeking ways to conduct their business digitally, allowing their teams to work and collaborate while remote,” he concluded. “We’ll continue to see technology adoption increase across industries in 2022 and into the future.”

Read the January 2022 issue of CPE.

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