In a world where market agility relies on tech, commercial real estate lending is behind the times. In 2019, 43% of US banks still used COBOL, a pre-internet programming language, to carry out necessary functions. The average commercial real estate deal takes 3 months to close, with much of that time spent calling individual banks. As the pandemic has proven, a market can change dramatically in 3 months.
Commercial lending’s reliance on legacy tech hinders their agility and performance at a time when the market is transforming dramatically. In 2021, commercial and multifamily lending will grow by 11% to $486 billion. Many of these gains are recoveries, but the plan is to forge a new normal, not return to a previous one. In the case of offices, companies are in the midst of reimagining how their spaces will be used now that remote work is widespread. 33% of Americans currently work from home full time, with more in a hybrid state. Powering the remote work revolution are data centers, which shoulder the demand for cloud and networking services.
Furthermore, the shift to e-commerce is changing how people interact with retail and industrial properties. More stores than ever are operating as mini-warehouses for curbside and delivery services. Meanwhile, distribution sites, logistics warehouses, and storage spaces are in high demand. Given these changes in buying patterns, different types of commercial real estate are gaining favor at the expense of others. Lending has not been keeping up with these changes.
Compare the performance of commercial lenders to their residential real estate counterparts. Through 2020’s dynamic market changes, residential mortgage lenders barely missed a beat by using technology. 92% of residential borrowers start by researching lenders online while 74% use an online portal to work with their lender. Commercial lenders’ slow adoption of technology puts them at a disadvantage. Digital mortgage players are on the rise, with more than 25% of loans being direct-to-consumer originations. Alternative lending platforms threaten to remove banks from the market entirely. Both Crowdstreed and Fundrise have over $1 billion invested through their platform.
While the fall of banks from the commercial lending scene would be terrifying, the fate is neither inevitable nor particularly difficult to avoid. In fact, it would be an embarrassment if financial leaders allowed such an event to take place. As Digital Bank author Chris Skinner puts it, “ignoring technological change in a financial system based upon technology is like a mouse starving to death because someone moved their cheese.”
Finance Loby can give commercial lenders the agility they need to close more deals. With Fintech, lenders process mortgage applications 20% faster with no increase in defaults. Lenders and brokers simply enter their criteria and preferences into a system and advanced algorithms compare each entry to assign both parties a perfect-fit deal. All necessary information is in one place, lenders can update their criteria instantly if their appetites change, and the bidding/negotiation phase is streamlined. Both parties can benefit from increased deal speed and safety.