Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.
Issue link: https://westernrealestatebusiness.epubxp.com/i/873170
58 • September 2017 • Western Real Estate Business www.REBusinessOnline.com LENDING FINANCIAL ADVICE The lending environment has undergone vast changes post-recession, thanks to stricter standards, alternative lenders and technology. Below is just a peak of the outside-the-box thinking some real estate investors are considering today. THE RISE OF TECH-ENABLED CRE PLATFORMS By Gary Bechtel, President, Money360 in Ladera Ranch, Calif. The demand for capital within the commercial real estate (CRE) mar- ket has never been stronger, with his- torically low interest rates, market con- fidence and stable employment num- bers propelling in- vestment across the country. The second quarter saw a 91 percent year-over-year increase in the dollar volume of loans for industrial properties and a 33 percent increase for office properties, according to the Mortgage Bankers Association (MBA). Rise of the Alternatives With this continued activity has come a market shift: the rise of alter- native lenders. Alternative lenders, including technology-enabled direct lenders, non-bank lenders and mar- ketplace lenders, have stepped in to provide liquidity to a market that is demanding capital over the past few years. However, this market has been liquidity challenged in the years fol- lowing the financial crisis and the sub- sequent increase in regulations. Following the implementation of financial regulations like the Dodd- Frank Act and Basel III, stringent cap- ital requirements on big banks made lending on commercial real estate into a less profitable activity. The result was only the most lucrative commer- cial real estate projects got funded, leaving second- and third-tier bor- rowers largely underfunded or forced to look elsewhere for capital. Alternative lenders have stepped in to fill the void and provide capi- tal to borrowers no longer served by traditional funding sources. A large concentration of these lenders are based on the West Coast, particularly in California, due to the region's mar- ket size, strong demand for CRE loans and its long history as the birthplace of popular tech-enabled solutions. Technology-Enabled Solutions Technology has played a major role in the large-scale adoption of these new lenders as a viable source of capi- tal. Just as technology helped unlock the consumer debt market through the rise of online platforms like Lend- ing Club and Prosper, recent advance- ments in technology have propelled the CRE market by making the bor- rowing process faster, more efficient and more transparent. Instead of wait- ing weeks or months for a traditional lender to approve or reject a loan ap- plication, borrowers using a tech-en- abled direct lender can apply in just 10 minutes and receive an initial decision in as little as 24 to 48 hours. The growth of tech-enabled direct lending platforms has also been sup- ported by the fact that institutional investors are becoming increasingly comfortable investing in CRE through these types of lenders. For an inves- tor, the most important consideration is to seek out platforms that combine technology with human insight. Expe- rienced investors know to be wary of any platform that claims to use an al- gorithm for underwriting CRE loans, versus the expertise brought by a hu- man element. The truth is there are simply too many variables in under- writing and structuring a CRE loan to do that effectively. It's still a people business. The most successful plat- forms are those that use technology to streamline the process and provide transparency that can then be used in an underwriting process that is led by people with decades of experience. We've seen the appetite for tech- enabled direct lending reflected in the growth of our own business, par- ticularly over the past year. Money360 recently closed $143 million in CRE loans in the second quarter, making it the company's best quarter to date. This is in comparison to the $110 mil- lion in loans closed in all of 2016. This puts Money360 on pace to close more than $600 million by the end of the year. Predictions and Expectations The outlook for the CRE market is as strong as it has been since before the financial crisis. Demand for CRE loans continues to be strong nation- wide, particularly on the West Coast. According to the U.S. Census Bu- reau, seven of the 10 fastest growing states are based out West. This in- cludes Utah, Nevada, Idaho, Wash- ington, Oregon, Colorado and Arizo- na. Meanwhile, California, one of the states missing from this list, is one of the country's largest, with a popula- tion of about 40 million people —and still growing. As populations expand and property demand surges, we an- ticipate borrowing volumes to con- tinue to grow. And while competition abounds, continued growth means new and existing market entrants should easily be able to co-exist. Tech-enabled and non-bank lenders have established themselves as reli- able sources of capital and liquidity, making them an important compo- nent in the overall growth of the CRE market. These lenders continue to fill the void left by traditional sources by providing an increasing amount of capital to borrowers. As more borrow- ers and brokers gain familiarity with tech-enabled lenders, and as strong demand continues across the country, we expect the market to grow and ma- ture at an even faster rate. Bechtel California loans will be made pursuant to Finance Lenders License #603H310 / BRE Broker #01982999. WalkerDunlop.com POW ERING YOUR PROSPERIT Y STEVEN SHORES P OLL ACK SHORES RE AL ES TATE G ROUP Avid Fly Fisherman Walker & Dunlop borrower since 2011