Each of the above companies have put their hat in the ring to change the way commercial real estate investors look at their investment opportunities. Some of them provide data that helps inform investment assumptions. Some are the underwriting engine itself. Each would like to be a primary part of the underwriting process in some way. If even a fraction of these companies achieve their end vision, commercial real estate investment may change dramatically over the next decade and beyond.
This is not going to be a blog post analyzing the four categories I’ve bucketed start-ups into above. Instead, I want to take a look at why the ecosystem for underwriting methodology is changing, and how these trends will alter the industry. I believe that commercial real estate is both being pushed and pulled into the future of underwriting, and that that future is exciting.
Opening up an Excel file and describing a commercial real estate investment from scratch takes a lot of work. There’s a lot of structuring before ever getting to enter data — which is also manual.
Underwriting tech is addressing this. Less clicks, less typing, less work to get to the end product, so an analyst can focus on projections, rather than models.
With more time focused on the output rather than math, one underwriter can work through more potential deals than before. This is important because, as we’ll see below, there are more potential deals to analyze than at any point in the past.
For lesser experienced deal underwriters, the act of using a legitimate model built into modern software can be an accuracy boost itself. For professionals, it’s the act of analyzing a wider array of deals that can better form assumptions, and harness more market data at once that promises to boost the accuracy of deal analysis, which for some is the ultimate goal. If an investor can better gauge the potential future value of a property than the competition, they’ll make more money investing over time by picking more winners.
Push factors come from within the industry, spurring technology forward out of the needs of its participants.
Pull factors come from outside the industry. The presence of new technologies and business paradigms create a “gap” within the industry that can be filled by platforms looking to take advantage by leveraging varied innovations.
Some industry players (investors, brokers, lenders, etc) are better positioned to take advantage of these tectonic shifts in the industry, and some are more willing. What will happen to those who are unable or unwilling to keep up?
Well, their competitors will get better visibility into the universe of available deals, price deals more effectively, and execute on opportunities more quickly. No big deal!
At the helm of a startup innovating in this space? This was a high level musing — I want to hear more specifics about how you are changing the real estate underwriting game! I invite every startup in the space to chime in with a response. Bring something fresh that I haven’t exposed here, go deeper into one of the themes, or go against the grain of this framework. Don’t simply pitch your product, but please do enlighten us!