If your work pertains to commercial real estate finance and you’re not familiar with the term “fintech”, I have two thoughts for you:
Fintech is simply an abbreviation for financial technology, and it has been turning many areas of traditional finance on their heads. If you don’t believe me, because, let’s face it, I work for a fintech start-up, just take if from Jamie Dimon (JP Morgan Chairman and CEO):
“When I go to Silicon Valley…they all want to eat our lunch. Every single one of them is going to try”
That quote is straight from the Wall Street Journal… in 2014! Many a real estate finance giant has been content to slumber on since then, but it’s finally time to hear the alarm clock.
There’s a lot going on. Over the 18 months since founding StackSource, I’ve attempted to explain the vision of what we’re doing to countless real estate professionals, and I can’t tell you how many times I’ve given a concise elevator pitch, only to be asked flatly, “So, it’s like crowdfunding?”. No, real estate guy, it’s not like crowdfunding. There’s so much more to fintech than that. And I’m going to tell you about it.
If real estate is an information game, then the future of real estate is a data game. One simple explanation for data is that it’s knowledge that is too big, too detailed, or too complex to hold in your head. Using a larger set of information to make key business decisions is an advantage vs those who make decisions only based on their personal knowledge.
Trepp is one company that has been bringing the power of data and analytics (displaying data well for tracking and decision-support) to the players in the CMBS world for quite some time.
Reonomy and other map-centric real estate data platforms are aggregating many separate data sets that are available separately, and centralizing them within an easy-to-use product for real estate investment research. Envelope is a good example of a play into a more niche use-case of zoning and development analysis. Both of these platforms and others are indicative of the larger trend of bringing a more standardized, and user-friendly product to life to surface data in a more user-friendly way that supports quick decision-making.
I could name a couple of larger public companies here that have done hard work to aggregate reams of data related to properties and real estate trends — but I along with the rest of the industry are waiting for some of them to do something more interesting than simply selling data in basic form.
Giving access to better data and analytics to the masses is one of the core forces in fintech because the difference between good and bad finance is at the margins, and superior data-driven decision making helps you win those opportunities at the margins.
Speed, consistency, and share-ability of models and analysis.
Bringing it in a level closer, there are several companies working on technology to improve the analysis process for specific real estate investments. AssessRE is a user-friendly, cloud-based underwriting platform that lets you run multiple scenarios and sensitivity analysis on your investment. How is this different from Argus you ask? I already told you: user-friendly, cloud-based. Welcome to 2017.
How about even more different: DealStat is an interesting play combining classic real estate investment underwriting and natural language processing vying to become a chat-based AI assistant for real estate analysis. Imagine speaking out loud to your phone, “What if it comes in at a 5.5% cap rate?” and it answering, “The deal won’t work out below 6% at expected loan terms.” DealStat is closest to making this happen.
For lenders, Rockport is a heavyweight system that helps manage the origination process from analysis, to quotes, approvals, and managing loan portfolios. It’s much more of an Enterprise feel to cater to big banks and CMBS issuers.
Shared digital workspaces that bring a new level of transparency and efficiency to the game.
While Rockport and other underwriting platforms have a lot of workflow features, these platforms are external-facing — bringing together deal stakeholders onto shared workflow.
Prodeal360 is a platform that brings deals from a signed term sheet through conclusion and settlement through smart handling of documents and deal steps. They claim they can cut the length of the typical closing process down by 33%.
Juniper Square gives real estate investors a platform that helps manage LPs for their portfolio deals from fundraising through reporting, and gives the LPs a login where they can easily keep up with their investments and review deals.
This is without a doubt the most crowded area of real estate fintech, with over 200 digital investment marketplaces having popped up since 2012. However, this space is also bringing real innovation to market, and has largely brought real estate investing to the masses who haven’t necessarily had easy, transparent, low-fee access to real estate previously.
There would be too many companies to name here. The idea of real estate crowdfunding kicked off with the JOBS act of 2012, allowing for investment crowdfunding over the internet. Since then, many have come up with very similar core ideas: bringing real estate investment opportunities online. There have been some platforms that have scaled well, but you’ll see a lot of failures in real estate crowdfunding as well, as the market seeks to reward the best platforms based on a combination of their marketing, experience, and core real estate chops. If you want a list of all the real estate crowdfunding platforms, other blogs have taken a better shot at mapping them all.
OK — now this is where some people may start to learn something, as many online real estate investment platforms are not limited to crowdfunding.
Sharestates is a great example of a company that has gotten beyond simply crowdfunding, and has increased their capability to also help institutions invest in their loans. The platform recently hit half a billion dollars invested between individuals and institutional partners. Money360 is another company that has been scaling up operations in the space with institutional capital at their back.
The eREIT is just like real estate crowdfunding, except you get a pre-selected basket of investments instead of picking your own deals. The main differentiators here vs a traditional REIT are lower fees and more transparency. Fundrise and RealtyMogul each brought the idea to fruition.
Fundrise 2.0 was just announced, and while their eREITs are still the underlying investment vehicles, they’ve shifted the investor experience to one more akin to present day robo advising. I’m impressed by Ben Miller’s vision to adjust course in the investor experience twice already even while they were seeing growth.
However, they are not the first and only crowdfunding portal to make inroads into the real estate robo-advisor game. In March, San Francisco-based PeerStreet announced integrations with Betterment and Wealthfront, two heavyweight robo advisors, so you can invest in real estate from your existing account on those platforms.
AlphaFlow also has automated investing features that hook up to multiple other investment portals like Sharestates and Patch of Land.
Many of the most successful digital investing platforms we talk about above can also be considered digital lenders. But an exciting new trend in digital lending for real estate is the beginning of “traditional” lenders starting to build and roll out their own online platforms that make it easier to submit an application and get a quote. A few DUS lenders (those select lenders who can originate loans and hand them off to GSEs Fannie Mae or Freddie Mac) have started to race toward the top of the digital lending hill, and you can expect more classes of lenders to follow suit over the next couple of years.
Challenge to the industry: Who will be the first CMBS issuer to launch an online platform that provides instant quotes for conduit loans?
I realize that 90% of the readers here who consider themselves a part of the CMBS industry just scoffed at that notion. That’s fine, really. Barnes and Noble scoffed at Amazon too. But seriously, if you’re sitting at the top of an issuer and fully paying attention this far down the article, shoot me a note and we can talk about this together. Tim@StackSource.com.
This is where our company, StackSource, lives. We’ve created a digital marketplace for commercial real estate lending without the lender having to do heavy lifting of creating and optimizing their own online borrower acquisition funnel. Yes, we’re connected to both “online” and “traditional” lenders, as we provide the platform that makes it possible for any CRE originator to participate.
The process: A sponsor (borrower) that’s seeking a commercial real estate loan for investment or development enters information about their property and plans, and our system pulls data together into an interactive digital offering memorandum, instantly matching the deal to relevant loan programs which we match algorithmically. Fancy words for saying we bring together the borrower with the right lenders automatically. Those lenders then compete for the deal, and the whole process is made more transparent for the borrower, as well as more efficient for the lender.
Let’s face it, no matter who your customer is, they probably have an iPhone in their pocket. Is your business experience keeping up with the innovation and ease of use of their personal life? A generational shift toward a millennial-dominated world is leading us faster towards transparent, connected apps. Everything needs to be consumable and on-demand. Tech will continue to push traditional services to the fingertips of the customer.
No industry is too complex — commercial real estate data can be aggregated, structured, and analyzed, which are the only necessary traits for artificial intelligence to take hold. No person’s Knowledge (that stuff that’s kind of like Data but less comprehensive and more biased) is going to outrun the AI revolution. Bet against me, I dare you.
Sure these things can be scary, especially if you’re well settled (and well paid) in your current ways. But if there’s a big wave coming and I’m in the ocean, I’d much rather grab a surfboard and start paddling than wait around to be rolled. The industry hasn’t felt the full tide of fintech yet, but you can certainly feel the change in the wind if you’re paying attention.
Stay humble and curious, this is going to be fun!