There are many reasons for commercial mortgage brokers to feel confident about the future of their profession. The data suggests that business-purpose mortgages will remain in high demand and companies will need to hire more brokers. There is a caveat to this, however. The mortgage broker of the future will have to adapt.
Today’s process of originating commercial real estate loans is out of date in many ways, leading to inefficiencies that are holding back the industry. New technologies, automation and ways of originating loans are emerging that will change how commercial mortgage brokers do their jobs. Rather than fearing this future, however, brokers should march at the front of change.
Technology won’t stand still. Innovations will eventually change how commercial mortgage brokers find lenders and match projects to loan programs, as well as how they move deals toward closing. As the borrower’s advocate and the primary conduit of information between the borrower and the lender, brokers may have the most to gain by embracing technology that builds value in their relationships.
The commercial mortgage industry is generally behind the curve for using technology, Deloitte concluded in a 2019 report. The report indicated that commercial real estate companies have not adopted tech innovations at a pace that meets the expectations of investors. At the same time, Deloitte pointed out that “technology has permeated every aspect” of the industry. Companies that ignore the drumbeat of change are headed for obsolescence.
Deloitte cautioned that commercial real estate companies “should innovate continuously and improve organizational fluidity rather than work within set guidelines and in silos. … Ultimately, the winners will be those that can adapt to the forces of change faster than the speed of change itself.”
Two of the biggest pain points for borrowers involve finding the right lender and achieving the best loan terms. Lenders, for their part, are generally most challenged by sourcing loans that fit their lending criteria, and then collecting complete and accurate information for the loan application.
Ultimately, a commercial real estate investor wants a loan with the best terms. Clients also need certainty that the loan meets a lender’s requirements and will close quickly. The paper-intensive and manual process of completing commercial real estate projects is susceptible to error and miscommunication, often leading to prolonged data-collection periods and costly delays. This process can be improved by automation in a number of ways.
Data collection is one such area. Borrowers typically submit information through an initial intake form, and lenders subsequently follow up with additional requests for data and supplementary material through calls, e-mails or texts. Even today, the process is largely driven by a document checklist that’s completed through clunky e-mail exchanges and regular postal deliveries.
These methods generate mistakes, delays and tension, as the documents need to be passed back and forth from the applicant to the lender. The problems multiply in cases where a client is pursuing loans with multiple lenders and must prepare different applications simultaneously. Each of these lenders may require the same information, but in various formats. Borrowers often get application fatigue and make errors on the forms.
Static paper applications also don’t easily accommodate different loan types. The data required for loan underwriting varies based on property type, loan product and borrower eligibility. It is difficult to capture and process the needed information in a static paper application.
Some portions of the application get left blank or incomplete, while attached documents from the borrower typically are in a nonstandard format that lenders must decipher. Significant time and energy could be saved by having an electronic, consistent format that would not only expedite the critical early stages of the application, but would drastically improve the experience of everyone involved.
This manual, paper-intensive process also doesn’t lend itself to easy collaboration between the various parties involved in closing a loan. A largely offline process hampers everyone’s ability to effectively communicate. Brokers and lenders are challenged to keep applicants current on their loan status. Borrowers are often unaware of what is going on until they are contacted for more information.
The need for transparency extends to additional stakeholders as well. Contractors, accountants, lawyers and architects, among others, need to be able to submit and view information through the process. Presently, the most common way for these outside groups to work directly with the lender is via phone or e-mail. The broker often takes on the role of coordinating all parties.
One major area of deficiency is the siloed nature of commercial real estate lending. The borrower’s entire profile and data is gathered up in a file held by the lender. Once the loan file is complete, the information serves little or no purpose for other applications. If the documents were in a digital format and more readily accessible, that information could be regularly updated and used by underwriters for additional loans.
Most lenders require details of a borrower’s entire commercial real estate portfolio to underwrite a new loan. Naturally, the portfolio’s composition and property-level data changes over time, and it needs to be updated with each loan request. It’s disheartening that the significant effort required to give the most recent borrower data to a single lender can’t be made accessible for future loans.
Additionally, lenders require formal validation of the application data through tax records, financial statements, environmental reports and more. This supplemental documentation is spread across multiple e-mail threads, drop-box folders and thumb drives. If all of this information was available in a single digital-document repository and was accessible for future use by the broker and borrower, it would significantly reduce the time spent collecting and sharing documents.
Another issue with the current way commercial real estate projects are completed is that it is difficult to manage and analyze relevant data. Commercial real estate projects often have multiple guarantors. Each guarantor may have one or more affiliate businesses, creating a web of intercompany relationships. The complexity involved in analyzing the risk increases when the guarantors submit individual information to a lender that is left to organize, file and evaluate it as part of the broader project.
Attempting to comprehend a decade or more of data from the borrower and their affiliates, as well as property-level projections, is a recipe for frustration. When the system for compiling borrower financial reports has no uniform template, it is difficult to maintain consistency and objectivity in assessing the data. A more streamlined approach is needed for data analysis and reporting. There should be a standard data format, without variations, to simplify the analysis.
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Investing in commercial real estate can be a trying process. The investor must size up the market, then figure out how much to invest and what their desired return is. Brokers can be invaluable for guiding clients through all the variables and complexities of the process. To that end, emerging technology can help. It will improve the way brokers do business. The bottom line is there are more efficient, simpler ways to find financing and close loans for your clients.