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Opinion, commentary, and analysis on everything that makes the U.S. housing economy tick -- not to mention the ghosts in the machine, too. Written by HW's team of editors and reporters each business day.
Lending

LendIt Wrap: We're missing the trillion-dollar opportunity in the commercial real estate market

Will tech give us a chance to play catch-up?

March 9, 2017

The current buzz in real estate tech is about all consumer and residential-focused products, and a few startups are wondering why there isn’t more talk about the trillion-dollar opportunity in the commercial real estate market.

Here’s what we learnt about the opportunity and possible roadblocks at LendIt, one of the largest fintech conferences in the U.S. focused on consumer and mortgage lending.

Bill Fisher, CEO of Plum Lending, estimates the size of commercial mortgage market at $3.5 trillion (the Mortgage Bankers Association pegged it at $3 trillion in 2016). He believes the market opportunity lies in displacing major banks, which hold approximately half of this debt on their balance sheets, since many of these banks have had their reputations tarnished and are subject to onerous regulations post the 2008 crisis.  

Not all the players in the space would like to displace big banks, though. Evan Gentry, CEO of Money 360, and Ryan Williams, CEO of Cadre, believe the opportunity lies in partnering with the banks for capital while bringing technology to a space that has been relatively untouched by it. The two companies differ on their approach to the opportunity, though – Money360 focuses on relatively low LTV debt investments, and Cadre makes predominantly equity investments.

They, however, agree on the opportunity to deploy sophisticated data and analytics through machine learning models.

All the speakers agreed that opportunities abound up and down the capital structure, although they do not come without challenges.

Fisher brought up the physical constraint of computing horsepower – commercial and multi-family real estate datasets are more complex than residential datasets by orders of magnitude because of the number of property types, deal types, and cash flow characteristics involved, and the world does not currently have the kind of computing power it would take to process such large and disparate datasets. 

The other challenge he highlighted was customer acquisition and retention in a relationship-driven business. Gentry believes that commercial real estate is comparable to asset-based lending, and that experience in the space is critically necessary to resolve credit challenges and service the asset in case of a takeover. Williams highlighted the need to continuously focus on liquidity and economic cycles, and the challenge of building a cohesive culture across the “old-world” of real estate and “new-world” of tech.

The takeaway is that commercial and multifamily real-estate technology is extremely nascent and poised for disruption although not without challenges, and that competition in the space is only likely to grow as computing power and machine learning models improve to meet the challenges. 

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