How Tech Is Changing Multifamily Lending
- Oct 25, 2017
While tech has been transforming many industries, lending has been slow to adapt. Obtaining financing for real estate projects can be a long, invasive and cumbersome process, preventing would-be investors from entering the market. However, firms are finally bringing innovation to the market through technology and revolutionizing the lending business in the process.
Multifamily Lending has Been Outdated and Inefficient for Years
Despite the continually strong apartment market, investing in real estate has largely been limited to the few who have the time, energy and resources to obtain financing for their projects, and these investors typically focus on larger deals with higher expected profits, leaving the small- to mid-sized market largely underserved. That is all changing, though, thanks to innovation in lending through tech, bringing real estate investing to the market with easy and transparent access to financing.
Advancing and Improving Traditional Lending
Traditional lenders are beginning to take advantage of advances in technology to improve upon a historically difficult process. Arbor Realty Trust Inc., a national direct lender and real estate investment trust, is one of those companies spearheading advancement in the industry.
“Technology has helped us bring efficiency, speed and first-rate customer service to the small-loan space for all of our stakeholders, borrowers and brokers alike,” said Bonnie Habyan, executive vice president, marketing, at Arbor. Small-balance owners and operators need to work long hours to be successful, and the time and paperwork dedicated to obtaining financing is an inefficient use of time. Online multifamily financing platforms such as Arbor LoanExpress, or ALEX, address this by providing the ability to e-sign and upload documents.
As Millennials age and become borrowers and brokers themselves, the use of technology becomes increasingly important. This generation values transparency more than ever, and with ALEX and other similar online platforms, borrowers can see where their loan is every step of the process, which “supports efficiency, communication and ultimately, time savings,” according to Habyan.
Emerging Alternative Options
Technological improvements and innovation have led to the emergence of new sources of real estate financing by way of crowdfunding. This alternative method brings efficiency to a historically draining process and allows access to financing for small investors and developers who have previously been left out of the market. Because of this, online real estate investment marketplaces have been growing in popularity.
“Crowdfunding was originally created to give average investors access to investments they normally wouldn’t have access to, and to give sponsors or borrowers easier access to capital,” said Bill Lanting, vice president, Commercial Debt at RealtyShares. “We were formed specifically with that idea in mind, to make borrowing easier and less cumbersome, and also to make investments in assets more available to everybody.”
Traditional bank lending can be difficult and time-consuming. According to Lanting, anything that is difficult and cumbersome is ripe for disruption. “That’s what’s happened with platforms such as ours,” he said. “We make things so much easier for borrowers. A lot of what we do is tech enabled; it allows an easier, streamlined, less cumbersome, less difficult process, and it’s much quicker.”
With online lending platforms, loans can get funded in as little as one week, from start to finish. Furthermore, combining institutional capital with crowdfunded capital, Lanting said they can offer “considerable more leverage, flexibility, and require [small-balance operators] to put up less capital.”
An Industry Ripe for Change
The multifamily lending process is evolving, and will continue to do so as additional inefficiencies come to surface. Habyan is particularly interested in seeing how big data and technology platforms can help inform commercial investment decisions in the future. “With the advent of artificial intelligence and increased access to a large amount of data, predictive modeling and other capabilities will help expedite the process and facilitate quicker decision making,” she said.
According to Lanting, technological advances in the industry are long overdue. “Frankly, our industry is ripe for that sort of thing,” he said. “We have not progressed in that way as much as some other industries have.”