Crowdfunding sites, digital marketplaces and online auction platforms are providing revolutionary new tools for multifamily finance and investment. With the click of a button, investors, lenders and intermediaries can efficiently perform a variety of tasks: review loan options in real time, underwrite opportunities with great accuracy and access thousands of multifamily properties for sale. Further innovations will emerge in the years to come. What are the best practices for utilizing these tools, and what should investors, intermediaries and lenders expect?
Billed as the industry’s only end-to-end transaction platform, Ten-X Commercial has sold $20 billion worth of properties, including many multifamily assets, since its inception in 2009. These days, as the company collects more data and improves its algorithms, Chief Technology Officer Lawrence Yuan has developed an online dashboard as part of the process of building up the firm’s technological infrastructure.
Available for both desktop and mobile use, the tool aggregates and automates deal flow, providing brokers and sellers with the ability to track investor interest in properties on the platform in real time. It also shows the number and location of potential buyers and whether they have accessed the due diligence vault and signed the confidentiality agreement.
The technology has transformed how clients operate. “In the past, brokers and sellers would call us weekly and ask about the traction we’ve seen,” he said. “It was a manual process. Everything is moved online.” In a step designed to expand its reach, last year Ten-X Commercial partnered with Money360, a technology-enabled direct lender, to offer financing for properties available on the platform. Money360’s offerings appear on the Ten-X property detail page, and after the asset trades, the lender works with the buyer to underwrite, process and close the loan.
Forecasting due diligence
As a top provider of agency loans, Greystone has been automating its origination process for the past three years with technology created by its Greystone Labs division. Synap, its first major product, was released in 2016.
“This is essentially a way for the client to see where they are in the loan process. It’s a loan tracker,” said Zac Rosenberg, head of Greystone Labs. Synap plays an important role in communications, too, by enabling a central hub to upload and transfer documents. Another key element, Rosenberg noted, is the capacity to sign documents on a mobile device.
Synap 3, which recently launched, can also predict the type of due diligence needed to streamline the loan process. For example, it can pull up environmental hazards like radon, flagging whether an engineering or soil report is needed. The Underwriter, Greystone Lab’s newest offering, also weighs those kinds of market and environmental issues, applying the data though the lens of Fannie Mae, Freddie Mac or the U.S. Department of Housing and Urban Development, Rosenberg added. Available on mobile or desktop platforms, The Underwriter will give data-driven quotes in minutes with a list of options and real-time rates. It’s been in beta testing since late 2017 and is being piloted in Seattle.
“Fannie Mae is a driver of tech innovation in multifamily finance,” said Nancy Atwell, vice president of multifamily target state and MBS for Fannie Mae. “By working with lenders like Greystone, we have been able to reduce the time and costs associated with multifamily lending and succeed in our mission to provide liquidity to the multifamily market while mitigating risks to taxpayers.”
Greystone Labs has also been working with Skyline AI, a real estate investment technology company that uses proprietary AI and data science to augment performance of commercial real estate investments and the underwriting process.
Greystone Labs has been providing Skyline property and transaction data to test its machine-learning algorithms in exchange for access to Skyline’s technology to strengthen its own underwriting. “We’re providing the real estate context, and they’re producing the know-how with machine learning algorithms,” Rosenberg said.
An early adopter of artificial intelligence and machine learning, Real Capital Markets (RCM) will mark its 20th anniversary in 2019. The online real estate marketplace has closed more than 65,260 transactions valued in excess of $2.2 trillion, with an average deal size of $33.6 million. COO Tina Lichens cited the company’s practice of constantly updating its software and hardware as an underpinning of success.
RCM’s platform has about 1,900 multifamily assets today, up from 1,600 in 2017. The figure tends to fluctuate between one quarter and one third of the properties listed for sale, Lichens noted. However, most of RCM’s deals are private. RCM has white-label deals with investment services firms like CBRE Deal Flow, which was launched three years ago and powered by RCM’s technology.
The company regularly updates some of its offerings, such as Deal Center, a platform that allows investors to manage deals and workflow, with the priority of optimizing mobile-device compatibility. Newer additions include inSIGHT, a business intelligence platform geared to brokers. The new technology enables information to be delivered in different languages, a plus for facilitating international deals, Lichens said. RCM is planning a major hardware upgrade to make the platform bigger, faster and compliant with the General Data Protection Regulations that give European Union citizens more control over their personal data.
Online investment platforms give investors more control over which multifamily properties they want to invest in, and technology extends their reach to customers. A three-year-old provider of debt and equity investments, iintoo, is described by Managing Director Jeff Holzmann as a real estate social investment network. So far, the platform has raised more than $150 million for 50 projects, about 80 percent of them multifamily. Investments focus on Class B and Class C properties in cities like New York, Denver, Atlanta, St. Louis, San Diego and smaller markets such as Kerrville, Texas.
“Only with the technology am I able to get to you, to give you access to all the material,” said Holzmann. “We’ve already exited eight deals that went through a full cycle.” iintoo’s technology can also assist 1031 Exchange investors in finding new properties during the 180-day window for tax-exempt acquisitions.
The company, which has a research and development office in Israel, is exploring the potential of blockchain and cryptocurrency and discussing the possibility of working with other firms to develop a process that employs tokens to facilitate transactions. Holzmann envisions a day when “you could open your iPhone, look at a menu and buy three tokens representing shares in a multifamily property in Idaho, and turn around the next day and sell it.”
Joining the Crowd
Origin Investments tends to use its online platform primarily for lead generation, marketing and education. Still, crowdfunding-like techniques, aided by the firm’s proprietary technology platform, have boosted investment in its private equity real estate funds over the past several years.
“In Fund II, we had 65 investors. Fund III went from 65 to 550 investors,” noted Michael Episcope, principal & co-founder. “By the end of Fund III, we had a (nine-fold) increase in our investors. Having a $32 million fund go to $150 million was a (five-fold) increase in terms of capital (raised).” The waiting list for Fund IV now numbers 550, he reported.
Origin initially outsourced technology services, but later moved them in house and plans to launch an app in 2019. An increasing emphasis on technology comes as the firm is leaning more toward multifamily as its primary investment asset class. In September, Origin’s Fund III acquired a 112-unit property in Dallas that Origin renamed Alto of Highland.
That deal followed the announcement in August that Origin and partner SEEC Enterprises would develop Brick Stone Apartments, a $35 million, 150-unit garden-style community in Denver. Other target markets include Chicago; Houston; Raleigh, N.C.; Charlotte, N.C.; Austin, Minneapolis; Phoenix and Nashville.
RealtyMogul.com is a five-year-old crowdfunding site that facilitates investments in both assets and the two REITs it sponsors. The platform’s 170,000-plus members have invested nearly $400 million in assets valued at about $2 billion, CEO Jilliene Helman reported. Multifamily investments valued at $200 million account for 60 of the approximately 115 deals handled by the platform to date. The average equity investment hovers around $5.6 million.
On the debt side, the investments total some 25 loans valued at $150 million. As of August, RealtyMogul’s two REITs had raised upward of $50 million invested into properties valued at more than $297 million. Most of that, $40 million, was invested in MogulREIT I, which has 15 investments in debt or debt-like instruments representing in multifamily and other sectors. On the equity side, Mogul REIT II has invested more than $10 million of preferred and joint-venture equity in multifamily properties worth approximately $91 million.
Recently, RealtyMogul sold two multifamily communities from its private placement platform: a 72-unit apartment building in Ogden, Kan., acquired for $4 million in July 2013 and sold for about $4.5 million in May 2018; and a 208-unit apartment building in Euless, Texas, that was acquired for about $12.4 million in February 2015 and sold for $20.9 million in May 2018.
“We use a lot of automation, especially around compliance functions (that) are highly regulated, (such as) tax reports, (which) we have to produce for tens of thousands of investors,” Helman noted.