Why FinTech isn’t making a dent in Commercial Real Estate Finance Brokerage

by: Adam Horowitz

The pace of technological advancement is reshaping numerous industries, leading to significant transformations and job displacements. Yet, despite the efforts of numerous tech companies, the Commercial Real Estate Finance Brokerage industry remains largely untouched by disruptive innovations. Why is this the case?

We’ll explore what I think are the three main reasons for this:

1) At its core, commercial real estate finance is driven by relationships rather than simple matching algorithms. 

2) Lenders and investors rely on trusted sources to conduct thorough underwriting processes, which cannot be easily standardized. 

3) The human element of trust and expertise plays a crucial role in navigating the complexities of this industry.

Unlike residential mortgages, obtaining a commercial real estate loan entails a far more intricate process, involving a multitude of data points and considerations. From sponsor backgrounds to market trends, each project demands meticulous scrutiny. While technology can aid in identifying potential capital providers, it’s the expertise of individuals that ultimately ensures successful transactions.

The difficulty in standardizing the vetting process stems from the unique nature of each project. While some may appear straightforward, others require in-depth analysis of market dynamics and sponsor track records. Identifying the weak links in complex projects necessitates a discerning eye honed through experience.

Lenders have traditionally been reluctant to expand their workforce to evaluate every transaction, preferring to rely on trusted intermediaries. This reliance on expertise extends beyond mere checkboxes, as understanding the nuances of borrowers’ experiences is essential for informed decision-making.

How do I know so much about this topic? I’m a rare tech/finance guy whose undergraduate and graduate degrees focused on both business and technology. I rode the technology wave in the 90s until soon after the dot-com bubble crashed in 2000. That crash hurt more than you can imagine as I had a lot of stock options and the company I was at was going public on the NASDAQ two days after the stock market crash. I hung around for a bit longer, then moved into the CRE finance world in NYC just after 9/11.

Taking into account the knowledge that I had gained, I tried to implement as much tech as I possibly could to streamline processes, automate tasks, and focus on having the best database in the industry. I also acknowledged that you can’t stop progress so I invested in a few of those same FinTech companies that failed. Some of those investments were profitable due to increased deal flow, and others created a write-off after values went to zero.

At Lever, we use technology to help us do one thing and one thing only; to provide capital at the best available terms for our clients. If tech helps us do that then we use it, and if it does anything else, then we don’t. I look forward to seeing how tech evolves in the commercial real estate industry and we’ll continue to use it so long as it brings results to the only people that matter…our clients.