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It’s the beginning of the year — time for a proptech resolution for CRE. I offer one word: efficiency.
It sounds simple, but I’m betting you know it isn’t. If it was, we’d have it already. Case in point? The loan application process in commercial real estate lending — something I am up close and personal with every day.
Remember what college applications were like many years ago: Each university required its own unique application. Applying to 10 schools meant creating 10 similar applications and tracking each across 10 different portals. Admittedly, schools did their best to create online intake systems, but the experience was time-consuming, inefficient and frustrating for prospective students.
Fortunately, a number of schools finally agreed to use one single system of record. Today, students can create one application for multiple schools and track all applications in one place. They can still apply to all the schools they want and develop those all-important relationships with each admissions officer. But the process is more efficient, and students can focus on writing a quality essay, selling themselves and building rapport with target schools, rather than on a needlessly time-consuming process.
See where I’m going with this?
Examining the loan request intake process in CRE lending, you’ll find it similar to applying to college 15 years ago. Lenders, borrowers and brokers are not using a single system of record to process hundreds of thousands of transactions that comprise the CRE lending market. It’s the Wild West — every lender for themselves.
I’ve seen some CRE lending companies attempt to make loan intake more efficient by creating proprietary application systems (life companies, large banks and alternative lenders in particular). Recently, a senior executive at a “top five” bank told me that they were considering a proprietary system to “increase customer happiness.”
But just as none of us were happy when we had to juggle 10 different university portals, no CRE borrower or mortgage broker is going to jump for joy at having to submit a loan to 10 proprietary systems. One could argue that this trend is worse (and more short-lived) than the pre-proptech way of submitting loans to lenders via email. Most lenders correctly assume that brokers won’t be able to use hundreds of proprietary application portals to submit loans. If you build it, they won’t necessarily come.
But then I hear from mortgage brokers that they are looking to simplify the loan process. They do want all transactions in a single system of record and believe that a unified proptech platform for loan origination is the way to go.
What do the brokers say about lenders’ willingness to use a single platform? (Hint: It’s a Catch-22.) They tell me they assume lenders won’t use a universal loan application platform.
So where does that leave us? Both parties share a problem. Both want to solve it. Both agree with a common solution. Yet, frustratingly, each believes the other won’t embrace that solution.
There is some merit to this argument. There are bound to be late adopters on both sides — that’s part of the technology equation (and human nature). It’s normal to be reluctant to change, especially when so much rides on the status quo. For lenders, the familiarity of today’s CRE loan application process (phone calls, emails, spreadsheets) is reassuring.
So I can accept late adoption. But no adoption is a different matter. A lender told me recently, “We won’t commoditize in CRE. We’re interested in relationships and service.” It’s not something I hear often, but it does come up. It does much to explain the mentality of the small-but-vocal minority of hold-outs in the lending community who are digging in their heels, unwilling to acknowledge that technology is here and set to deliver a competitive edge.
Accepting that a universal CRE loan intake platform is analogous to college applications of years ago, I ask: Have Harvard and Columbia business schools become commodity shops since universities adopted a universal application platform?
Here’s what I see almost every day: Our firm has a system of record, and by and large, we’re optimistic about its adoption. I have heard the “commodity” objection from a scant 15 loan officers out of over 900. It’s a small minority, but it underscores my point that CRE must shift its mentality and be more adept at spotting an opportunity to embrace the necessary change (and competitive advantage) that comes with it.
By and large, I see CRE players willing to adopt. Just as real estate startups have successfully launched mortgage application platforms for residential lenders, I believe CRE can adopt a similar platform. We need a system of record for all of us, brokers, lenders and borrowers alike.
A Road Map For Moving CRE Forward
The obvious question is: How do we get there? As the saying goes, “Where there’s a will, there’s a way.” To me, the path forward for CRE consists of both a change in mindset (the will) and action from leaders (the way).
Let’s start with mindset. Even in an industry known for its conservative rate of tech adoption, there’s a clear trend of brokers moving toward a single system of record (if there wasn’t, we wouldn’t have a company). I highly doubt this shift is driven by a spirit of innovation. Rather, brokers are motivated by increasing anxiety to stay competitive as they see how the pace, scale and complexity of work and communication increase daily.
An industry, however, can’t be driven solely by the fear of being left behind. That’s a reactive mentality that simply moves us from one crisis to the next. As a broker recently told me, we need to ask ourselves how we can stay relevant. Continually asking (and acting on) this question is what will create the mindset we need to stay competitive and evolve, especially in light of broader issues, like the dual specter of increased competition and economic volatility.
Now, let’s move to the actions we need to take to capitalize on this new and improved mindset. For starters, the brokers and lenders adopting a single system of record need to motivate their customers, other lenders and brokers, to join that system by making it clear that users must collaborate with their counterparties in a shared space in order to stay competitive. It’s not all about either lenders or brokers. They both need to become vocal champions of the benefits (and even drawbacks and their potential solutions) of working in a universal system of record. It’s a win-win-win: brokers win, lenders win and, thus, their end customers, the borrowers, win.
In 2020, let’s come to our collective senses and embrace efficiency by adopting a single system of record to streamline the entire loan intake process. We’ll still have our phones, emails and relationships. And like today’s prospective college students, I bet we’ll have a little more time, too.