Banks are buying into innovation

Real estate lenders’ investments in fintech start-ups demonstrate their keenness to catch up with the times.

Many large real estate lending organisations argue that technological innovation is firmly on their agenda. Technology-related initiatives featured prominently in several of the pitches we received from banks aiming to be included in our recent Europe’s Top 40 Lenders 2019 list. As well as illustrating their efforts to be part of the environmental, social and governance movement, lenders were keen to point to their tech credentials.

There are good reasons for this. The commercial real estate finance industry has hardly been at the forefront of the technological revolution and, in many respects, lenders need to get with the times. The property divisions of many large banks continue to operate with clunky and outdated systems. In the wake of the global financial crisis, when banks were focused on repairing their balance sheets, most lacked the resources or inclination to prioritise innovation.

However, in recent years, many in the wider real estate industry have recognised the potential for technology to disrupt the way property is traded and managed. This has resulted in the creation of myriad proptech firms. Similarly, the potential for fintech has been recognised among the financing houses that support the property industry. It has thus become clear to professionals in the world of real estate finance that they need to make strides in this area.

This week, we examined how technology might shape the future of property debt and the role blockchain technology could play in real estate finance – articles that can also be read in our autumn magazine. We found that banks, and particularly the large German lenders, have gained access to technological innovation by investing in start-ups. Among these were two pfandbrief issuers, Aareal Bank and Berlin Hyp, each of which own stakes in the fast-growing online real estate marketplace BrickVest.

In April, PropTech1 announced that Aareal had made a “mid-single-digit million euro” investment in the venture capital fund, which focuses on European proptech firms. Last October, Berlin Hyp invested in Berlin-based 21st Real Estate, which is focused on digitising real estate valuation.

Some banks have launched their own initiatives. In October 2018, Berlin Hyp created a crowd-based real estate inspection service; Dutch bank ING has a London-based lab dedicated to innovation in real estate; and by June, UK bank NatWest had a £638 million (€707 million) lending portfolio from its online platform for sub-£2 million loans.

Technological innovation in the world of real estate finance remains in its infancy. It will take time, and a change in market participants’ behaviour, before lending deals are routinely completed via online portals, or artificial intelligence and big data are meaningfully employed as part of the due diligence process.

However, it is important for lenders to get to grips with the technology that will eventually play a significant role in their industry. With innovation comes challenges: lenders will need to weigh up the benefits and risks of automating elements of the financing process, for instance. As proponents of real estate fintech argue, technology will not replace the need for experienced debt market professionals or human interaction when it comes to doing property finance deals. But it does have the potential to help those professionals do their jobs more efficiently by arming them with a wealth of information gathered through AI or by using blockchain technology to provide stakeholders in a loan with greater access to transactional information.

We want to hear about your organisations’ efforts to embrace technological innovation. These are interesting times for fintech, and the property finance industry stands to benefit.

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