Fintech: Digital dealmaking

Former HSBC real estate boss Matthew Webster has joined the start-up promising an online ‘ecosystem’ for property trading and financing. Daniel Cunningham meets him

In January, tech start-up Cloudscraper launched a product it hopes will revolutionise how commercial real estate is bought, sold and financed.

Former HSBC real estate boss Matthew Webster (pictured) has joined the start-up promising an online ‘ecosystem’ for property trading and financing.

The platform, described by the firm as a “unified, networked data ecosystem” acts as an online marketplace through which property transactions can take place. All parties involved in a deal – including the lender – are brought together to do business in a fraction of the time deals usually take.

The system is the brainchild of chief executive Moses Gottlieb, an entrepreneur with a background in private equity investment, and chief technology officer Martin Sekel, who has worked in tech development since the 1990s.

At a launch event, hosted by ING in February, Gottlieb said that while the residential property world has felt the impact of technology, the commercial sector was “tremendously lagging”.

Also in January, the pair made a big-name signing from the real estate finance industry, when Matthew Webster, HSBC’s former global head of real estate finance, joined as chief financial officer.

Real Estate Capital met Webster in the Cloudscraper’s London offices, in the city’s Marylebone area, to find out whether the platform really has the potential to become the forum through which property lending takes place.

Real Estate Capital: Where did the idea for Cloudscraper come from?

Matthew Webster: Moses moved to Germany from the US in 2014, ostensibly to do business with Mittelstand (SME) companies, and got sight of a contract for a €1 billion-plus real estate deal. When asking contacts where he could pull all the information from to iron out inconsistencies, people thought he was kidding. He spoke to Martin, who had worked in visual rendering of properties for sale back in the 90s when only a few were working in that type of product globally.

They came together in 2014, and started talking to investors, bankers, lawyers, and brokers to get an idea of how the sector works. They contacted a systems architect in LA with experience building bank systems, who advised them on the security protocol such a system would need. They developed the system and eventually conducted a by-invitation stealth launch.

REC: How did you get involved?

MW: Anybody who has worked with me will say I’ve always been focused on using technology to make our jobs easier. When I came out of university, I could programme in 10 languages so have never been scared of tech. As an example, when I joined HSBC, there was no standard model being used for real estate, so we implemented one. It’s not uncommon for a lot of institutions to lack such models.

I really enjoyed real estate banking over the last 28 years, but when I went over to the US with HSBC in 2015 I was already thinking that maybe it could be the time to make a move. I had an eye on developments in tech and the new systems required under new regulations. When the HSBC restructuring came up in 2016, I thought now’s the time so I asked for redundancy. I had an idea along the lines of Cloudscraper, and was introduced to Moses and Martin by a mutual acquaintance. What they’ve created is more intricate that what I would be able to do on my own and they viewed me as being a key hire to both drive the business forward and extend and enhance the platform

REC: Is real estate ready for a tech overhaul?

MW: There’s all this talk about how technology is going to change the CRE industry – and it will, undoubtedly. My concern is that the industry is almost where the banking industry was in 1975 and people are trying to take it in one fell swoop to AI [artificial intelligence] and Blockchain. The people in the industry aren’t ready to make that giant leap while people around the periphery of the industry know about tech and not so much about real estate.

REC: Why has real estate been slow to innovate?

MW: There are a few reasons. One is vested interest. Inefficiency can be arbitraged. Investors work off being able to identify where inefficiencies exist – whether it is data, process, finance – they leverage those inefficiencies to their advantage. Another issue is apathy – if it ain’t broke, don’t fix it.

REC: There has been innovation across banking, so why not real estate banking?

MW: Quite simply, the banks would rather spend the money where they’ll get the most recognition from a PR perspective, customer retention and profits. That means retail customers and corporates.

REC: How did you deal with outdated technology during your banking career?

MW: We made it a requirement to run every deal through a standard Excel model. That’s the same for many banks out there. It is very inefficient in terms of getting the information quickly and easily, although there are benefits of using Excel because of its immense flexibility. Every single deal you look at is different, so you need to be able to reflect the idiosyncrasies in the model. For example, we have one client with 500 investments, all modelled through Excel. Every month, all 500 models must be updated. The ability to automate that, but retain the flexibility of how you look at data is a huge benefit.

REC: So, what is the benefit of Cloudscraper?

MW: It pulls together data in a consistent manner, for assets and transactions. I was surprised by the level of detail, such as how many service lifts a property has. The system then allows you to connect buyers, sellers, lenders, advisors, lawyers; all the parties that come into getting a transaction done. It helps you run the full process of selling an asset and getting financing. There are integrated non-disclosure agreement processes, shared data rooms and more. You have the ability to get financing offers into the system to compare lending offers. It has the ability to market joint venture interest on assets.

The system runs an algorithm that compares the characteristics of the asset for sale with investor investment strategies. For finance, a buyer can say I want 60 percent loan-to-value, five- year, floating rate debt. The algorithm runs that against lenders and provides a list of potential interested parties. Lenders can even solicit syndication partners through it.

REC: Doesn’t all this depend on having a large enough quantum of the market use Cloudscraper?

MW: We decided on an element of flexibility, so parties can use it with a guest pass to only access the one transaction. People can access the system easily as we’re aiming to be broad and affordable. We’re also working actively with the brokers. Having brokers push business through the system will bring users to the marketplace.

REC: Is Cloudscraper bad news for brokers?

MW: This system can be a huge benefit for them even if their initial visceral reaction might be concern. For instance, asset managers have a fiduciary obligation in how they manage money for third parties. They exercise that obligation by hiring advisors to provide their opinions. A system can provide data, but not opinions. I will argue with anyone in the industry who wants to tell me they can use AI to do credit underwriting of real estate today because I’ve dealt with the regulators and there is not a single model out there that, used by itself, can fulfil that purpose.

REC: If deals happen through the system, will that limit the fees lenders and brokers can charge?

MW: Advisors will still get their fee. It might be somewhat reduced because they have fewer mundane, repetitive tasks in collecting and presenting the data, but if they can reduce headcount as a result, the advisor becomes more profitable. Lenders have success-based fee structures, so they don’t have to commit to large subscription fees. Theoretically, it should make pricing more efficient as borrowers will have transparency of the market. But the benefit to everyone is that they can get more transactions done more quickly, which should more than offset any reduction in fees.

REC: Can borrowers get the best deal from an algorithm or an established lending relationship?

MW: You could get the best deal out of either one, depending on the situation. The algorithm will identify opportunities you might not otherwise have been aware of, which may get you a better deal. But, at least today, if you are introduced to a new lender through an algorithm, they’ll still want to see the whites of your eyes before they close a deal with you.

REC: Is there a danger that lending could become too automated, leading to bad decisions?

MW: Take a look at what’s happened with Facebook – the law of unintended consequences. What makes me nervous about the industry is if you have so many repetitive electronic processes, individuals don’t build up that intuitive sense of what is a good investment. I got that through working with the hard information from the very base level.

REC: So, how does the industry ensure its professionals build up that expertise while making use of technology?

MW: Right now, the simple answer is, I don’t know. Although data visualisation technology may help people to develop that intuition about the asset class. You have to remember, it’s important run a deal through into a model and make sure it works. But the model itself is not the answer. It’s one of the tools you use to get to the right answer.

REC: What has the debt market’s take-up been?

MW: We have over $350 billion of lending capacity represented by lenders on the system now. Right now, we have over 150 companies signed up, of which around 25 are lenders.

REC: What’s next for the growth of the business?

MW: We’ll continue the build out of the European business this year, launch in North America later this year followed by Asia next year. We will continue building out the corporate structure and eventually target a listing of the company.