Technology cannot replicate experience

Fintech will change real estate finance for the better, but lenders’ knowledge of the sector will remain essential.

The commercial real estate industry is undergoing a long-overdue digital update.

The built environment doesn’t change overnight and the industry is notoriously slow to adapt, particularly when it comes to technology. However, innovation is gradually capturing the imaginations of those in the sector.

Inspecting a building remotely using virtual reality or crunching the numbers of a prospective investment on a mobile phone app during the morning commute are developments that many in the sector can see making their working lives easier.

Although it has taken a long time to get to this point, proptech is high on the industry’s agenda and promises to improve the way commercial real estate is built, managed, traded and – eventually – financed.

If the property industry is behind the tech curve, the lending part of the market lags further. Banks continue to rely on clunky internal systems, which require time and human input to maintain. Accessing large sets of data in a short period of time remains a challenge for many.

But change is coming – from the periphery for now. Challenger organisations are leveraging inefficiencies in the lending market to gain a foothold. Online financing platforms have enjoyed varying degrees of success, but in creating digital tools to raise retail capital and streamline the lending process, they are making strides in innovation.

The attempt by start-up firm Cloudscraper, which counts former HSBC real estate lending boss Matthew Webster as its CFO, to create an online ‘ecosystem’ through which property can be bought, sold and financed is one example of how technology is being harnessed outside the mainstream banking sector with the aim of fundamentally altering how transactions happen.

Innovation has the potential to democratise the real estate lending industry, at least to a degree. Organisations without the balance sheets and resources of banks are gradually being provided with data and mechanisms that allow them to compete in what was, until recently, a market dominated by relatively few parties. More data lead to more transparency, which leads to more efficient markets.

However, what digital systems and algorithms cannot do is replicate the expertise and intuition that tells a real estate lender whether the loan they are considering writing is a sound or questionable investment.

Mobile apps may help lenders and borrowers get to an understanding of their financing options quicker, but they will still need to apply the scrutiny of trusted advisors. Online platforms might bring together debt providers and sponsors, but deals will still need to be sealed in boardrooms rather than by the click of a mouse. One day, perhaps, technology could be sophisticated enough to effectively analyse the many and varied considerations going into a lending decision, but that remains a distant prospect.

Technology will undoubtedly be a huge benefit to the commercial real estate finance market, but – in the near future at least – there will be a continued need for senior experience and an understanding of the nuances of property as an asset class.

Banks’ real estate businesses are investing larger sums of money into fintech and partnering with start-ups from outside their organisations. Bringing together technological know-how and sector experience will be crucial to the successful adoption of fintech in the property finance sector. Technology can provide tools, but experience in the sector will be necessary to make best use of them.

Over the coming weeks, Real Estate Capital will examine the impact of fintech on the property finance industry, including analysis on the evolution of online lending platforms and the banks’ response to advances in technology.

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