Do CRE Mortgage Brokers Need Disrupted?
Short story: I've been shadowing different people in the CRE industry for the past couple of years to see if there are areas that are ripe for improvement. There seem to be many. Here is a platform that I've been working on with a couple of large CMBS and Life Co. lenders. Basic idea is connecting and managing finance CRE properties at 1/10th the cost and 10x easier. Is it interesting? Is it solving a real problem that anyone cares about? (see link at bottom).

Longer story: I've spent small bits of time with different people within the CRE industry (e.g. a mortgage broker, a property manager, an asset manager, an investment broker, etc.). I've been fascinated to see how much of CRE finance still runs on physical paperwork, emails, one-off checklists (if you are lucky) and a healthy supply of copier ink. It strikes me as horribly inefficient. However, I keep being reminded that CRE finance runs on relationships. 

I'm not convinced that is true. It seems to me that everyone is looking to reduce the costs associated with finding capital, whether that is reducing the actually cost of the loan, the origination fee or the time involved in the process. In particular, I've been shocked by how much time the average investor/developer has to put into the process and their time is expensive.

To me, software paired with experienced loan processors is the solution (the link below is a quick snapshot of the platform). However, I've passed the idea by a couple of different investors/developers and I've gotten mixed reactions. It seems like a no-brainer to me...connect with lenders and finance a property in less time at 1/10th the cost of the standard mortgage broker (i.e. 1% origination fee) and do it with 10x less effort.

What am I missing? Is this a platform that people will actually use once released? If not, I don't want to waste my time. I would prefer to work on something that is actually going to be useful to the industry. 

[CRE Platform] (http://www.creplatform.com)
[{"id": "csuvfza", "text": "Does this cut out mortgage brokers? In general, CRE needs brokers because it can be complex. Right now, brokers are working with lenders to 'hold spread' on CMBS deals. Otherwise, if your loan is not actually signed up, a lender can just say screw it when things get volatile. Human intermediaries are important. ", "replies": [{"id": "csuwoqa", "text": "Great question! No, it isn't necessarily about cutting out mortgage brokers. They would be free to use the platform if they wanted to in order to make their transactions more efficient by managing the process better (e.g. keeping track of documents, daily/weekly notifications of items due, etc.). However, I think there are a lot of mortgage brokers who don't actually provide value; or, at least, that is what I gather from speaking with investors and developers. Yes, this will make it harder for them to continue wasting clients' time and money.\n\nI agree with you. From what I've seen there is a certain degree of complexity that comes with every single financing. Hence, my plan is to have a heavily curated process. In other words, let computers do what they are good at (i.e. organizing information) and humans do what they are good at (i.e. making decisions and negotiating). More than anything, the platform is aimed at reducing the amount of time spent doing mundane, robotic tasks, like double checking all the numbers in a model or writing an email with a list of items requested by the lender or needing to FedEx large packets of documents back and forth.", "replies": [{"id": "csuycxi", "text": "Conversely, 'buyers' waste a lot of brokers time by asking for debt valuations when they haven't tied the property up--basically asking a mortgage broker to do the acquisition underwriting. So would buyers use this platform to solicit quotes when they don't have an asset under contract? ", "replies": [{"id": "csuzi7l", "text": "That is a very good question!\n\nI'm not sure. I hadn't considered that. I've actually already built an algorithm for one of the large CMBS lenders to issue preliminary quotes based on current market financing. Maybe that could be a solution. I'm not sure. \n\nRegardless, you are 100% on target. I've not considered it but I've observed mortgage bankers waste a lot of time getting quotes when the buyer is doing nothing but \"testing the waters\".\n\nThank you!", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "csuwpd1", "text": "I think the thing you may be overlooking is that much commercial real estate is complex and unique. That is why so much human interaction is required. What is the physical condition of the building, what are the leasing trends in that area, what about taxes and expenses and the rent roll. How much T.I. will be needed or capital improvements? Is a big tenant going to leave or a new one be added?\n\nA lot of people in CRE would love a simple program that can do all this, but a human still has to research and input all the variables, so often inputting all that info into a program actually makes more work, not less.", "replies": [{"id": "csux41u", "text": "Very good point. I agree with you. I don't think the process can be 100% automated. I'm figuring that it is worth trying to let computers do what they are good at (i.e. organizing information) and humans do what they are good at (i.e. making decisions and negotiating).\n\nAll of that data is collected and communicated one way or another. However, from what I've seen in the average financing, there is a lot of \"lost\" information; the question is answered but the lender is managing 10 other transactions at the same time so they forget about the response to their T.I. question for the nail salon and the laundry mat. \n\nIf a program could make all of the items you mentioned easier, do you think it would be compelling then?", "replies": [{"id": "csuy0e5", "text": "I guess, I'm not on the finance side, so I can't answer directly. But I think there are already a lot of pretty comprehensive pieces of software out there, at lease in other parts of CRE, such as Argus and CoStar and many more.\n\nI think the problem you will have is that the lenders who are already dominating the market, why should they agree to use your software?\n\nI think to work, the software would have to be incredibly customizable to account for the various types of CRE. This quickly changes the concept from a simple little piece of software to a vast and complex one. How will it store and organize all the info? Will it be integrated into client management software? How about email? Dropbox? Now you want a company to put in all this very sensitive data, what about security? What about mobile?\n\nI don't want to be a downer on your idea, but you need to realize how demanding this space is. If there were a simple solution, I think it would have been done already. This is going to take a very large amount of man hours to be competitive in this field and even then you have a lot of very skeptical and reluctant customers to convince. I wish you luck!", "replies": [{"id": "csuzell", "text": "Thank you!! \n\nThis isn't a downer at all. It is simply reality. I would much rather hear reality now than invest a huge amount of man hours into something only to confront reality when it was too late.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "cszs4vv", "text": "This would be really bad for the industry. When you have lenders perfectly competitive with each other, no one wins a deal based on relationships or service, they win a deal by providing extra proceeds and conceding important structural features, making CRE loans much riskier and way too leveraged. \n\nWe're already seeing this to some extent, most of the big institutional sponsors will go to an Eastdil Secured, HFF, JLL, CBRE, etc. and say go shop this loan to as many lenders as you can. These big brokers have contacts at every CMBS, Life Co, and portfolio lender out there, and they just compile of list of quotes and choose the one least demanding on the borrower. And with CMBS, the lender has none of the risk, he just ships it off to some unsuspecting investor, so there's a conflict of interest that incentivizes undisciplined underwriting.\n\nIf you want to develop a software, what's really needed is a platform for data management that's actually good. There's too much duplicate data entry - the borrower should be entering in his information the same place the originator does, so that the underwriter can access it, and then it can be passed on to arrangers, rating agencies, and CMBS investors. We should have strict and standard data requirements too, this is something CREFC ought to work on.\n\nOh and I might add, people have pursued similar things, see RealityMogul and FundRise, except the lenders are small, accredited investors, and not banks/CMBS/life cos. ", "replies": [], "depth": 1}]