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For more articles on
commercial mortgage niches
View these articles and more at
“Fintech Is Bridging the Gap,”
“Online and on Target,”
“Prepare for the Internet of Things,”
“Cut Through the Mortgage Matrix,”
Pat Jackson is CEO of Sabal Capital Partners LLC, a lender
specializing in the small-balance space. Sabal’s proprietary
SNAP lending platform enables automation and efficiency
in the lending process, two key drivers of the company’s
continued high-volume record of closings. Reach Jackson
Tech is Transforming
Digital innovation is a big deal even for smaller commercial mortgages
By Pat Jackson
The commercial real estate finance industry has traditionally been a sluggish innovator — a sector that has been slow to pioneer cutting-edge improvements or advancements. That is no longer the case, however.
Commercial mortgage brokers seeking financing
options for smaller loan deals should be happy to learn
where that change is taking root. One of the leading
edges in technology innovation in the commercial
real estate sector can be found in the small-balance
Small-balance mortgage debt is currently filling
a need for the financing and refinancing of smaller
multifamily properties, for example. Many of these
properties are designated as workforce housing,
which is a high-demand product — particularly in
major U.S. metropolitan areas where employment
is strong, populations are high and housing has become too expensive.
Typically categorized as mortgage loans ranging
from $1 million to $7.5 million in size, small-balance
loans don’t often get the notice or publicity that
large-balance transactions do. They fill an essential
role in the commercial lending landscape, however.
The lenders filling small-balance lending needs in the
marketplace, by their sheer nature, operate a business
whose profitability is driven in large part through
volume, as compared to their larger-balance peers.
They must identify and employ efficiency measures
if they are to succeed at increasing their volume and
profitability. It is precisely this point that positions them
to be the ones driving innovation in commercial lending.
Notable innovation has been brewing with this
group over the past few years, with technology playing
a pivotal, if not starring, role in the advancements.
Lenders began in recent years to implement the move
away from cumbersome, outdated paper processes toward increased automation and digitization in
small-balance loan processing.
By implementing internet-driven processes, lenders
provide borrowers with 24/7 access to complete loan
applications, as well as other key documents and milestones in the loan process. They allow loan steps to
continue during nontraditional business hours. They
eliminate the time that was traditionally lost searching
for and filing paper documentation.
The digital-automation models being employed have
vastly improved communications between the lender
and borrower, and they also have reduced the length of
time for touch points between the two. As a result, in the
process of adding undeniable value for both parties, the
move toward automation has dramatically reduced the
start-to-finish loan-processing timeline.
These digitization improvements are, however, merely
the beginning. There are additional areas of small-balance lending that are ripe for enhancement. While
current automation models have improved the storage,
access and movement of debt documentation, as well
as communications between the lender and customer,
there is another obvious area of commercial lending
that is well-positioned for improved efficiency: the
analysis of large sets of data in underwriting.
It’s important to note that in commercial loan
underwriting, it is a much harder job to assess risk
than in the underwriting that precedes, for example, a
consumer’s new-home loan. Whereas the latter analyzes
and assesses the risk associated with the one buyer in
question, the former must analyze numerous sets of
data pertaining to the regional market, rental rates,
leasing trends, incidents of crime, property expenses
and other operational information to ascertain the
projected profitability and risk associated with the
property. The magnitude of data that must be reviewed
for a commercial loan poses issues for the lender in
relation to the amount of time and labor it requires to
complete the process.
Currently, a lot of this data review is handled by staff
underwriters. They look closely at regular patterns
within the data sets and search for variations, or deviations, among those data patterns. These deviations
represent concerns or risks associated with the property
or the borrower. Identifying and addressing these concerns is obviously key for commercial mortgage brokers
hoping to find financing for the borrowers, although it
is the responsibility of the lender, which utilizes the
information to decide if a loan will be granted. Again, the
time and resources needed to thoroughly review all of
this information can be problematic.