Technology at the Helm


Mimi Nguyen

Technology is improving information algorithms and changing the way we do business. The commercial real estate sector is hot with activity — closing nearly $490 billion in transactions in 2016 alone, according to Real Capital Analytics. But from where we sit, there are many benefits to new technology infiltrating lending/due diligence processes, but there are specific disadvantages.

From an investor standpoint, the availability of good real estate and digital economic data has armed players with more information with which to make informed investment decisions.  For example, Google Earth and Street View allow investors to quickly view a project and its surrounding neighborhood with nothing more than an Internet connection and an address. Anyone can quickly assess if the project location and quality is worth pursuing.  In the past, a site visit or intimate local knowledge of an area was necessary even at a preliminary review level.  Great modeling capabilities (via Excel and Argus) also allow for better and more informed decision making.

Additionally, investors have access to more capital from a larger group of lenders with varying appetites for risk and yield, waiting to capitalize on the commercial real estate momentum. Many lenders have responded to the increased pressure with improved underwriting, specifically in the areas of data acquisition and analysis, thereby creating a more competitive landscape and faster end-to-end process cycle time.

The use of improved technology in the underwriting process is a catch-22. While the speed of the transaction has improved, technology may also add items to a typical underwriting or closing “checklist” because additional research and analysis is now available at a reasonable cost (in terms of time and money) where it was not feasible only 15 or 20 years ago. The regulatory arena also thickens the plot as many financial institutions are burdened by costly regulations that require additional resources that negatively impact their profitability. As the concern over data sharing and security continues to grow in conjunction with technology advances, lenders will be subject to even more regulation.

Technology is synonymous with doing business in every capacity. In today’s hyper connected environment, the need to move information across real estate channels more efficiently, while maintaining risk management and regulatory compliance, is critical. The biggest change technology has had is the volume of good financial data and strong financial modeling tools that are both readily available for the average investor and lender. But one thing is clear and has most experts in agreement: to be a successful lender or investor, leveraging technology in the decision making process should be standard procedure.

 

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Mimi Nguyen is Executive VP, Underwriting for KBS.