About $430 billion in commercial and multifamily mortgage debt is maturing in 2021 and will likely need to be refinanced. Mortgage maturity volumes are forecast to increase 36% this year while commercial and multifamily lending is expected to rise 11%, according to the Mortgage Bankers Association.
With this surge in activity, it’s more important than ever to consider the technology being used — or not being used — for the due-diligence process. Although the commercial real estate industry has been a laggard in adopting advanced tech and many professionals are still using paper-based processes, mortgage brokers have an increasing opportunity to embrace highly efficient due-diligence platforms.
Among other advantages, these platforms can reduce the likelihood of errors and optimize overall returns on investment through efficiency. According to the Society of Industrial and Office Realtors, commercial real estate transactions can be much more complicated than residential real estate deals. They also face significant risks if the appropriate due diligence is not completed.
Fortunately, more commercial mortgage brokers are simplifying due diligence by embracing technology. Prior to the COVID-19 pandemic, the industry was already modernizing and becoming increasingly data driven. As new technologies and machine learning are applied to data, information about properties, people and companies can be interconnected digitally in ways the industry has never seen before.
Paper chase
The old-fashioned way of conducting due diligence forces mortgage brokers to use various vendors and communicate with them through clunky methods, including phone calls, emails and online services. This vendor selection process can be a hassle. A commercial mortgage broker must manage the process across several markets and vendor categories, which dramatically increases the time to closing.
For example, completing environmental due diligence is typically a paper chase that can take weeks to execute. As a result, your investor client may be tempted to cut corners in the review. But according to a study by Partner Engineering and Science Inc., reduced environmental due diligence exposes lenders and borrowers to greater risk. In reviewing 138 multifamily properties, the study found that anywhere from 10% to 60% of recognized environmental conditions would have been missed by performing a transaction screen assessment — which is typically only suitable for low-risk properties — instead of a standard Phase I Environmental Site Assessment.
The due-diligence process can become significantly more efficient, however, when all of the relevant data can be evaluated on a single platform. A one-stop platform can offer a full range of services, from desktop reports to field inspection services. Through innovative automation, brokers can access interpreted environmental prescreens and valuation reports, flood certifications and other relevant due-diligence data for commercial properties. This empowers commercial mortgage brokers and other industry professionals to more easily make strategic decisions.
Technology that merges complex data and provides access to a comprehensive package of due-diligence information in a matter of seconds will inherently shorten transaction and decisionmaking timelines that cut into a broker’s deal flow and profits. In addition to easily obtaining reports on the platform, brokers also can find a vetted nationwide network of experienced inspectors for commercial properties. This is new to the industry and significantly increases efficiency. You can find a host of resources on these platforms that are useful for environmental- and property-condition assessments as well as valuation services.
Tech advantage
According to a recent report from professional services company EY, the commercial real estate industry was at a turning point last year in regard to the adoption of technology. It is inevitable that forward-looking companies will adopt new technology to remain competitive with their peers. This intensifies the need for technology solutions to address many challenges, including the reduction of costs through automation of specific processes.
EY’s survey found that technology ranks as a high priority for 69% of commercial real estate companies while 61% of respondents have adopted at least one technology tool. But only 33% of companies have integrated their technology solutions. EY reported that some of the lag in tech adoption stems from the traditional “if it isn’t broken, don’t fix it” culture in which legacy systems function but not as effectively as cutting-edge technology.
Companies that adopt and reap the benefits of a fully realized technology platform are likely to fare better, EY stated. There is no doubt that technology is critical to the commercial real estate industry, yet the market is bifurcated between leaders and followers. The leaders are advancing rapidly with comprehensive and well-considered technology strategies to improve efficiency and reduce costs.
With business happening at ever-greater speeds, commercial mortgage brokers need to depend on a comprehensive platform that delivers due-diligence results in minutes and optimizes costs. As a mortgage broker, a major concern is managing the due-diligence process to support clients. When considering a due-diligence platform, it should include access to environmental professionals, client-success managers and a nationwide network of inspectors.
At the same time, it is essential to use a high-tech platform — one where you can easily find and seek help from seasoned industry professionals. Although it’s unlikely that technology will replace human brokers in our lifetimes, the mortgage brokers who embrace due-diligence platforms and other technology solutions should see their deal flow and speed increase. ●
