Across nearly every industry, the relationship between consumers, suppliers and intermediaries has changed so much over the last decade it’s nearly unrecognizable today. Consider the entertainment industry: Ten years ago, if you wanted to watch a movie, you’d go to your neighborhood Blockbuster retail store and hope they had a copy of the title you wanted in stock.
For suppliers, only the biggest blockbuster movies made it to the shelves. The intermediaries — the Blockbuster stores — had all the power. But as technology advanced to enable a different (and better) way for consumers to get movies via online streaming and other methods, the intermediaries that didn’t likewise advance went the way of, well, the dinosaurs.
You could say, as the Silicon Valley venture capitalist Marc Andreessen famously did, that software has eaten the world. It’s not only the entertainment industry, of course. Most industries have been disrupted by technology — including the mortgage industry.
Residential mortgage lending has been significantly upended by technology companies such as Quicken Loans, Lending Tree and SoFi, among others. This upheaval has made the world better for homebuyers and lenders, and also for the mortgage brokers who figured out how to evolve and provide a new service that homebuyers demand under this new paradigm. Yet, the commercial real estate lending process continues to be slow and inefficient, without fully exploiting the benefits of technology that have been brought to other industries.
The entertainment industry is nearly unrecognizable today. There is the complete opening of access. Today, consumers can watch virtually any movie, anytime, anywhere. And suppliers with even extremely niche offerings have access to the market, because the cost of distribution has fallen so dramatically. The intermediaries — think Netflix, Amazon and Hulu — still have much of the power, but because the industry has been so upended, they are much more responsive to consumer demand than ever before.
The driving force of the disruption in the entertainment industry has been the consumer, but it is technology that has enabled it. When compression technology advanced significantly so that movies could be streamed in relatively high definition without buffering, that enabled a user experience as good as (or even better than) a DVD or cable TV. When algorithms advanced to the point of making useful movie- or show-watching recommendations (“You might also like this”), consumers were able to navigate an essentially infinite number of shelves and titles.
As with the entertainment industry — and any other that has been disrupted by technology — a revolution is envisioned for the commercial mortgage business that is driven by a desire to redefine the experience for the buyer. Just as Netflix redefined the experience for entertainment consumers, Amazon did for retail consumers and Expedia did for travel consumers, technology is likely to redefine the experience for commercial real estate borrowers.
One of the worst aspects of the current commercial real estate lending process is the difficulty borrowers have in identifying the best lender, given their property type and other circumstances. Even for borrowers leveraging brokers — and brokers themselves — the fragmented nature of the industry makes matching borrowers and lenders an extremely time-consuming and inefficient process.
One solution for the commercial mortgage industry could be an online platform that features a search engine like those that power Expedia, Netflix or Amazon — which makes it easy for guests, viewers and buyers to find
hotels, movies and retail products. An online commercial mortgage platform of this magnitude would allow buyers and brokers to key in their particular variables and get a list of lenders and loans that best fit their descriptions. It would make a previously slow and burdensome process very quick and efficient. It also opens up a whole world of options that no single borrower or broker could possibly know about otherwise.
One of the key elements of such technology platforms, which are starting to emerge in the commercial mortgage arena, is that they put the buyer, or borrower, in control. The best of these platforms are not simply clearinghouse-type sites that still require borrowers to navigate the process on their own, coordinating between multiple lenders and never knowing if the options they’re looking at are the best ones available. A commercial mortgage is too technical a product to let borrowers loose on a search engine and assume they’ll get great results.
The best online platforms have a system in place that promotes matching each borrower with a seasoned loan consultant who can ask the right questions, get the variables, input them into the online platform, then find the best lender and loan options. So, mortgage brokers still play a vital role in this new online world. And, just like Netflix, Amazon or Expedia, the success of the platform will depend on its ability to accurately match the borrower with the best loan program.
Thinking about the disruption that technology is now causing in the commercial real estate lending industry. Projecting five years into the future, it’s almost certain that some commercial mortgage brokers will be put out of business. Other brokers, however, will be even better off than they are today, because they will have embraced technology and the efficiencies it can bring to their profession.
Today, even though about two-thirds of all commercial real estate loans are originated by third parties, in most cases these loans are not prescreened to the respective lender’s guidelines. Lenders have to invest a significant amount of time into reviewing each loan, even though they end up closing only about 10 percent of the loans they review. With an online platform as outlined, lenders can receive a fully processed loan package that is pre-underwritten to their guidelines, requiring a fraction of the review time they would typically have to invest.
Mortgage originators now face a choice between a “Blockbuster” and a “Best Buy” moment. Blockbuster didn’t adapt to a world with Netflix in it. Best Buy, by contrast, has adapted to a world with Amazon in it. They did so by focusing on the consumer experience. Best Buy survived by embracing the aspects that Amazon introduced (the ability to check prices from multiple sellers in real time, for example) and honed services that Amazon didn’t offer. Today, Best Buy’s stock price is well above what it was five years ago — quite an anomaly compared to many other brick-and-mortar retailers.
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Like Best Buy, commercial mortgage brokers will be more competitive and successful if they embrace technology platforms that make it easier and faster to match borrowers and lenders — while also honing their ability to help borrowers navigate those platforms.