Getting commercial real estate financing across the finish line is significantly easier when borrowers have all of their data ducks in a row. Access to organized and comprehensive internal data is essential in being ready to pounce without lag in the acquisition of a mortgage.
Borrowers know they need to have all their entity- and property-level financial details together to start the underwriting process, but getting this information into an underwriter’s inbox often encounters significant delays. And with interest rates on the rise, time must not be wasted in the gathering process, whether it’s an acquisition or refinance that’s under consideration.
Clients who have their data organized and can extrapolate it into credible, stress-tested forecasts represent a more favorable degree of risk for lenders.
This is a common problem for commercial real estate data management. In today’s world, companies need strategies for dealing with important data that they will use to complete a transaction. This is an issue that mortgage originators can discuss with their clients, helping them prepare to act quickly during future negotiations while enhancing their ability to capture time-sensitive opportunities.
Data management is the process of understanding, storing, organizing and maintaining the data created and collected by an organization, according to TechTarget, a technology information firm. Companies utilize data management to make better decisions, improve marketing, optimize operations and run more efficiently.
Even for clients who aren’t considered behind on the tech-adoption curve, there’s usually an opportunity to improve decisionmaking and data collection processes through data management. And for those who have yet to go digital, the potential is tremendous. Wherever borrowers fall on the tech-savviness curve, data management tools can help clients prepare for financing and make the originator’s job easier.
Highlighting the data management adoption trend, a 2021 report by credit bureau Experian found that 86% of executives across multiple industries believe that investments in data management supports growth. Data management is rising in popularity, with 92% investing in it during the 12 months preceding the report, and 80% witnessing improvements in data quality and return on investment. Additionally, 57% invested in and favor platforms that can be integrated with their current systems.
The most significant issues that borrowers and lenders deal with are scattered and incomplete entity and property financial reports. This disorganization often pairs with a lack of insight into the borrower’s underlying financial situation and the ability of their portfolio to support the additional debt sought.
Without a unified system, property-level operating data and financials are not effectively tracked, collected and fed into the enterprise and portfolio financial statements needed for underwriting decisions. When time is short or at least sensitive, the period it takes to get updated information across a portfolio can be a deal breaker.
The problem is further exacerbated by the way that individual departments within a commercial real estate organization often use disparate systems that aren’t talking to each other. This phenomenon is often referred to as a “data silo,” and it has a tangible effect on the decisionmaking processes that drive growth through acquisition and disposition. Furthermore, silos inhibit team communication, making it more difficult to coordinate all the parties responsible for the compartmentalized data units.
Some of the data types that often lie untapped and unorganized include tenant lease information, accurate occupancy statistics, operational and maintenance expenses, and the status and terms of existing debt. When originators request rent rolls, financial statements and related documentation, it can take borrowers weeks or even months to assemble this data manually. Additionally, when the information isn’t aggregated and processed consistently, it is time-consuming to prepare reports that let borrowers develop situational awareness and anticipate how their strategic choices will precipitate growth.
With these challenges in mind, let’s look at how data management platforms solve these issues for commercial mortgage borrowers and originators. To understand what data management looks like in practice, consider an investment company that’s struggling to consistently produce positive net operating income across a portfolio of more than two dozen multifamily housing assets.
Despite their best efforts, the operators felt that expenses were exceeding monthly targets, thus hindering growth and plans to refinance. After consulting with a data management firm, they found that some of the properties were being managed with different software. There was no system in place to integrate each property’s data set, keeping teams from coordinating and managing budgets or achieving objectives.
Once a data management solution was in place, the operators were able to identify which properties needed the most attention, monitor costs in real time and track how small reductions in operating expenses affected the overall bottom line of the portfolio. This allowed them to improve valuations and reposition properties for refinancing.
So, how can data management platforms solve these issues for commercial mortgage borrowers and originators? Many technology platforms (such as property management systems or enterprise resource planning software) have been available for decades to address some of the challenges individually. Yet the value of emerging data management tools, particularly those specific to commercial real estate and ones that integrate with existing systems, is immense.
Data management platforms for commercial real estate provide centralization and integration between the various software tools employed by operators, helping to eliminate silos and unify employee teams. These platforms also may offer sharing and communication features to accelerate collaborative processes, which supplement external project management tools.
Rather than manually pulling data from paper or digital files in each system, a commercial real estate data management platform automatically collects, sorts and converts data regarding expenses, revenues, debt, occupancy, leases and other points. The enterprise, along with its constituent entities and assets, can turn this into actionable knowledge.
With the information and the support of an automated system, a team of internal or external accountants and analysts can generate financial statements, rent rolls, income projections and other documentation. In addition to helping the originator and underwriter, having this data ready and accessible also facilitates the valuation professional’s task, thus eliminating another source of friction.
Clients who have their data organized and can extrapolate it into credible, stress-tested forecasts represent a more favorable degree of risk for lenders. Moreover, demonstrating the upward potential of the asset or enterprise opens access to capital and lowers interest rates.
Simple and practical
Mortgage brokers should encourage clients, even those not actively seeking financing, to implement these tools in the near term so they’re ready to act when opportunity presents itself. To start, suggest that they explore the available options and see how they may fit with the borrower’s application.
Although prebuilt data management platforms are available, real estate operators can consider creating their own systems and software if time and resources aren’t a consideration. Developing bespoke systems is beneficial for unique use cases, but choosing an existing solution is more economical and represents less risk for most operators. In either case, clients should retain a professional advisor with experience in developing and implementing commercial real estate data management platforms.
Data management tools can be costly, but appropriately priced solutions are available for small, midsize and large operators. When evaluating a platform, companies should consider criteria such as affordability, scalability, security, ease of implementation, available integrations, training and support.
If clients are already using a variety of software programs, they need to ensure that their chosen data management solutions integrate with existing systems. Integration is vital to guarantee the interconnectivity and interoperability required to break silos. Guided implementation, user training and technical support are must-haves for a successful data management initiative, since many team members will be interfacing with the system and few, if any, are likely to be information technology professionals.
Efficient communication also is critical when embracing data management and supporting underwriting. In addition to any built-in collaboration functionality, borrowers can use external team communication and project management tools that will enable efficient answers when underwriters ask for additional information.
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Borrowers who implement a robust data management strategy contribute to much greater efficiency in the underwriting process. Moreover, the actionable insights and situational awareness that data management imparts to borrowers improves their position by identifying operational and financial strengths, as well as assets that could be swapped for higher performers or are primed for refinancing.
Brokers should find out how their clients are currently leveraging data and the potential that exists to improve the lending process. Data management benefits borrowers and originators alike by facilitating the collection of data for underwriting, thus bringing unrecognized refinance and purchase opportunities to the surface. ●
Rob Finlay is founder and CEO of Thirty Capital, an advisory, investment and technology firm serving growth-minded real estate operators and investors. He is a forward-thinking entrepreneur devoted to building companies that support and advance the commercial real estate industry. Finlay has expertise in tech-enabled asset management and capital markets services and solutions. He recently authored the book “Beyond the Building,” an operator’s guide to building a competitive advantage through innovation. Visit robfinlay.com, or connect with him on LinkedIn.
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