Problems Commercial Real Estate Lenders Face: A Retrospective
Being the most important link in the financing chain, lenders have a lot to risk on. When the agencies conducted their surveillance activities during 2014 and 2015, they saw trends indicating that CRE risk appetite and risk levels were rising. The current loop holes in the underwriting standards and other factors have led to the lenders being highly careful. Lenders face the challenges of additional regulation, emerging risks from a consolidating economy and higher interest rates. CRE lenders can position themselves better to address the pressures associated with the changes in the market by improving their management of the underlying loan collateral.
Here we will see some of the problems which the lenders face and a few ways through which these can be avoided:
High-Quality Due Diligence:
Quality due diligence can go a long way towards vindicating risks. Often it is difficult to find the right consultants who can understand your risk tolerance, timeline, and long-term objectives. Moderating the complexities requires planning for additional tiers of due diligence, remediation, zoning and surveying. Some lenders often see these services as a hassle, only to get overly involved in noteworthy delays and unnecessary added outlays down the line.
Minimizing the time to close a deal:
The Mortgage Bankers Association reported $565 billion in commercial and multifamily real estate loans were originated in 2017, representing a strong financial market for lenders. Optimism is strong until the market changes. With new regulations being modulated by the government every day, lenders have to keep an eye on every minute changes in the system. To be cautious and ready to optimize results, lenders need to shorten the cycle of completing an overall deal. To do this, they need to rely on faster practices which minimize the efforts and costs associated with the overall process.
“The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency. - Bill Gates”
Relying on manual data extraction:
With so many advancements happening in the CRE domain, most of the lenders still opt for the manual processes when it comes to financing. The data extraction from financial documents on the lender’s end involves a lot of manual labor and in turn is susceptible to human errors. These errors can cost a lot to the lender and hence to the whole company itself since the deals which are being closed are not at all risk managed. To counter this problem, the smart lenders these days rely on automation of the processes which in turn makes the underwriting process error-free, also minimizes the costs involved to extract and document a deal. There are some indispensable tools in the market which help the lenders to minimize time and costs involved in the underwriting process by leveraging artificial intelligence.
Clik Technologies Inc. has launched Clik.ai – a machine learning based commercial real estate loan underwriting platform that uses artificial intelligence to create free of error and highly accurate Excel-based loan sizing models within minutes. It’s proprietary technology, cuts hours of manually extracting financials from Operating Statements, Rent Rolls, Trailing 12 and third-party reports to perform loan sizing and populates industry standard loan models instantly.
Clik specializes in commercial mortgage underwriting and the team has assisted lenders and brokers in transactions totaling more than $7 billion in the past two years. With technology covering the manual processes, lenders can minimize risk and costs to maximize returns.