Behind the Trend of Debt and Equity Supply for Online Properties

Last update:

Commercial real estate has always been a relationship-based industry. Those who want to buy real estate need to know the right people to find the right deals. They also need investors and lenders willing to provide the capital for what can be incredibly large purchases. Strong relationships with the right people will likely always be a valuable asset in commercial real estate. But, technology has created a way for asset managers, investors, and lenders to expand their network in ways never before possible.

Loan markets and crowdsourcing platforms have been around for some time, but now it looks like they are starting to become a bigger part of the investment landscape. Recently, investors have even been able to increase their equity and organize their loans using these online resources. If this ten is not an option.

Ideas on loan

For a typical commercial property acquisition, the majority of the capital comes from a commercial mortgage lender. This is the “debt” part of the capital pile. The most skilled borrowers with the least risky assets can get into debt with big banks, which then often bundle them into mortgage-backed securities, from government agencies like Fannie Mae and Freddie Mac, or from big companies. life insurance. Lesser-known sponsors with less than remarkable assets often have to move down the food chain of loans to regional banks, credit unions and private lenders. But the pressure of the pandemic on the commercial lending market appears to be a game-changer. “A lot of the big lenders have slowed down their commercial mortgages. The Wells Fargo’s of the world have completely stopped making loans to new customers, so many smaller or alternative lenders are stepping in to fill that void, ”said Tim Milazzo, co-founder of Battery source, a market for commercial loans.

Some of these alternative lenders have a more open mind when it comes to filling the capital pile. This has opened the door for many borrowers to also fund the equity portion of the capital stack through crowdfunding portals. “We’re seeing a lot more deals that have a crowdfunding component,” Milazzo explained. The efficiency and transparency of the internet is finally coming to commercial real estate, now you can easily find all the loan options available to you in a marketplace like StackSource, while connecting you with thousands. of potential investors on crowdfunding. platforms.

By creating more ways for connections to occur, technology has effectively lowered the barrier to entry for commercial real estate as an investment class. “So many of our users are looking for loans for their first transactions, which they might not have been able to do before when you had to drive from bank to bank looking for funding,” Milazzo said. These new investors will breathe new life into an industry defined by exclusion. It will also help create new relationships that will continue to be useful to all parties involved, long after these first transactions are concluded.

Augmented networking

The new ability to find lenders and investors online has made it possible to fund many transactions that would not have been possible without online portals. But, it is important to note that these tools do not replace the power of relationships in the industry. “Real estate is always a relationship business, we see our platform as a way to increase someone’s ability to form new relationships,” said Adam Hooper, CEO and founder of crowdfunding site RealCrowd. Hooper explained how online platforms allow people who have historically raised capital from “country club equity” to reach a much larger audience of accredited investors. They’re even more important than ever now that COVID has created

“In the beginning, crowdfunding was seen as capital of last resort, the only transactions that were on the sites were those that could not be funded otherwise,” Hooper said. Today, he sees many “trademark” operators turning to crowdfunding in order to open up to a larger pool of investment capital. “Investors have a lot of options ahead of them, so sponsors with good track records and clear strategies tend to do better,” he continued.

One of the things that has helped many users of its platform build trust is their transparency with their other offerings. “Building trust is always key, so without the ability to spend time with an investor, it really helps to give them access to some of your other work. This often flies in the face of an industry where many always keep their offerings close at hand, but it’s a new world and transparency is paramount, ”Hooper said.

This point was echoed by Josh Friedensohn, founding partner of Greenleaf Management. It is an Atlanta-based private equity acquisition and management company that has acquired over 60 properties over the past ten years. His company recently entered into a deal in which he got his loan from StackSource and some of his equity from RealCrowd. “What we’ve learned is that when you meet someone on these portals, you don’t have a built-in trust level like you do with a referral. This means you have to go through the deal and your track record first to come up with what is always the most valuable part of the relationship, the human connection, ”he said.

It is not just investor relations that are strengthened through online marketplaces. “New loan relationships are very difficult to find and even the ones you have become obsolete, as brokers often become complacent with their funding partners. StackSource has helped us find new lenders who are really trying to get the best rates and best terms for their borrowers rather than trying to please their lending partners.

Although this is Greenleaf’s first acquisition with both equity and online funding, Friedensohn doesn’t think it will be the last. “We wanted to see how it fits into our processes, we have 100 people on the team, so it’s important that this is something that we can evolve,” he said.

Comments are closed.