Commercial Lenders Require Agile Solutions as Volumes Rise

At the end of the first quarter 2018, commercial real estate lending was growing at an annual rate of 3.9%.

It’s not just tax reform that is driving more commercial volume. Leading banks are competing aggressively for this business by offering attractive rates or otherwise cutting prices.

annual growth

3.9%

Lawmakers in several jurisdictions are working to make commercial lending more attractive to banks and more available to developers.According to Christina Zausner, head of industry policy and analysis at the CRE Finance Council, the proposed changes to rules established by the Basel III regulatory regime could help make it easier for banks to make more construction loans because “they will have a betteridea of what regulators want” and will be “less afraid of having a difference of opinion with their examiners.

delinquencies at historic lows

More good news: delinquencies on commercial mortgages are at historic lows, making these loans less risky and more valuable on the

secondary market: In its 2017 Commercial Real Estate Lending Trends report, the National Association Realtors revealed that 35% of real estate agents that responded to its annual survey said that commercial sales deals failed due to a lack of financing, with 59% of those reporting loan underwriting standards killed the deals.

The AI Foundry Solution helps companies transform their business operations in a “truly digital” fashion by converting their data into

actionable business intelligence. AI Foundry solutions for lending,generally decrease the chance of human error by eliminating the "stare and compare" syndrome, save significant time and resources by streamlining the commercial loan process, and ultimately provide a significant ROI.

Compliance remains a critical concern The cost of compliance is high, with some research suggesting that regulations written for the commercial real estate lending industry add 60 bps in cost increases for mid-tier borrowers. The CRE Financial Council in its RegulatoryImpact Study estimated that future regulation could add another 100 bps to those costs.

The significant challenge of high costs Many of these high costs are driven by outdated lending systems that are still paper driven. Much of this paper comes from back-office business units that are still using old processes to originate and service commercial loans. These units are not standardized and so no efficiencies are gained when the business grows. Instead, growth becomes more difficult over time.

There is opportunity here, but challenges as wellRarely are there established electronic communication methods betweenthe bank and its borrowers, making it harder to deliver a good borrower experience. There are generally no self-service portals available to commercial loan borrowers and once the application is complete the processing moves to the bank’s back office, increasing delays and complicatingstatus update communication with the borrower.

2017-2019commercial spending

$150B

We’re already seeing success stories in metropolitan statistical areas (MSAs) across the country, as commercial development strengthens

local economies and property values rise. Several cities are looking forward to a boom (or continued boom) in commercial construc-tion this year, including New York City, Detroit, Reno, San Jose and Austin. In New York, the city’s Building Congress recently upped its 2018 forecast to $45.3 billion and expects total commercial spending for the years 2017-2019 to reach $150 billion. That money will have to come from somewhere, and that means more opportunity for banks.

60-100 bpsADDED REGULATIONCOSTS $$$

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+ROI

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