The Last Leg of Lending Automation, Commercial Real Estate
Over the last decade, we’ve seen the digitization of everything from how we order a ride, our next meal and even procuring a student loan or our home mortgage. There is no doubt, technology has impacted our daily lives, our financial decisions and how we choose to spend our most valuable resource…our time.
I’ve spent the last decade in a world that is still stubborn to tech adoption. That world is Commercial Real Estate. Whether its transactions, lending, capital markets, title, escrow or even things as simple as data, until recently CRE has been dominated by legacy technology or worst yet, no technology. My Co-Founders, Arash and Bill, have spent even more time in Commercial Real Estate with a career spanning multiple decades and can attest to the fact that things pretty much work the same way today as they did when they first started their careers.
But there is some silver lining…technology has finally started making its impact on Commercial Real Estate. From appraisals from company’s like Bowery Valuation to property and investor management with companies like Juniper Square and VTS, we’re entering a new era of CRE where the stubbornness of the past is being displaced by a need to be and do better.
At District, our focus is automating Commercial Real Estate Lending for loan sizes below $30 million. We're building the modern commercial mortgage platform - the first integrated end to end technology platform (from sourcing to servicing) to serve this part of the CRE Lending market.
Why It Matters
CRE Lending functions the same way it did 50 years ago. Yes of course, the pen, paper and promise to pay has been replaced with the keyboard and computer but that is about all that has changed.
The borrower experience is still broken, everything is manual, and underwriting is still largely driven by traditional data plugged into an excel model. The timeline for getting a loan, a process that should take 15 days, more often takes 60 days. Data and documents are exchanged via email and through phone calls and often the same document is requested 3 or 4 times during the loan process. Additionally, borrowers and brokers are often times in the dark not knowing where their loan is in the process.
This has to change. At District, we’re building technology to do just that. We’re streamlining communications, making data and document collection seamless, automating loan processing and underwriting all while keeping the borrower fully informed of the loan process. We’re well underway towards automating the last leg of lending, CRE, and in the coming months we’ll be sharing some exciting developments and product features.
We’re Not Just a Tech Company, But Also A Lender
But technology is just one of the key pillars of District. We’re not just building technology for lenders but rather the largest CRE Lending Company for loan sizes below $30 million - the middle-market opportunity. Middle market loans make up more than 45% of the annual volume in the U.S.
My Co-Founders and I spent the last decade working in middle market real estate. We understand that most lenders and capital markets businesses prefer to do larger deals where they can do things manually and still earn strong margins. Why dip down and do a $5 million loan when that next $50 million loan will be more lucrative? And that is the reasoning that has led to most lenders losing out on half of the market.
Unlike other lenders, District won’t ignore this market. Rather, our exclusive focus will be serving this segment of commercial real estate. In the coming months, we’ll be launching a commercial real estate bridge lending business for loans ranging in size from $2 million to $20 million. Our terms will be competitive and our structure flexible. We will pair technology with a personalized touch to streamline the lending experience and help borrowers and brokers do more deals.
The Time Is Now
Over the last 5 years, the top five residential real estate tech companies have raised more than $3B in venture capital and have created over $10B in market cap. CRE has lagged but that will significantly change over the next 5 years. We’ll see multiple companies dominate various verticals within this $11 trillion TAM including in data and infrastructure, transactions and capital markets and lending.
District is excited to be part of this industry shift. We’re excited to drive towards our mission to redefine the CRE lending industry. We’re big believers that borrowers deserve more and deserve better and we won’t rest until that dream is a reality.
CRE Lending 2.0 is here!
CRE Debt Capital Stack
A capital stack is a visual representation illustrating the position of cash within a property’s capitalization, i.e., how the debt or equity – or a combination thereof is broken out. As a rule, debt in a transaction is senior in priority to equity, whereby its position is first to be repaid and the most protected should property values fall. All the equity in a transaction would have to be eliminated before a debt’s position would be adversely affected. This is referred to as an equity cushion. Due to the inherent safety of this position within the capital stack, yields for debt are generally lower than that of equity with a stated return and excess cash flowing to equity partners.
Commercial Real Estate Debt is a financial instrument that, when used appropriately, can boost the returns of a real estate investment exponentially. Below are three reasons why leveraging a property can be a good idea and a method to earn more wealth, unlock equity in and asset and acquire more property.