Managing Change in CRE Finance
SAN DIEGO–Technology is disrupting commercial real estate finance–and most other industries–so business leaders need to manage change to navigate the shifting landscape.
“I think of disruption in several ways,” said Walker & Dunlop LLC Chairman and CEO William Walker here at the recent MBA Commercial Real Estate Finance/Multifamily Convention and Expo. “First, competitors look to disrupt something that we do.”
Walker cited the real estate appraisal process. “We all use tons of appraisals,” he said. “The appraisal business is ripe for disruption. But the other side of it is, does anyone come in here [to CREF] and say ‘this industry is ripe for disruption, there are too many people and too much information in those few people and technology can revolutionize what those people do?'”
Not everything can be disrupted by technology, Walker said. “In the 1990s investment banker Bill Hambrecht created an online Dutch auction to do initial public offerings. This was a far more efficient than the traditional IPO process. But doing an IPO is far too important for executives to trust it to technology, so the traditional market for IPOs still exists.” He said there is a certain amount of face-to-face interaction still required to get potential buyers interested. “Hambrecht could not disintermediate that business,” he noted.
But parts of what mortgage bankers do will likely be automatized. “Information will inform the sales process more and more, so those with technology who are more informed are going to win,” Walker said.
Thomas Dennard, Chairman and CEO of Grandbridge Real Estate Capital LLC, Charlotte, N.C., agreed technology makes people more efficient. “But I think the human touch is still very important–like the IPO example that Willie [Walker] mentioned,” he said. “I haven’t found a search engine yet that can handle the nuances of ego when dealing with a customer. Or the scrubbing of numbers.”
Grandbridge recognizes technology makes it possible to do more with less when producing loans, Dennard said. “You don’t need someone on every corner serving every need; it’s about finding your niche and doing it very well,” he said. “We’re seeing at the operational level that what it takes to produce a loan is coming down.”
Shekar Narasimhan, Managing Partner with management consultant Beekman Advisors Inc., McLean Va., agreed the appraisal industry is vulnerable to a technological disruption. “The other profession that is vulnerable if you think about it is the commissioned loan officer system. It simply cannot withstand the efficiency that will be required in the future,” he said.
Narasimhan noted some life companies have traditionally done business with multifamily and commercial real estate firms. “You’d have a borrower client and an intermediary, a mortgage banker,” he said. “Somebody holding a loan for portfolio or aggregating it, someone to securitize it and a bunch of institutional and retail investors. There were in many cases six different parties in each transaction, plus many vendors providing information…no industry has survived technology disruption with this many intermediaries.”
Narasimhan said the speed of change demands there cannot be more intermediaries. “Why can’t a borrower just call up the ultimate investor and make a deal if they can make contact on the internet?” he said. We’re far from that point, though.”
The fear of people struggling to adopt technology is always whether it will replace large numbers of people, Narasimhan said. “Cornell University did a study and found that technology does not destroy jobs; it destroys professions,” he noted. “At the end of the day, when a new technology is introduced, does the number of jobs in the world decline? Or did the people doing these jobs simply change?”
