State of Construction Finance: An Interview with Rabbet CEO Will Mitchell

Andrew Foster afoster@mba.org

Commercial real estate is constantly evolving with older buildings occasionally going offline or being renovated as they age whilst new buildings are constructed. Rabbet, Austin, Texas, a service provider to lenders and developers engaged in construction recently released its 2021 State of Construction Finance report. MBA Newslink interviewed Rabbet CEO Will Mitchell to get a sense of what’s happening in the world of construction. 

Will Mitchell is co-founder and CEO of Rabbet, a software firm helping real estate developers and lenders efficiently manage construction finances. He spent 10-plus years in commercial real estate and completed his undergraduate studies in architecture and structural engineering from the University of Virginia.

MBA NEWSLINK: Since this is the third consecutive year Rabbet has released this industry report, what major trends stood out to you that we should take note of?

WILL MITCHELL, RABBET: The interesting note this year was the increased reliance on spreadsheets. The last couple of years the number of lenders and developers relying on Excel was around 50%. That said, during the pandemic, this shot up to 71% as people needed more information aggregated and better ways to share it. 

NEWSLINK: How has the pandemic impacted construction finance processes?

MITCHELL: Significantly. Most lenders and developers reported internal collaboration as a huge new challenge during the pandemic. This industry in general is characteristically archaic in the way it goes about construction finance. Information is trapped in spreadsheets and shuttled back and forth to all parties involved. Manual input is still extremely common. The pandemic illuminated some of the problems with the processes that have existed and helped this industry be more open to new ways of doing business. Lenders and developers both identified communications internally and externally as a challenge they were facing. Centralization of information and collaborative workflows was the first step to addressing this communication strain. 

NEWSLINK: What does the future of the construction finance industry look like based on your findings regarding technology and automation?

MITCHELL: In a word, collaborative. People understand the importance of access to information and the ability to find what you want, when you want it. In general, having information in emails, spreadsheets and PDFs, does not power the real-time nature of communication and decisions. The future is empowering people to connect internally and externally. 

NEWSLINK: You found collaboration is a major challenge for both lenders and developers. What do you think contributes to this strain and how do we close this communication gap moving forward?

MITCHELL: Simply, when you could meet face-to-face, it was much easier to collaborate. With people being remote, it is much harder to discuss and address complex issues. With everyone working in their own systems and have their own primary objectives, collaborative across a wide swath of stakeholders can be difficult. Relieving this strain is finding more standard formats that everyone can agree on. Similar to how the AIA form has brought forward construction, we now need standard digital forms to close the communication gap. 

NEWSLINK: With many developers and lenders returning to the office, do you think people will return to their old ways or has the pandemic been a catalyst for a permanent shift in the industry?

MITCHELL: The pandemic has been a catalyst for a permanent shift. Technology that has been adopted and processes that have changed have proven that people can be efficient and more productive that in the “old ways”.  Like the more ubiquitous acceptance of a hybrid office, construction finance will retain a permanent hybrid status of digital infrastructure supporting face-to-face collaboration. The pandemic has accelerated adoption that would have taken five years into 18 months and those who have made the shift are thriving in a new digital-first environment. 

NEWSLINK: Are you seeing lenders enforce more strict controls on developers in the post pandemic lending environment?

MITCHELL: In general, we have not seen many new covenants or requirements on developers. What we have seen is more enforcement of existing rules where perhaps lenders may have been more accommodating to retainage release or stored materials in the past. Lenders in general are paying closer attention to project covenants. That said, most lenders remain collaborative with developers as the truth remains that they are in this together. 

NEWSLINK: What steps are developers taking to ensure projects stay on track financially while pandemic concerns linger on?

MITCHELL: Developers have always been adept at managing project finances. Whether during a pandemic or other event, projects are built to have systems in place to address these issues. Although maybe not enough contingency in all cases. The proactive step we have seen developers take is around materials. If they can substitute something that is available, buy something early or stock all lumber for the project at the beginning, they will. The other major financial concern is around lease-up and stabilization, but unfortunately there is not much a developer can do to impact the situation after a project has started. That said, we have seen some delay project starts as they await some more stabilization of the pandemic.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)