At the REALTORS Conference & Expo in San Diego last month, lenders and government officials on a panel called “commercial loan and Financing: The Ever-Changing Landscape” discussed trending local policies and technologies that could change the way deals are financed in the near future. Although held in San Diego, discussion at the expo spanned California in its entirety and its predictions are so true ever.

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more complete data

Until now the banks had the upper hand. This is one of the observations of TechCrunch.com’s Tom SEO, who commented on JP Morgan’s partnership with OnDeck Capital, an alternative lending company, earlier this month. The news shocked the banking world, as evidenced by a 28% single-day rise in OnDeck’s share price and has long-term implications for alternative lenders, of which hard money lenders are a critical part. .

The association scared many private lenders into worrying that major banks might be thinking of entering their domain. One reason this worries private lenders is the dominance that traditional lenders have over the data. Banks collaborate with each other and have access to reams of data that private hard money lenders lack. These include years of experience and libraries of accounts, expenses, and risk data. Therefore, they can write credit with more predictive certainty and confidence.

These data resources have been of great help to banks and other mainstream lending institutions, helping decision makers to assess risks and decide whom to accept as clients. Banks have been less prone to default than alternative private, bridge, or hard money lenders who disburse funds out of their own pockets and have no extended collaborations or databases to draw on.

But the advent of the Internet has changed the situation and access to discreet information is improving as technology advances. Google has been kind to commercial private lenders. Online databases now provide a wealth of basic information on almost every aspect of a person’s life – embarrassing to borrow but critical to the lender. The lender (or just about anyone who knows how to do research and is willing to pay for the results) can poke around almost every nook and cranny and pick up data a person doesn’t want revealed. Elizabeth Braman, CCIM, director of production for real estate crowdfunding platform Realty Mogul.com, noted that these databases can also help lenders predict trend lines for future valuation purposes, rather than relying strictly on appraisals, which tend to use retrospective data to determine value.

Braman also predicted that over the next five years, the increase in the amount of this data will make alternative lending much more convenient for both lenders and borrowers. Why for borrowers? Maybe it will make the process much faster and more convenient. Lenders will also be able to establish controls and structure the lending process accordingly.

Lack of data has sometimes caused lenders to take on people who were unable to meet their obligations. Sometimes this was due to underestimating the demands of the system, underestimating its income, or underestimating the scope of its obligations. Unfortunately, the results have collapsed in defaults, lawsuits, and lenders and borrowers suffering fiscal, psychological, and job stress. Access to more complete and correct data should alleviate and prevent many of these problems.

An increase in the amount of data available will also make it easier for borrowers to provide data to lenders, as much of it will come directly from sources such as commercial transaction databases that include CoStar.

The flip side of this situation (isn’t everything attractive about a flip side?) is an associated increase in security risks that accompany increased data in the commercial lending sphere.

The best thing to do, REALTY San Diego Exposition warned, is to mitigate, rather than eliminate, risk. Lenders and borrowers will want to be careful about the information they post. Braman says, “Be careful. Don’t put anything you don’t need.”

More loan options

The private lending market is growing. Becoming a hard money lender is enormously exciting but also risky. The lender needs to have access to lots of money to attract and finance investors. Few, naturally, have such deep pockets. So what are new and upcoming hard money lenders doing? They are matched with someone who has the funds. These can be organizations, individuals, or some other source of income. Federal and business regulations in California over the last year have made it difficult for some private lenders to find these investors. It has become particularly difficult for new and emerging investors to find brokers willing to partner with them. Regulations have made the field less attractive to finance, and rising prices have pushed up private lending rates. Both together have reduced the flood of clients, especially since one of the few attractive points of private money loans is the quick response and conventional paperwork. TRIDS and other regulations that delay work stopped that.

On the other hand, there are enough crowdfunding companies that are happy to be represented in business deals, particularly in California. That this is the case was amply demonstrated at the convention where a large part of those present mentioned their interest in financing private credit companies or individuals. Commercial construction in California is on the rise. It is expensive to invest in this type of property, but many investors have been satisfied with the returns. There are still plenty of potential buyers, particularly from foreign countries (and interestingly from New York) asking for these types of deals.

The biggest investment interest in larger cities like Los Angeles appears to be in Class A retail space, although there are still crowdfunding opportunities for Class B and C properties in parts of Los Angeles and less popular California cities. . Crowdfunders (at least as the convention shows) look more to the market experience of the private lender when making their choice than to market conditions. Property quality, federal/consumer protection regulations, or gloomy predictions are less likely to intimidate them if they trust their lender is a market expert who can accurately predict how a development will play out over the long term.

So if you are a skilled lender who has been lucky enough to have great success in real estate history, you are more likely to find financiers who will bet on you and work with you.

Growth in the small business environment

A survey conducted by the National Association of Realtors early last month (November 2015) showed that the best prospects for commercial applicants come from small businesses and entrepreneurs. This is because California banks have become more cautious in funding them as a result of increased defaults in recent years. Established corporations and businesses are more likely to receive loans than unknown owners or ambitious new-on-the-scene entrepreneurs. This is where hard money lenders step in and are most likely to land their customers.

Therefore, hard money lending (also known as private investment or bridging) is a sector that is growing by leaps and bounds. It seems to be the future of consumer financing in California as the state becomes more entrepreneurial (perhaps more out of necessity than desire). A secondary factor is that the demand for office space is growing.

Braman said, “I know the rest of your REALTOR friends believe that the American dream is to own your own home. But I believe that in the 21st century the American dream will be to own a business and own your own home.”

And where is this money going to come from if not from commercial hard money lenders… The future may have challenges, but overall it looks good…