Developing commercial real estate in New York is anything but simple. And if you’re having trouble streamlining your construction finance processes, then you’re not alone. Because the state requires you... Read More
2019 State of Construction Finance: Key Takeaways
They say it takes a village to raise a child. In reality, it also takes a village to raise a building (the opposite of razing a building, which is very confusing). And each year, we like to reach out to this village to collect their feedback on how money is being tracked while raising these buildings. Enter the 2019 State of Construction Finance report.
In this report, we ask real estate lenders and developers to give us their feedback on where the industry is and where it’s going. The answers confirm that while improvements are being made, discrepancies still exist and both sides still believe there’s a long way to go.
Here are some key things that really jumped out to me:
The Need for Automation
Both lenders and developers see automation as an opportunity to improve the finance process. Lenders overwhelmingly agree that they do too many manual tasks that could be easily automated, to such an extent that 71% of their time is spent doing activities that a computer could do automatically.
On the developer side, they want to see the lender process become more efficient and streamlined. A dead 0% of developers view the lender process as efficient or streamlined. And more than 50% of developers believe that automation could expedite draw processes.
So the resulting formula is pretty simple:
Add automation = Less automated tasks for lenders + Expedited draw processes for developers
Data is Missing
The value of data is becoming more and more important to both lenders and developers. Unlike the stock market, past performance on construction projects is actually a predictor of future performance. Having access to data from past projects—whether it be for vendors, contractors, project types, project costs, or any other pieces of data on a construction project—helps to inform future decisions.
What’s troubling: lenders and developers recognize that this valuable data is lost in Excel spreadsheets and PDFs.
Lenders say that at least 50% of their data isn’t logged in a system—and my gut tells me that they probably aren’t considering a lot of the data that they have. Once you consider lien release data, retainage data, reallocation data, and contingency usage, it’s likely closer to 90% of data that isn’t structured. But let’s say that it is 50%. That means half the data to make better decisions isn’t being structured, and when it comes to running reports, 50% is missing.
Again, the formula is pretty simple:
More data = Better reporting + Faster decisions
Trust of Artificial Intelligence Has Arrived
Much is made of AI taking over the world, but the reality is that AI has very real-world applications that can make huge impacts on manual processes that are yearning for computer intervention.
Think of when you used to call for a cab, and a dispatcher would try to contact the closest driver. Now you pull open an app, and it automatically determines the closest car for you. The result is a faster arrival at your door and a seamless experience for you as the customer.
This same automation is starting to be accepted in the draw review process. There’s a strong need for automation in the industry, and the exciting feedback from the survey is that lenders and developers are beginning to trust AI to do it. Lenders are lagging behind developers in the trust game, 38% to 58% respectively, but the reality is that the industry is getting comfortable with computers performing these manual tasks automatically.
When facing very painful, real-world problems, lenders and developers agree that technology has the opportunity to solve these problems. Whether it be additional automation, structuring of more data, or AI acceptance, the reality is that both sides are turning to technology as a solution to their problems. While the viewpoint of the pain on the other side remains disconnected, technology is starting to solve this disconnect and provide a better construction finance experience for all.
For more construction finance insights, download our full report.