Have you been keeping up with the latest trends and developments in the lending industry? National Lending Experts (NLE) recently held their annual conference on June 22-23,2023 and it’s time for a recap of the event.
NLE is a renowned organization that brings together lending professionals from across the country to share insights, discuss challenges, and explore innovative solutions in the lending industry. The conference is a platform for networking, learning, and gaining valuable knowledge from industry experts.
At MonJa, we are at the forefront of automating workflows for lenders through AI and machine learning. We’d like to share some insights and highlight how MonJa can partner with lenders to navigate the evolving landscape of private and real estate lending.
Understanding the Realities of Fund Management
The Fund Manager Power Panel, featuring industry experts Nathan Goodhart from The Mortgage Office and Kevin Kim of Geraci Law Firm, Sam Chivitchian from Secured Capital Lending, and Jay Kisler of KP RE Capital Group, delved deep into the realities and nuances of fund management for loan funds. Covering topics from raising capital to outsourcing non-core functions, and the significance of data and mental resilience, their knowledge offers a wealth of guidance for both aspiring and established fund managers.
Here are 9 key takeaways from the discussion:
1. Raising Capital Challenges: Raising capital for real estate funds is rewarding but challenging. Once a fund establishes a track record and hits key milestones like 3 years of performance, raising capital becomes much easier.
“There’s definitely investor interest in funds and really putting their money into a passive investment vehicle.” -Panelist
2. Outsourcing Non-core Functions: Fund managers should consider outsourcing non-core functions like administration and accounting to focus on core business activities, such as sourcing deals and investor relations. Fund managers still need control and insights into all aspects of the fund.
“Having everything in your fingertips is really how you build your business.” – Panelist
3. Mental Resilience for Fund Managers: Fund managers need to be able to handle significant stress and be a “cool, calming anchor” for their organization.
“You really have to keep in mind your mental state. We know how stressful this business is anyway, dealing with clients and realtors and timetables and all of that stuff you have to deal with anyway, right? When you go through the fund, it’s the next level of stress.” -Panelist
4. Building Trust with Investors: Fund managers have to educate investors on the benefits of funds vs trusts and build trust in their team.
“Raising capital is the reflection of trust.” -Panelist
“We’re fighting for the same thing… Most of our investors, most of the people you’ve talked to want trust. That’s what they’re familiar with, and you’ve got to explain all the benefits” -Panelist
5. Accessing New Investors for Scalability: Tapping new networks of potential investors, in addition to past partners and relationships, is critical to gaining scale.
“The next step for me is to now go out in other markets with them and get more investors from outside of the traditional trustee partners.” – Panelist
6. Solid Track Record Matter: Investors want to see experience and a proven track record of success. Fund managers can leverage their past experience and success to build credibility.
“Going back to them, showing them the history, giving them evidence to prove how we’ve been performing.” – Panelist
7. Implementing Advanced Processes and Staff Training: Operations require more advanced processes and oversight when managing a fund versus individual deals. Staff may need training to adapt to the increased complexity.
“The challenge was taking our current staff and now training them, getting them adjusted and transitioned to now operate on a fund level.” -Panelist
“On the servicing side, right, when you’re doing trustees, partners, everybody has to do their payoffs with, for example, with FBI and everything. But now as a fund manager, you do need to basically do that for everyone else.” -Panelist
8. Starting Small for Scalability: Start small to build momentum. Beginning with a small, inner circle of investors helps to build momentum that can then gain scale through word-of-mouth and a proven concept.
“Start with your other investments. You go to your friends. You go to your family. It’s like everybody wants to be a part of your success.” -Panelist
9. Importance of Software and Data: The panelists discussed the importance of fund administration software to gain “control of your entire organization” and “see and grow your yields.” Fund administration software provides data and insights to optimize operations and increase yields.
“Our goal at the mortgage office is to make sure you don’t have to go out and hire a ton of staff to sort of navigate different aspects of your business. We’re trying to help you audit that.” -Panelist
The panel offered a roadmap for success in fund management, focusing on strategic capital raising, outsourcing, technological leverage, mental resilience, trust-building, and measured scaling.
Trends and Future Trajectory in Real Estate Finance
The Capital Provider’s Power Panel, featuring industry veterans Anthony Geraci, Partner at Geraci Law Firm, Ketan Parekh, Managing Director at Toorak Capital Partners, and Alex Offutt, CEO of Constructive Capital. The panelists discussed the current trends and future trajectory of the industry, including the evolving interest rate landscape and the rise of non-bank lenders.
Here are 4 key takeaways from the panel:
1. Potential Increase in Interest Rates: The panelists discussed the likelihood of interest rates increasing in the near future, though not substantially. However, higher interest rates could impact property values and lead to a correction.
“Unless there’s a major crisis that happens, I think we’re going back to more of the last 10 years of normal, where you see rates in that sort of targeting 5% to 6% lending rate.” – Panelist
“There is some concern over property values. If you are lending at over 75% LTV, what does that property look like in two or three years when there’s a crushing supply market?” – Panelist
2. Diversification and Stability of Capital Sources: These are integral parts of a resilient lending strategy.
“Diversify, diversification, I think there is an element that anybody that’s on the lending side of this industry needs to be sensitive to, which is the stability of your capital partners.” – Panelist
“Stability matters, diversification matters. Certainly your reputation matters.” – Panelist
3. Emergence of Non-Bank Lenders: With the decline of some regional banks, non-bank lenders have stepped in to fill the gap. However, capital from non-bank lenders may be more expensive. Capital from non-bank lenders may come at a higher cost, making it essential to offer better service and secure quality deals.
“We’re definitely seeing more deals — more bank-style deal, when ground up, more deals that some of these regional banks that are no longer with us would have done.” – Panelist
“You have to provide better service, and so forth and things. While it’s negative for the banking system, it’s a positive step to take to get better quality deals.” – Panelist
4. Impact of Remote Work on Commercial Real Estate: The rise of remote work was identified as a major trend with significant consequences for the commercial real estate market. The panelists noted the challenges involved in repurposing existing office buildings into residential spaces, and emphasized the necessity of adapting strategies to align with this shift in work patterns.
Partnering for the Future
We recognize the importance of these insights in shaping strategies and operations for lenders and fund managers. The emphasis on software and data for fund management resonate with us. MonJa’s AI-driven analytics can help lenders and fund managers make data-driven decisions, provide cutting-edge solutions to automate and optimize lending workflows, and ensure that they stay agile and adaptive to market changes.
Our highly-advanced Intelligent Document Automation platform is geared towards providing fund managers with streamlined workflows and data insights they need. Our transparent and robust reporting tools can also help fund managers communicate performance and strategy to investors effectively.
The rise of non-bank lenders presents MonJa with opportunities to provide significant value. Through our AI and machine learning tools, non-bank lenders can analyze deals more efficiently and reduce operational stress so they can focus on core business activities such as deal sourcing and investor relations.
We are excited about the possibilities of how our technologies can support lenders and fund managers in navigating the complexities and seizing opportunities in the real estate lending industry. Let’s embrace the challenges, adapt with innovation, and build a stronger, more resilient future together.