April 18, 2016
By Dennis Kaiser
The annual LendIt USA Conference, one of the largest annual online marketplace lending industry gatherings, took place last week in San Francisco and brought together companies from around the globe, with more than 3,500 people in attendance. LendIt devoted a specific track to the rising role of marketplace lending in commercial real estate finance.
Orange County-based online marketplace lending platform Money360 attended and exhibited at this year’s conference, and also shared industry trends on a variety of commercial real estate-focused panels. Following LendIt 2016, Money360’s President Gary Bechtel and Board Director John Maute offered these takeaways to Connect Media.
What were highlights of the conference?
Maute: All types of marketplace lending platforms – from commercial real estate to student loans to credit card debt – indicated that they were working on their ability to better (and more quickly) match capital with loans that need to be funded, especially in the commercial real estate finance space. Some methods discussed included warehouse lines, fund establishment, securitization and in a few cases, REIT structures. This is exciting because it indicates that the industry is growing, and that there is a need for scalability in the marketplace.
What are the biggest opportunities for the sector?
Maute: Marketplace lending is a relatively young industry when compared to older, more traditional lending institutions (e.g. banks). As the industry continues to mature, opportunities for marketplace lenders will arise as platforms progress into institutional-quality platforms.
Across the entire spectrum of lenders at the conference, all platforms highlighted their efforts to be perceived as more institutional to both customers and investors, moving away from the stereotype of marketplace lending as the “wild west.” As a result, there was a universal focus on improving policies and procedures to manage scale and growth, creating a better customer friendly experience both on desktop and mobile. Many participants highlighted industry efforts that focus on public responsibility and transparency for the arena, and how to proactively create regulation “with” government entities, while also increasing transparency and implementing external audit trails for institutional requirements.
There are opportunities for marketplace lenders to partner with banks to create a more efficient lending experience. Currently, many marketplace lenders focus upon underserved niches that banks do not. However, marketplace lenders may also provide opportunity for banks, creating partnership between the two entities. By originating the loans, marketplace lenders can ease a bank’s burden of loan origination, instead creating attractive product for the bank to purchase.
In the commercial real estate finance sector, CMBS lenders are again battling interest rate volatility in the market; which has severe consequences for borrowers needing new loans for their properties. Marketplace lenders and its investors with a longer term outlook that values fixed income investments have a real opportunity to create win-win relationships with borrowers.
Bechtel: For the commercial real estate industry, there is nearly $300B in loans coming due in the next 18 months, and limited capital available to fund those loans. Online marketplace lending platforms, like Money360 and others, will have an opportunity to provide borrowers with access to alternative forms of capital.
How are marketplace lenders addressing challenges they face?
Maute: One of the challenges companies face in the marketplace lending industry is liquidity. Because marketplace lending is still in its early stages, the industry prefers shorter duration paper to be more liquid. Currently, there is no viable secondary market established. When it does become established, it will provide a better investment that is attractive to a much broader fixed income audience. Having this this liquidity option available will open the door to larger and longer duration loans to borrowers of, and investors in commercial real estate debt.