“Not Knowing” About Commercial Real Estate Tenants Is Not an Option
See the Big Picture by Integrating Tenant Insights Within Your LOS
Warren Buffet famously said, “Risk comes from not knowing what you’re doing.”
Sounds like a simple guiding philosophy, right? Yet, in today’s complex Commercial Real Estate (CRE) market, it’s easier said than done.
On one hand, as a CRE lender, you know the best bet for making sound, profitable lending decisions is to learn as much as possible about your borrowers and the underlying real estate. On the other hand, gathering the right data on businesses and properties can be a cumbersome process requiring untold time and resources, resulting in opportunity costs that stack up fast. Think: delayed loan funding and negative customer experiences that kibosh your hopes of future business referrals.
However, there’s an easier way to access data that provides the necessary context to see the big picture of risk, without slowing down the lending process or denting service levels.
Don’t Overlook the Third Unknown In CRE Deals
In any real estate deal, lenders must research two unknowns: the borrower(s) and the property. But, in a CRE deal, there’s a potential third unknown: existing commercial tenants. So, despite the creditworthiness of the borrower and the characteristics of the property (think: age, condition, etc.), the tenants within the property and how they are managing their finances is fundamental to the big picture. If they are late, unable to pay rent, or simply impacted due to unforeseen circumstances or market conditions, it can directly impact your borrower’s ability to pay.
This is a huge consideration. Lingering supply chain issues. Empty office space due to work-from-home demands. Cost of goods and services or inflationary pressures. Grappling with the cost of digital updates and transforming their operations. All these issues can influence a tenant’s ability to pay for a commercial space.
The Problem With a Lack of Visibility Into Commercial Tenants
Not knowing basic information about commercial tenants is not an option. Across a larger CRE portfolio, this lack of visibility can lead to higher loan default rates and buy backs resulting from delinquent rent payments and tenants going out of business, leaving behind costly vacancies.
Here’s the rub. Tenant research is manageable with one or two commercial tenants. However, when you move to larger multi-unit retail or office buildings—or across your larger CRE portfolio—that’s when efficiencies plummet and a better solution is needed.
Get More Dealmaking Insights In One Spot
Most CRE lenders today, including banks and credit unions, rely on insights from Loan Origination Systems (LOS) to support data-backed lending decisions. Instead of juggling multiple, disparate solutions and data resources, they use a single, unified platform that streamlines loan origination and portfolio risk management, along with other critical functions.
Now, growth-minded LOS providers are going to the next level. They’re finding ways to help lenders efficiently address “unknown” tenant risk by offering contextual risk insights at the tenant, building and portfolio level. With detailed financial information on a property’s tenant base, CRE lenders and bankers can better understand the financial health and durability of individual tenants and make stronger CRE lending decisions based on a more nuanced, holistic view of the deal.
What’s more, accessing a trifecta of critical data about borrowers, properties and tenants in a centralized location helps lenders:
- Streamline origination and operational efficiencies
- Speed up funding
- Mitigate, or even reduce, portfolio risk
Moving forward, don’t expose your business to unnecessary risk by simply “not knowing” critical information about commercial tenants. Inquire today about integrating CRE Tenant Risk Assessment reports within your Baker Hill NextGen® LOS solution.
Explore the power of integrated CRE Tenant Risk Assessments at CRE Tenant Risk Assessment | Business | Equifax. To learn more about the Baker Hill NextGen® LOS solution, visit https://www.bakerhill.com/.
Other blogs in this series:
3 Trends Impacting Commercial Real Estate Lending Today
Meatloaf Would Do Anything For Love But Never Did CRE Lending
Posted on Monday, December 12, 2022 at 8:15 AM
by Nancy Mills