The start of a technological renaissance in buying and selling, investing and lending
We can look back at the 2008 mortgage crisis and think of it as a wildfire. When flames rip through forests and vegetation, it leaves behind seemingly nothing but destruction. But, in Southern California, for example, fires can have a silver lining. They activate certain seeds that can grow unobstructed among
the wasteland, bringing forth new plants, new life.
Although the 2008 mortgage crisis decimated many industries, it presented an opportunity for renewal in the real estate industry. During the past decade, real estate has shifted from being at the center of a crisis to an era of innovation, having undergone massive changes in how the industry functions.
Much of this innovation has sprung from a serendipitous convergence of finance, technology and entrepreneurship. This convergence has led to the creation of companies and products that redefine how the real estate industry has operated for the last 100 years.
According to PitchBook, in 2008, venture capitalists did around $41 million in real estate technology deals. In 2018, the number exploded to $1.3 billion. This unprecedented investment in real estate startups represents a vote of confidence that the industry is headed into a renaissance period of sorts. Every part of the industry has been affected. Processes are more efficient, timeframes are shortened and the different parties of a transaction are now connected through platforms in ways they haven’t been before.
Three major areas of real estate have been transformed for the better by financial technology, big data and pure human creativity: buying and selling, investing and lending.
Buying and Selling
It used to be that it was nearly impossible to buy and sell property without an agent representing you. Although traditional agent relationships remain very important in certain communities, house hunters and sellers today have many more tools and data at their disposal. The tools empower them to manage everything themselves or, at the very least, to work with an agent more informed than they’ve ever been.
Most recently, we’ve seen a slew of tech-driven companies working to resolve a fundamental issue of property transactions: uncertainty. Companies like OpenDoor make competitive offers on homes so that buyers looking to move out quickly have the assurance to do so. Others, like Knock, take it one step further by helping homeowners both sell their old home and find a new one. In the new era of buying and selling, homeowners are finally in control.
Real estate investing has seen a dramatic transformation regarding access, convenience and optionality. There was once a time when investing in real estate meant locking up large amounts of money for a long time in a very illiquid asset class. Today, REITS and crowdfunding platforms have lowered the capital threshold necessary for investing in real estate, leading to greater flexibility and diversification for investors.
Other companies are opening access to real estate asset classes, such as debt, that were extremely cumbersome and challenging for individuals to access previously. They have inherently different investment qualities that make it suitable for investors looking for fixed income without the chores
associated with owning real estate. The landscape of real estate investing is vastly better and more open than at any time previously.
Historical lending has also been upended by new companies promising more efficient and transparent processes as well as more power and agency for the borrower.
Once very much an offline process relying upon the judgment call of a loan officer, today online-native platforms like Rocket Mortgage offer immediacy and access to all different types of capital. At the same time, nonbank lenders such as Fidelity Bancorp Funding or Avatar Financial have taken over from traditional lenders, which exited the space and left a void following the crisis. These nonbank lenders often have closer ties and understanding of their own communities, leading to better loan decisions and operating in much more of a “grassroots” manner.
Common to all three areas of transformation is the application of technology and big data to recreate opaque or inefficient systems. Consider it as the “ecosystem model of technology,” which describes the creation of platforms that benefit all the players involved.
The idea is that if we can empower local lenders to work with more local borrowers (real estate entrepreneurs), they will in turn involve other local businesses in building and construction. Together they will support the neighborhood economy and achieve positive change in communities. This is the model we’ve seen take root across many areas of real estate in the aftermath of the 2008 crisis.
Before 2008, the real estate industry had been stagnant for years, with little real innovation or impetus for change. Yet real estate debt represents one of the largest financial markets in the world. There is a big prize for getting it right. Housing—and access to better housing and improved communities across the country—should continue to be a top priority.
That’s why it’s been inspiring to see people willing to take a swing at things as our industry recovered and create new products. There is finally room to do so.
These changes—focused on embracing technology and efficiency—have prioritized finding a way to improve this process for all. That is making the real estate industry much better than it was before.