Why Has Crowdfunding NOT Been Effective For Commercial Mortgage Loans?
1. Disconnect between ability to raise capital and ability to generate deal flow means that the few platforms doing commercial mortgages that have access to large amounts of capital are unable to generate sufficient deal flow
2. Platforms are run by “techies” not real estate or finance people
3. Platforms tend to hire relatively inexperienced lending and underwriting professionals who are unable to evaluate a more complex commercial mortgage application. 4. Platforms want to reduce costs by employing capital “in bulk” rather than do smaller individual transactions
5. The advertised benefit for the commercial mortgage borrower of lower costs, easier qualification and quicker turnaround has not panned out
While there obviously have been many loans completed in this space with crowdfunding platforms, they are an additional source of capital, not a replacement source, and certainly not a disruptive source. With traditional lenders building their own online platforms, any cost advantage will disappear. For loans which can’t be reduced to simple check boxes and credit scores, the advantages of crowdfunding platforms for the borrower or mortgage broker quickly disappear.