Commercial real estate lending hasn’t changed much in decades, and it shows. As of 2019, 43% of all US banks were still using a system called COBOL for their commercial real estate lending.
COBOL is a system that was created before the internet ever came to be, which makes it difficult to use amidst other, more modern programming. Residential lending, on the other hand, has embraced modern technology and they’re progressing at full steam, even in spite of the COVID pandemic.
Even long before COVID, in 2015, residential lending had transitioned to a modern, largely online platform. That year, 20% of borrowers relied on websites and 92% of them began their borrowing process by researching lenders online. Then 74% of them communicated with their lenders via online portals, and 43% filled out their entire application online.
This modern way of processing lending is how residential real estate was able to keep going without a hitch when COVID came along and sent us all home.
Commercial lenders are now operating at a disadvantage since they have neglected to modernize their business processes. The issues with antiquated systems and operations are leaving banks vulnerable and at risk of becoming obsolete in the commercial lending game. Alternative lending platforms like Crowdstreet, Fundrise, and Yieldstreet, are drawing borrowers to abandon the traditional methods and cut out banks entirely.
If banks want to stay in the commercial lending game, they must embrace technology and update their processes. It’s time to ditch slow, manual processes and be able to anticipate borrower needs.
Post-pandemic, the commercial real estate world is suffering even more with employees working from home and office needs no longer being near what they were prior to 2020. Thirty-three percent of Americans are now working remotely, and 59% of retailers are worried about the rising cost of commercial rent. Not only that, but the absence of modern technology in commercial lending caused it to halt to nearly a complete stop at the height of the pandemic.
Commercial lenders must embrace new technology in order to remain relevant in our modern, post-pandemic world.