The Newest Market Segment in CRE Tech is Debt Management
I saw an incredible statistic the other day — over 9,000 tech companies have been formed over the last decade to serve the real estate sector. As a member of that community, that is WILD because, to be honest, I’d have trouble naming 30 or 40 off the top of my head.
The Newest Market Category in CRE Tech is Debt Management
I saw an incredible statistic the other day — over 9,000 tech companies have been formed over the last decade to serve the real estate sector. As a member of that community, that is WILD because, to be honest, I’d have trouble naming 30 or 40 off the top of my head.
That statistic was put out by Real Estate Tech360, a CRE Tech subsidiary (disclosure: I have no direct affiliation with them). They identify 15 segments of the CRE Tech industry, mainly revolving around the lifecycle of a building, from construction to property/asset management, to tenant experiences, and even investor/equity management.
There’s one gap that I think remains in the segmentation of the space: Debt Management.
Outside of the most cash-rich institutional owner/operators, almost all CRE owners rely on debt financing to fund their acquisitions. What we fondly refer to as “the most expensive cost center you’re not thinking about,” debt tends to be one of the biggest single line items on any property’s cash flow or balance sheet.
I get it; debt isn’t sexy. It’s probably the most boring/frustrating thing any owner/operator has to deal with. However, given its essential nature in most firms’ ability to operate, it’s time we give owner/operators the terminology they need to determine their options for managing debt.
What is Debt Management?
It’s pretty straightforward. Debt management consists of a few key components:
Loan Abstracts
Probably the biggest “duh” on this list, but worth calling out since it’s the foundational data needed to do anything with your loans. A high-quality abstract can be done by a professional abstracter in as little as 30 min, depending on how hairy the deal is. Using the right tools, the abstracted information can be linked to the original text.
Accurate Amortization Schedules
The next foundation element is an amortization schedule. Probably another “duh,” but not all loan cashflows are created equally. I’ll spare you the pain, but suffice to say that working in all of the correct logic governing payment, calculation, and reset days, business day conventions, holidays, lookbacks, daycounts, stub periods, amortization/accretion methods, rate structures, etc. is no simple task! Throw in hedges and you’ve got a whole other beast to wrangle. There are many nuances in cashflows that can’t be fully appreciated until you build them yourself!
Metric Data
What tech company would be complete without metric data? A data repository alone doesn’t do anyone any good. We run over a million data points every day. We have to do something with that data to claim to have “debt management.” Mix in current interest rates and some data, and you can do some cool stuff, like live prepayment penalties, refi proceeds, and a couple of dozen different calculations.
Automated alerts and reminders
Not even the best controller can always stay on top of every data point and stay on top of every critical date in their debt portfolio. Having a system that can tell you when essential points of data have reached set levels or when a critical date is approaching can help save face, prevent penalties, and even create opportunities.
Lender Compliance
The best debt management tools for commercial owners will also help with Lender Compliance. One thing I’m particularly proud of that our team accomplished was the automated ingestion and calculation of lender-adjusted NOI numbers, which makes weeks of building DSCR or Debt Yield workbooks by hand a thing of the past.
Why Debt Management Needs a Market Category
As a pioneer in this space, it’s easier to communicate to someone why they need something when there’s a word to describe it.
Language is important. It allows us to convey meaning and demonstrate value without needing to stop and describe it to every newcomer. Having a word or phrase that describes what we do in the industry helps us provide value to our users. It helps us bring awareness to how much money is lost due to inadequate information and inefficient debt structures, and how companies can gain a competitive advantage over their peers.
This is why debt management is the newest market segment in commercial real estate technology.
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