Staying up-to-date and compliant with the numerous regulators, rating agencies and investors is an essential part of good risk management practices for CRE professionals. But without a strong technology system, keeping up with the many ongoing and every changing requirements is ineffective and extremely time-consuming. In this post, we review how CRE lending & asset management software can increase accountability & visibility across your organization to help prevent problems, ensure compliance and standardize how your team works.
Commercial real estate is privy to big rewards – but also big risks. Millions – and often billions of dollars hang in the balance – all based on your company’s ability to responsibly manage your investors, clients, and managers’ CRE investments. New and more complex regulations have overwhelmed the financial industry in recent years. Whether you are a loan servicer who must constantly work to improve data quality and security controls just to maintain a high rating, a lender trying to comply with the latest accounting rules or a fund manager who must adhere to onerous reporting requirements from your institutional investors – it has all become an ever-increasing drain on both costs and resources.
Without proper technology in place, it’s easy to become overwhelmed by a large portfolio of assets. Even the slightest oversight can have huge implications across your firm. That’s why CRE professionals need a software solution to help mitigate risks. The right system should support you through the entire lifecycle of the loan – that means no more sloppy handoffs between teams and legacy systems, no more data leaks and no more key man risk. Modern technology enables you to easily integrate with accounting, loan servicing and other third-party providers allowing all parts of the organization to see the same apples-to-apples information. And to ensure the highest adoption rates, the best technologies conform to a firm’s existing business, workflows, naming conventions and end goals – it’s not a one-size-fits-all.
With all this in mind, here are 4 ways a modern CRE technology solution keeps you compliant.
#1 Streamline Your Risk Management
CRE loans are full of complex structures, cash flow sweeps, concentration limits, performance tests and more. Keeping track of all the rules and triggers for each and every loan can be difficult and error prone, especially when done manually and your portfolio starts to grow. By using CRE lending software, you can set up rule-based notifications for each covenant or milestone to limit any surprises of upcoming events or deliverables.
Another key feature to look for in a system besides a good notification system is cloud-based file management. The seemingly simple task of keeping track of all your key documents – loan agreements, executed leases & estoppels, third-party reports, financial models, committee memos, etc. – is often overlooked and underrated. Linking modern technology with sound document management practices will improve your overall asset management practices, including efficiencies on version control or being able to easily and securely access and share files. Wouldn’t it be nice to send or receive advance notification when a deliverable is due – like a valuation or a borrower financial package? With a CRE lending and asset management solution in place, document management can go from being a burden to a competitive advantage. Being able to avoid delinquency or delays with data delivery can help win your next deal or get ahead of any issue before it turns into a problem.
#2 Policies and Procedures with Flexibility
Establishing standardization and structure around your business is fundamental to maintaining prudent risk management. By being prepared with a roadmap for every scenario and having pre-set processes, you can proactively protect your downside and prevent real losses before they occur. But as a CRE finance professional, you are always shaping and reshaping loan products based on things such as plans to increase lending in a particular market or property type, limits for credit and other asset concentrations, and ways for assessing whether strategies and policies continue to be appropriate in light of changing market conditions. CRE lending and asset management software needs to provide a framework for enforcing the structure necessary to keep your business compliant, while at the same time being flexible and dynamic enough to navigate through the ever-changing market environments.
When looking for a system, be sure that it’s not rigid or complicated to modify. A good solution provides a path for all to follow, but one that is flexible enough to handle any new opportunity or issue that is thrown your way. This means if you have a specific way you want to work through a business plan or a standardized process for reviewing a deal, you can easily adjust the system to accommodate without having to reinvent the wheel or start over from scratch every time a unique situation comes along.
#3 Systematizes Your Communication and Reporting Process
Today’s CRE professionals need robust communication and reporting capabilities to stay on top of changing laws, regulations, standards, and internal policies. There has been a permanent shift in the way lenders and servicers interact with their customers, vendors, investors and the various regulatory agencies. As a result of unprecedented volumes of delinquent loans following the financial crisis and the subsequent surge of new regulations, the CRE lending industry has recognized the need for improved transparency and enhanced communication.
By leveraging modern technology, lenders can facilitate better communication and reporting so that each stakeholder can have full visibility and make better, more confident decisions. Being able to measure and quantify the risk to things like sponsors, tenants, markets, asset class, etc. – and report the underlying data faster and more accurately, will ultimately help minimize risk and maximize returns.
#4 Enables Approvals Through Your Management Structures
Every organization has its own management structure and approval processes that works for their business. It is important to choose a system that works the way you work. For example, the workflows around funding simple draw requests are not only unique to each organization but are specific to the individual investment or project. Technology that forces you to operate within the confines and boundaries of their predetermined naming conventions and their strict rules does not work for most lenders, especially if you’re talking about transitional loans and other bridge product with future funding obligations.
With features like digital signatures, or automated workflows and other rule-based checklists, you can quickly move through “paperwork”, without having to sacrifice accuracy or compromising your management’s structure or approval hierarchy. CRE software allows you to operate within a consistent framework that keeps everything in compliance.
Conclusion
Modern CRE lending and asset management software provides a powerful solution that handles a wide variety of regulatory and compliance processes and ensures accountability throughout organizations of all sizes. As a lender, you need to quickly and accurately monitor assets, model cash flows and track loan covenants – all the while ensuring regulatory and financial compliance. Now imagine being able to do all this and more in an intuitive, user-friendly and fully customizable technology package? With the right CRE lending and asset management technology solution like RealINSIGHT, risk management won’t be a burden or limitation – but instead a competitive advantage.