Ten-X Partners With Financier To Underwrite Loans For Qualifying Properties Prior To Purchase
Online real estate marketplace Ten-X has partnered with a financier to pre-arrange loans for qualifying properties for sale through its platform. The Irvine, California-based company's leaders hope the deal will boost the number of buyers that use the site.
Through the partnership with tech-enabled lender Money360, buyers on Ten-X will be able to streamline the financing process by sourcing pre-arranged loans for properties they are interested in acquiring. As the virtual auctions commence, buyers will know ahead of time whether the properties they are interested in bidding on qualify for financing.
“Money360 will review any deal that qualifies for financing (generally, deals in which the loan amount is greater than $1M),” Ten-X General Manager Steve Jacobs said. “Once we’ve determined the type of loan, the general terms for each loan program are posted to the site for bidders to review and inquire.”
After Money360 determines which properties on Ten-X’s platform qualify, the lender will work with buyers to underwrite loans for those properties after they trade hands. Loans include both bridge and permanent financing.
Ten-X’s online marketplace continues to venture into new territory in commercial real estate through this partnership. Offering pre-approved loans is a resource that, though common on the residential side, is difficult to complete on the commercial side of the business, MetaProp NYC co-founder Zach Aarons said.
“The issue is commercial transactions are [so] complicated that to date it has been a lot harder to pre-approve buyers because the underwriting is a lot more substantial,” Aarons said. “If you look at commercial, it almost always follows behind residential. A lot of the innovation in terms of data availability and transparency started in residential and is now migrating into commercial. Think of this partnership as another example of that paradigm.”
The new partnership is not devoid of risk, Aarons said. As with any commercial real estate transaction, there are inherent risks that can arise from entitlement, zoning, construction costs or permitting.
Pre-approving loans could exacerbate those risks.
“Commercial real estate [takes] time and effort to underwrite transactions,” Aarons said. “Obviously the less time spent analyzing any deal in commercial real estate will probably result in higher-risk transactions getting completed than would ordinarily be completed.”
Money360 is a direct lender that provides small to midsize loans ranging from $1M to $20M, and has closed roughly $400M in loans as of late August.
“For Money360, the ultimate goal of this partnership is to join forces with Ten-X to provide improved financing solutions for commercial real estate buyers on their platform,” Money360 CEO Evan Gentry said. “The partnership also creates proprietary deal flow for Money360, which is the lifeblood of any lending company. Ten-X closes many billions per year in commercial real estate loans, and Money360 now has the first opportunity to provide financing on these properties.”
Real Estate Tech Investment Strong, But Cooling
Investment activity in property technology continues to gain momentum. Just last month Ten-X received a $1B investment for an undisclosed majority stake from private equity firm Thomas H. Lee Partners. A competitor, residential marketplace Redfin, went public on June 28 raising $1.73B during its IPO.
Startups are getting their fair share of action as well, though at a slower pace than last year. Venture capitalists continued to flock to real estate tech firms in droves, pouring millions into new companies in search of the next real estate unicorn. As of July 2017, venture firms have poured $333M into global real estate tech firms, $173M of which was allocated toward companies in the U.S., according to RE:Tech. This represents a 40% decline compared to investment levels in July 2016, RE:Tech reports.
Last year, both commercial and residential real estate tech companies raised record funds, with investors pouring $2.6B into tech startups through 235 deals worldwide, according to CBInsights research. Major deals such as Homelinks’ $926M Series B fundraiser and OpenDoor Labs' $210M Series D fundraiser pushed the envelope, boosting VC’s real estate tech investment by 40% in 2016 from the previous year.
As for Ten-X’s deal with Money360, Aarons said the partnership reflects the industry's growing comfortability with online marketplaces and the strength of the tech they are built upon.
“[Online] marketplaces are becoming much more liquid,” Aarons said. “They are gaining market share in terms of online transactions versus offline, and it shows you the tech that underlines data ingestion and analyses has become that much more sophisticated that a lender would be comfortable doing something like this.”