Robert Pike of loan servicer Trimont says there is a growing need for debt providers to gather and use data to navigate the market’s challenges.
Investors in real estate have always sought clear, concise reporting to underpin their analysis and, in the case of lenders, better understand loan performance.
Data can be hard to come by in the opaque European commercial real estate market. The challenge is complicated for lenders by loan collateral often being in multiple jurisdictions and across property types. In 2021, real estate loan performance is also complicated by the impacts of Brexit, covid-19 – the full ramifications of which are still playing out – and the ever-increasing focus on sustainability.
But as the industry emerges from the pandemic, with changing fundamentals in many markets and new considerations around sustainability, the use of data will only become more crucial.
When underwriting loans, lenders are already seeking more comparable data to assess the collateral. That includes energy efficiency data. In office loans, it means monitoring yields, occupancy rates, rental values in the wider market. For hotels, it requires careful attention to occupancy in an uncertain leisure market, and investment pricing. For lenders to effectively manage loan books, it is essential they continually benchmark performance and monitor it against live data. If a borrower falls on hard times and asks for modifications, the lender needs to assess whether it can underwrite the loan again.
It can be difficult for lenders to make sense of all this data. Loan servicers are therefore on the data frontline and are well-positioned to cleanse, independently verify, and order data for investors to consume.
Technology is becoming essential to unlocking data’s potential. Data connected to real estate credit can be complex, voluminous, and of questionable quality. Technology can help collect, process, and evaluate it. Data dashboards, such as Trimont’s Triview, can help investors understand portfolio performance in a standardised manner.
In a market in which more data is being generated, the key challenge for servicers is to extract maximum value from in-house data, but also to gather information from external data providers in the industry, often to provide context and understanding in specific jurisdictions and sectors.
As real estate markets evolve as we emerge from the pandemic, continued investment in technology-driven solutions will be required to effectively manage all this data. Only by efficiently bringing data together from numerous providers can investors in real estate see the bigger picture necessary to inform investment decisions.
The ESG Challenge
However, the biggest unknown when it comes to data is how ESG [environmental, social and governance] risk will be measured. Reporting will need to keep pace with evolving products and structures as the industry shifts further towards sustainable lending.
But how the industry evaluates the performance of sustainable investments is yet to be determined. Governments, regulators, and industry bodies are scrambling to catch up and impose standards for the industry to measure up to. Currently, the data lenders need to monitor the performance of green and sustainability-linked loans varies according to asset class and jurisdiction – benchmarks are yet to be finalised meaning there is no standard formula yet.
Data around the assessment of ESG remains a complex and subjective area. For example, energy efficient ratings are easier to quantify than wellbeing and buildings’ social impact, and the cost of capital to achieve high scores in these areas can vary hugely.
For the time being, lenders are taking different approaches to measuring ESG performance. But there will be more standardisation as key metrics are adopted across the industry. Amid the uncertainty, one thing we can be sure of it that, as expectations around ESG performance increase, the emphasis on collecting, analysing, and sharing data will grow.
Robert Pike is head of investor relations and reporting at the European arm of Trimont Real Estate Advisors, a US-headquartered loan servicer and asset manager.
Trimont Real Estate Advisors (trimontrea.com) specializes in the asset management of complex performing and non-performing credit on behalf of commercial real estate lenders and investors around the world. Trimont also provides loan servicing, facility and security agency, cash management, fund and asset level accounting, underwriting, due diligence and leading technologies such as TriviewSM, that empower clients to better evaluate and manage risk and return.
Over its 30-year history Trimont has managed more than $645 Billion of debt and equity investments into commercial real estate, comprising more than 26,400 assets managed in 66 countries. Trimont is highly rated by Standard & Poor's, Fitch and Kroll and serves clients around the world from major offices in Atlanta, Dallas, Kansas City, London, and Sydney.