Lev Capital - the future of CRE lending?
The title is a little tongue-in-cheek and click-baity, but does anyone have any familiarity with Lev Capital and what it’s like to work with them (either as a borrower or lender) and what kind of value they offer in a transaction? What are their big innovations? Does anyone see them causing broad disruption in the market?
They seem to be growing pretty rapidly and just made a pretty big hire from SocGen for their CMBS platform. I think there is a lot of potential for technology to disrupt CRE lending, but I’m also a skeptic when it comes time to the promise of AI and automation in the CRE space.
For example, one article claims that they are on track to automate the loan process in such a manner as to get term sheets generated and signed “within seconds” and eventually get loans closed within 7 days from signing the term sheet. They think they can get this widely adopted on loans under $1 billion, because those deals are “pretty straightforward.” I get that CMBS loans can be cookie cutter and on smaller balance loans there may be little to no negotiation of loan terms or docs. But assuming all parties are on board for a quick close, this isn’t enough time to get an appraisal, survey, title policy, or almost any level of KYC done (all the classic lead-time deliverables in a CRE loan). How do they plan on doing this?
Is the real value add here really cutting out the brokers on smaller loans and matching up borrowers and lenders on an online platform?
I know a little bit about Lev. I’ve been following the story for a while. Just flagging this so I can add thoughts later when I have time. Long story short: I think they’re enabling the CRE lending space with technology and opening up a direct lending product. Not a pure online platform (many have tried and failed badly, because CRE lending isn’t that straightforward..), more like technology-backed brokers/lenders. They “supercharge” their brokers with tech, and it’s pretty legit. They have full engineering team and have put out some sort of proprietary database product (using Reonomy as their backend for data/prospecting).
What are they doing on the lender side? Have they done anything to automate processes and make them more efficient, or is the value add their access to data and ability to analyze/process it using their algos and machine learning tech?
Joke's on them...Lenders don't analyze data, they just look at NOI, quote spreads and sign up deals. I believe "see deal, do deal" is the mantra.
I spoke with them recently. Seems that they just aggregate a lot of lender terms then try to connect your deals with lenders, then help you navigate the lender checklist. I never worked in debt brokerage before so I have to assume a lot of the national players have a full database of lenders across the country. If not, I can seem Lev being valuable in unlocking some lenders for funky deals that your go-broker might not have on his/her radar (regional banks, small debt funds, etc.).
Had a call with their 26 year old COO or whatever. Huge Douche. He asked the interview question what is your greatest strength and weakness.
Neutral tone here - But you call someone a douche because they ask you for your strength and weakness? Elaborate?
It wasn't just the question, he was young, too young to be conduction more senior interview positions.
But, the question in and of itself is disingenuous and rude. Let's say the question isn't just a guise to have people list time where they overcame a weakness, and not the actual weakness. The question is therefore patronizing, dishonest, and indirect.
Let's say this is a first time ever speaking to a person, would you ask what is your greatest weakness? That would be a very personal question, to ask someone to open up about a personal weakness, and comes off as rude.
If you can't think of a better question, or way to get to know a candidate then you aren't smart or have the EQ to be giving interviews.
Wait, were you interviewing or looking to use their services?
Interviewing
Eh, this is nothing new, also see Stacksource or Janover, a so called "marketplace" that uses tech as a buzzword so that you can raise capital. They have to call themselves fintechs in order to raise capital. This is how it works. They will have a list of lenders and their appetite, terms, etc in their internal database just like any typical broker. A borrower on their platform might get quote 1, quote 2 and quote 3 neatly presented side by side and you can compare. Sure it can be visually pleasing. But does anyone really think this is revolutionary compared to a broker emailing the client a summary of 3 quotes? And when a deal is not a vanilla deal in a small market, they dial for dollars and reach out to local banks the exact same way a typical broker does. Nothing revolutionary about it. Ask yourselves this, Is Lev in the same tier (as in competing for the same institutional clients) as Eastdil, CBRE, or any of the big boys? Heck, are they even in the same tier as Ackman Ziff or even Eastern Union?, now thats scraping bottom of the barrel lol. You have brokers at Lev doing 500K dollar generals loans lol. Thats all you need to know. Say what you want about Eastern Union but atleast they have the volume to show for it.
Yeah, this is kind of my instinct on this, which is why I asked in the first place. I couldn’t really figure out what the hype was about.
Now if they can capture a significant chunk of the lower end of the market and basically make a new platform that is easy to use and a bunch of mom-and-pop investors use this to get financing… I think there’s some value there (for those invested in Lev, not in a macro sense). A lot of “tech” companies don’t do anything new—they just rebrand old concepts and that’s fine I guess because they can capture market share that way.
Yeah I mean if you look at stacksource too, they can do these small deals in markets where they literally dial for dollars (cold call) local banks. Clients will be mom and pop. Sure they can add value there but also we have to realize most brokers do not want that business and there is a reason for that as the fees earned does not justify the time spent on the deal when you can be earning a lot more and doing less work.
Institutional Groups are going to continue to want curated marketing of their debt deals. Can’t imagine anyone is going to blast out a $300m construction loan on a platform like Lev in the near future.
I don’t think anyone borrowing anywhere near that amount will want a one-click solution to their financing. They’re going to want to negotiate terms of the financing and negotiate loan docs. Even if it’s a relatively straightforward CMBS transaction.
Everyone wants speed, but they also want bespoke terms.
By the way, the comment in the original post that deals under $1 billion are “pretty straightforward” is totally false (that came from Lev, not me). Deal size does not dictate complexity—it dictates how much attention people are willing to give to the deal. I have done $20 million dollar deals that were highly complex and $1 billion+ deals that were very straightforward and everything in between.
Their founder comes off as a huge tool on LinkedIn
That makes sense cause their COO is a douche.
My opinion is that there are some inefficiencies in debt brokerage that technology can help (collection of data, handling leads etc.) but you can never replace the broker in such a relationship-focused business. But yes, the technology can help the broker perform better and make their life easier
Bumping this after the last valuation
After reading more about them, and following them for the past couple of months, I think these guys are the definition of fake it ‘til you make it. I don’t think the founders had any significant experience in real estate finance before starting the company. But they claimed they could completely upend the space.
It seems like they have hired good people with real expertise in the CREF though. Who knows, maybe lack of experience from up top is just what you need for a fresh perspective?
I’m rooting for them. Always like to see tech being utilized to improve processes. Hopefully that’s happening in a meaningful way here.
hopefully. I have seen this "algo" and database plaftorm fail before.
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