With marketplace lending and investment crowdfunding poised for accelerated growth in 2016, traditional financial institutions have begun to acknowledge the success of these industries by investing in - and with - alternative finance companies themselves. Such actions mark an important milestone, as they create a higher level of validation for the real estate sector of marketplace lending.
With the tremendous growth we’ve seen in real estate marketplace lending, it was only a matter of time before an institution would ink an agreement to programmatically purchase real estate notes, similar to institutional purchase programs in the unsecured consumer and small business marketplace lending verticals.
J.P. Morgan Chase & Co. (JPM) recently announced deals with LendingClub to acquire nearly $1 billion worth of loans and OnDeck Capital to build a new Chase lending product for small businesses. J.P Morgan is actually one of several global financial firms to invest in alternative lending companies; Goldman Sachs (GS), Blackstone and Hargreaves Landsdown have all ventured into the space, in various capacities.
Patch of Land recently announced that an East Coast credit fund signed a $250 million agreement to purchase loans in a forward flow arrangement. This signifies an important achievement for Patch of Land as the demand for online originated real estate loans supports the firm’s rapid origination growth. On a larger scale, this announcement demonstrates that traditional institutions view real estate marketplace lenders with increasing credibility.
What this Means for the Growth of Real Estate Marketplace Lending
Institutional forward flow agreements, such as the one announced by Patch of Land, show that the data-driven models being applied by real estate marketplace lenders instill confidence in the products offered, in the company, and in the future of this fast-growing industry. These companies are turning a previously obscure and fragmented financial instrument into a scalable investment for accredited investors and institutions alike.
Institutional forward-flow agreements can accelerate funding and complement existing accredited investor bases to create more redundancy of capital. In short, more funding translates to greater opportunities for sponsors, brokers and even local lenders to work with real estate marketplace lending companies to get their funding efficiently.
How Marketplace Lending Differs from Traditional Real Estate Lending
The loan origination process is being enhanced through the use of technology, which has helped to optimize integral processes from start to finish. While traditional lending institutions have carefully cultivated their customer base and are great at servicing their local communities, marketplace lenders have begun to leverage technology to help meet the burdens and requirements that typically delay processing time, and are able to do so without sacrificing quality assurance throughout the due diligence process.
Where we See the Industry Going in 2016
As recently as a year ago, large institutional investors did not consider real estate marketplace lending as a serious industry; now, institutions are lining up at the door to get a piece of the action. Ultimately, real estate marketplace lenders like Patch of Land have become attractive to traditional institutions, and we expect more partnerships going forward. Marketplace lenders are shining a light into a traditionally dark and vast industry, and- in the coming year, this light will only get brighter.
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