It’s a model that we are all familiar with: buy in bulk to receive a discount.
One commercial real estate firm in New York is applying that to their loans. Eastern Union has launched a pooled loans division that promises to deliver below-market interest rates by pooling similar loans together and approaching lenders as a group when seeking financing.
“Banks have gotten larger and have to do a lot more business to move the needle. If they could negotiate business terms on behalf of a group of deals, there is value in that,” said Eastern Union president Ira Zlotowitz. Another pro, he added, is if a bulk of their business is coming from one source, they are able set up a streamline process to more efficiently underwrite and process these loans.
Lenders traditionally close transactions with borrowers one at a time but this new division is revolutionizing the conventional model by presenting a more efficient way to do things, according to Zlotowitz. As a result, this model can really benefit all parties, he said.
“It’s a win for the borrower because they get a low rate, it’s a win for the bank because they get the volume they need, and it’s a win for Eastern Union because it helps us grow our business and pick up more volume that may not have been accessible to us before.”
Using artificial intelligence and their QTS system, the pooled loan division will identify similar types of properties that can be pooled into a suitable cluster of deals. One category, for example, could consist entirely of garden apartment properties, located in the same general area and with similar timelines.
The borrowers that will benefit the most are the ones who wouldn’t normally be in a position to get volume discounts, said Zlotowitz.
“A borrower with 50 buildings is used to getting VIP treatment, but the borrower with three buildings is really going to see benefits that they wouldn’t have qualified for in the past.”
While the idea of grouping loans isn’t totally new, it’s usually done post-close. So, the idea to bundle loans from an earlier stage with the help of technology is really what kickstarted this division.
Eastern Union’s pooled loan division will target two categories of lenders: banks and pension funds. This model will offer lenders the chance to streamline their traditional approach by closing up to 15 transactions valued at up to $250 million, all as part of a single loan, said Zlotowitz. He estimates that with his group purchasing model, lenders will lower their interest rates by between one-eighth and one-quarter of a percentage point.
Since its launch, the pooled loan division has piqued a lot of interest, according to Zlotowitz.
“I’m very excited, but not surprised. It’s indicative of how the market has really shifted. New things are always happening in the industry, the question is whether it’s going to become mainstream.”
Eastern Union expects to place the first round of clustered loans by the second half of 2020.