Tough Times Lead to New Opportunities
As a commercial real estate professional, you’re already well aware of what’s going on in the broader banking realm. With smaller and regional institutions at the highest level of risk due to the fact that they provide up to 70 percent of the capital for the industry, you may be exploring options for commercial real estate banks and trying to identify the best partner for your firm’s daily banking needs and long-term strategy.
While there are challenges aplenty (e.g. a higher number of banks exceeding regulatory guidance on commercial real estate loan concentration and the highest number of industry mortgages set to mature this year that are held by banks) and property prices continue to fall while mortgage costs increase, not all hope is lost:
- Some banks with high loan concentrations aren’t at risk of defaulting
- Rent growth continues to stabilize after the challenges of the past several months
- Occupancy rates are continuing to improve overall since the onset of the pandemic
While the road ahead isn’t yet free from obstacles to growth, commercial real estate firms should prioritize improving their banking situation overall to reduce costs, streamline operations, and maximize value for teams and investors. Working with the right commercial real estate banks is going to play an important role in achieving that goal. Here, we’ll explore a few recommendations to help you know what to consider in your search.
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1. Diversify Banking Providers
Firms already use a number of strategies to reduce risk, but partnering with additional commercial real estate banks may add further protection. Spreading out capital for different assets and operational needs helps you benefit from additional FDIC insurance coverage. While this does mean more institutions and accounts to manage (don’t worry — we have a solution for that further down), protecting your capital is crucial. Additionally, working with more than one financial institution protects you from the risk of only using one partner. If that one institution experienced problems, would you be protected?
2. Consolidate Existing Accounts
If you do have accounts at multiple institutions, consider the administrative impact. Yes, you stand to gain further insurance coverage on those funds, but there’s a cost to your firm in the form of your team having more account information to manage, transactions to review, reports to generate, payments to issue, and more. More to manage means more risk for your firm, so consider consolidating accounts where possible. For example, in your next deal, consider using a CRE banking technology solution that allows you to open and manage bank accounts for the asset from one platform.
3. Streamline Account Creation
Here’s a stat that you already live and breathe every day: most firms have anywhere from three to five bank accounts per asset and fund, and the average firm has about 10 to 20 assets. That’s a lot of bank accounts that are being manually opened and managed. With your next deal, consider using technology solutions to streamline account opening down into a matter of clicks. From there, you’ll benefit from having fewer logins to manage (and securely store) and will be able to search financial transactions to various parties across assets and funds faster. This will also give you greater oversight of all financial activity, as opposed to having to find information in one account and compare with another.
Meet Covercy — the Efficient CRE Banking Solution
Covercy is the first real estate platform where banking meets investment management. Bringing capabilities such as investor relations, fundraising, automated distributions, and more into a single platform, Covercy also provides GPs and their teams with the ability to open, manage, track, and report on bank accounts and activity tied to their assets, funds, investors, and more.