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Digital financing solutions for the real estate industry

The wave of digitalisation has also reached the real estate industry with full force. Along the entire value chain, from planning and development through construction to the use and management of properties, innovative companies are creating digital solutions that are taking the industry step by step into the future. Digital innovators can solve several problems at once: they can reduce costs, speed up processes, increase the transparency of transactions as well as contribute to environmental protection. While this development is already in full swing, the possibilities are by no means exhausted. By combining different solutions, additional synergies can be created. This also applies to real estate financing. Companies like hypcloud can make a valuable contribution here.

ESG, EU taxonomy, BASEL III: Regulation as a driver of innovation

Like many other sectors, the real estate industry is in the middle of a major structural change. Various factors are intertwined in this process.

The megatopic ESG - short for Environmental, Social, Governance - is of paramount importance for the real estate industry. In order to achieve the climate protection goals set by the legislator, the real estate industry has a key role to play. This is a great opportunity, after all, the demand for more sustainability will lead to higher investments. On the one hand, investments in the climate-friendly conversion of the real estate stock require enormous funds, which act like an economic engine for the industry. The additional need for financing thus creates room for more providers on the market.

We also note that the financing conditions for green real estate and non-green real estate are increasingly developing differently. From a financing perspective, it is also clear: the future is green. New groups of investors and lenders can be accessed more easily via digital financing platforms such as hypcloud, and capital can thus be mobilised more easily than by analogue means. In terms of transparency, it is also important to adapt to current regulatory requirements. One of the declared goals of the EU taxonomy is to increase the transparency of financial transactions. At the same time, a shift can be observed in the market. Commercial banks and professional investors such as insurance companies traditionally dominate the segment of commercial real estate and project financing.

At the same time, a shift can be observed in the market. Commercial banks and professional investors such as insurance companies traditionally dominate the segment of commercial real estate and project financing.

However, many banks want to reduce their exposure, not least because of stricter capital adequacy requirements in the wake of BASEL III. This development opens the door even wider for alternative financiers such as insurance companies, pension funds, large family offices and credit funds. These players can act much more flexibly than banks, as they are not subject to the same regulatory framework. As new or emerging players, they are also fundamentally open to innovative solutions.

Digitalisation of the financing x project development interface

The framework conditions for the digital transformation in real estate financing are therefore favourable: the interplay of rapid technological progress, especially cloud technology, and regulatory changes acts as an innovation accelerator for the industry. It is therefore not surprising that new players with innovative solutions have positioned themselves along the entire value chain in recent years, including hypcloud. As a financing platform, hypcloud offers the entire financing structure from equity investments, mezzanine and subordinated financing to classic bank financing from a single source. 

Things are also happening in the area of securitisation. For example, the trend in B2B real estate financing is increasingly moving away from bilateral contracts and towards new forms such as tokenisation, which significantly increases the circle of potential lenders and forms the backbone for a new market infrastructure. Technical solutions for this already exist. Borrowers, e.g. project developers, can submit their financing request in simple steps, granting all relevant parties such as appraisers, architects or lawyers access to the shared data room so that all parties involved always work on the basis of the latest data.

The next step is to combine individual solutions in order to offer users better access and added value. For this reason, hypcloud is currently working on cooperations with platforms that offer market data or construction monitoring. By combining these strengths and working together in the cloud, all aspects of project financing can be centrally monitored and processed. Last but not least, the integration of construction monitoring can identify financing risks earlier and thus increase financing security. This cloud-based collaboration also saves considerable time and fulfils the goal of the EU taxonomy to create more transparency in financial transactions.

However, transparency is not only a desirable asset for regulators. Market participants also benefit from knowing where the review of a financing request currently stands or hangs and where materials or information are still missing. Collaboration in the cloud offers great potential to accelerate coordination processes or, if necessary, to invite other required parties to the round. This leads to a significant increase in process efficiency.

Outlook

While the digital transformation is progressing inexorably, there are still numerous hurdles in the present, as the latest ZIA-Digitalisierungsstudie also proves. For example, the heterogeneity of data is still a problem. However, the study also shows that more and more companies are coming to a realistic assessment of their digital maturity. This finding makes us optimistic that the real estate industry is capable of continuing to deliver digital solutions with concrete added value that make business more efficient, transparent and sustainable.

Author

Michael Seeberg
CEO / Managing Director hypcloud

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