New York commercial real estate lending startup Lev raises $170M
The residential mortgage business has plenty of startups and large companies that have moved the process online, whether as direct lenders or brokers. Yaakov Zar, CEO and co-founder of Lev, said commercial real estate is lagging behind.
Of course, there are reasons for that. Commercial real estate loans are more complex and less frequent for most lenders, so there is less demand for automation in the process, Zar said.
“Commercial real estate has always been further down the list,” he said, “but I think the time has come and the technology is definitely there to build better experiences.”
Zar previously founded Dispatch, a startup that provides software for the home services business. He became interested in the lending process after a frustrating, months-long process of getting a home mortgage. He became a licensed home mortgage originator but then ultimately decided the greatest opportunity was in commercial real estate.
Lev closed $1 billion in commercial real estate mortgages last year, representing 10 times year-over-year growth, according to company figures. The firm has 100 employees.
Banks and other lenders made a record $690 billion in commercial property loans in 2021, up 8.7% from 2020 and 2.1% from 2019, according to data from the research firm Trepp, as reported by The Wall Street Journal.
But that totally was helped by the Federal Reserve keeping interest rates near zero. The Fed on Wednesday raised its benchmark short-term interest rate by a half-percentage point—the largest increase since 2000—and indicated more hikes are on the way. The shifting environment has already taken a toll on residential online mortgage marketplaces. Better.com had much-publicized layoffs at the end of 2021, and Rocket Mortgage announced job cuts last month.
Interest rate jumps tend to cool the residential mortgage market faster than the commercial one, according to Zar. Commercial real estate loans are typically structured over five to 10 years, compared with 30-year home mortgages, he said, so homeowners are more able to stick it out and refinance when rates are favorable.
Still, he added, “we are growing quickly enough that even a 5% to 10% national decrease in volume will have only a very small impact on our growth.”
Investors were apparently willing to make the same bet, though Lev declined to disclose the valuation of the new deal. Lev raised a $30 million Series A round at a $130 million valuation in July.
JLL Spark, the venture fund of the real estate services firm, backed this most recent investment and Lev’s Series A round.
Raj Singh, managing partner of JLL Spark, said the firm sees Lev as an important tool to bring better efficiency and more liquidity into the commercial loan market.
Interest rates will weigh no doubt on overall lending, Singh said, but the firm is confident in Lev’s ability to adjust to its environment.
“The reality is that this is a huge, huge market, and this firm is at an early stage with still room to grow,” he said.