Lev, a digital commercial real estate (CRE) lending proptech, has been making a lot of noise since the new year. On January 5 the company announced a partnership with investment management provider AppFolio, and earlier this week launched a full, end-end CRE lending platform named “Lev Lending.”
The company also completed a $30 million Series A led by Greenspring Associates in July, and a $10 million seed round by NFX in March of last year.
Yaakov Zar, founder and CEO of Lev, sat down with FinLedger to talk about the launch of Lev Lending, the company’s journey thus far, and where he sees it heading from here.
Q: First off, could you describe Lev and the services you offer?
A: I’ll start off with the story of Lev and what we’re doing with the lending. The background is that Lev is focused on building technology to help automate commercial real estate transactions. My background is in enterprise software. I started a business previously called Dispatch, building tools for home service businesses like plumbers, electricians, appliance repair companies, and I started that business in 2013.
We sold that business, and I was living in Boston. My wife and I wanted to buy an apartment, and I learned a lot about the residential mortgage experience. I learned a lot about how it works and I had a really frustrating experience. I wanted to start an online residential mortgage company, but by then, I had gotten a bunch of experience in commercial real estate and commercial real estate finance. I realized, wow, commercial real estate finance is way more broken than residential real estate.
In residential, there’s companies like Better.com and Rocket Mortgage, etc. that have really given borrowers a truly pleasant online experience. But in commercial real estate, it’s the same processes that they’ve been using since 1990. Maybe with email instead of faxes, but this means that it’s really hard to find the right lender, and really hard to get through the loan and term sheet process. The closing processes are extremely manual.
We started this business at the end of 2019, with a focus of digitizing commercial real estate finance, and we built the Lev marketplace. We build tools that help us understand a deal when a client comes to us with an asset. We understand everything about that asset and we build technology to match the best lender for that deal, based on machine learning technology that we build around lender profiles and being able to understand the assets that they like to lend on.
Then we help the borrower actually close the loan online with our borrower portal. We did about a billion dollars of loans through that platform in 2021. Last year, and along the way, we sort of realized that there’s a lot of a lot more to the experience that we don’t have control over with this marketplace. We didn’t feel like lenders were moving at the pace that we were hoping, and we decided that there’s an opportunity here for us to build a truly complete end-to-end lending experience for our borrowers.
We launched Lev Lending this year, and the focus there is to create a really beautiful, clear, transparent, fast experience for our clients through the use of the same technologies that we’ve been building for the past couple of years. We’re really, really excited about that.
Q: I know the company already had an API offering. What is the difference of strategy between an API versus a full product platform like Lev Lending?
A: The goal of our API is to enable technology partners to offer real time quotes to their customers, as part of their own experiences. Our first API partnership was with AppFolio, and you may be familiar with one of their products called Investment Management. That product helps commercial real estate owners manage their relationships with their investors, and create a portfolio of all the investments that they have. What we offer them is a fully integrated quoting engine, plugged directly into their platform, so their customers can go to Twilio and get quotes about assets that they are managing in AppFolio, all in real time.
That ultimately transitions to our full experience for the due diligence and closing of the loan. But we can offer these real time quotes via API, with a fully embedded experience for customers if that’s what our partners want.
Q: What would you say are the real distinguishers and differentiators when it comes to tackling commercial real estate (CRE) versus single-family or multifamily residential?
A: The difference is sort of in the infrastructure. Residential loans are for an owner occupied single-family or a one to four family house. If it’s an apartment building with five units or more, it automatically falls into the commercial bucket.
The complexity is the real reason, in my opinion, that this automation has not come to commercial, the assets are very different. The lending infrastructure is very different meaning in residential, something like 90% of loans are underwritten to agency guidelines. So basically, the government regulates the residential mortgage market very significantly. They’ve set the standards of how to digitize residential mortgages.
In commercial mortgages, so few loans are government insured. Every lender has their own processes, which vary greatly, and has created this lag in technological innovation. We’re trying to bridge that through building great tools.
Q: What are your thoughts now that Lev Lending has officially launched? What do you see moving forward and what are your goals for it?
A: We think we’re going to do about a billion dollars of loans with Lev Lending this year. We have a bunch of partnerships with investment sales brokers, and financing brokers, and then a lot of different industry players that are going to help us get that volume. We also have an internal originations team that’s helping us grow, and we’re just really excited to offer these great experiences to our customers.
Q: You raised a $30 million Series A last year, what were your biggest points for deploying that, and are you still deploying it? Are you looking for more funding this year?
A: We’ve been investing very heavily in our product and technology. That’s been our number one focus all year. We still have most of that money in the bank. We’ve had a lot of inbound interest around raising money, and obviously we are exploring that as necessary, but we have quite a ways to go with our current resources.
Q: Big picture moving forward for Lev, what are your big challenges you’re excited to tackle and moving forward? Do you see any innovation that you’re excited to introduce or get involved with?
A: We are really excited about building great experiences for our customers. That’s always been our focus. We’re always thinking about, ‘What would I want as a borrower getting a mortgage? How can we build the infrastructure to make it seamless?’
As a borrower, it’s a classic example, but you have to think about what it’s like when you order an Uber or food delivery. There’s a lot of complex processes happening in the back, but I don’t care as a consumer. You don’t care what they had to do to make that happen, you just care that it works. We want to offer that same sort of delightful, embedded experience for our clients. We think that this is another step towards that, and we want to help other lenders do that as well. That’s always been our focus.
Q: While I have you on the phone, just looking at the proptech market in general. Is there any other companies that excite you, or products that you’ve seen as important?
A: I think that there’s a lot of interesting things happening in proptech, I think there’s a lot of great data products that are coming out and we partner with some of them. There’s also a lot of property management software out there that is really interesting, but from our perspective, the most exciting thing here is really the whole fintech piece of commercial real estate. That’s where we’ve been putting our attention.
Q: When it comes to data, there has been an explosion of companies aggregating and integrating it. When you look for data that Lev works off of, what sets it apart?
A: There’s a lot of data providers out there, and a lot of them are starting to converge around the same accurate or inaccurate data, depending on what perspective you take. We’ve had to do a lot of things ourselves to make sure that the information that we have is accurate and complete, and we’ll always do that to ensure we’re providing the best experience for our partners. We think that’s kind of inherent to a problem as big as commercial real estate data. We haven’t seen a lot of differentiation between the different data products but look forward to evolution across the industry.
If you are or know a proptech founder or builder, feel free to reach out to me at jburns@finledger.com.