StackSource’s Tech-Enabled Platform Helps Borrowers Find The Best Financing Options

StackSource is a platform that matches old school expertise with cutting-edge technology to offer commercial real estate borrowers the best possible debt and equity financing options for their deals. After starting in the small balance lending arena, the company is arranging an increasing number of larger financing placements for sophisticated sponsors and developers nationwide. Partner Insights spoke with Tim Milazzo, StackSource’s Co-Founder and CEO, about how the platform provides commercial real estate borrowers with the best possible assessment of their financing options.    

Commercial Observer: Give us a general overview of StackSource.

Tim Milazzo: We are a tech-enabled commercial financing service. Our platform is a managed marketplace because you don’t only get matched with financing sources, you also get a capital advisor: someone with expertise in the industry who helps our users find the best financing via our portal. The reason for the technology is to give greater speed and transparency to our users.

How did StackSource come about?

Before we launched in 2017, we saw the residential mortgage marketplace coming online and innovating in leaps and bounds thanks to the likes of Rocket Mortgage, which made the process of getting a mortgage quote simple, easy, and fast. We saw an opportunity: who was bringing that to commercial real estate finance? After talking with dozens of experienced industry players – lenders, borrowers, financing brokers, investment sales brokers, etc. – we launched a prototype of our platform in 2017. 

During the creation of StackSource, you had to determine which aspects of lending could be automated and which could or should not. Why was it important to make sure that certain things were still being handled by people?

Commercial real estate financing and underwriting is complex. Each building is a business. Understanding this business along with the track record and capability of the borrower, and then betting on these things, is at the heart of commercial real estate finance, and that’s not going to be automated by any data or technology that exists today. Another thing that will never be automated is helping the borrower develop a level of confidence in their financing plan, and understanding the differences between different quotes they might receive. Those things are determined by experts we call capital advisors.

What is the process for how a borrower works with StackSource to find their ideal capital source?

The process starts on our platform with a question and answer interface, asking about the nature of the deal and the type of financing the sponsor is seeking. Then, in just a few minutes, we show the sponsor matching capital sources, and soon after we match them with a capital advisor. That’s the first level of advisory support – discussing the differences between the capital sources. Once that’s all settled, then we go out to market. Part of our secret sauce is that we automatically generate great offering memorandums that capital sources respond to. Capital sources want a consistent format and to be able to download raw data on a deal, so that’s what we give them. That happens instantly at StackSource based on data input.

Are there other key advantages or important selling points we should outline?

The most important advantage is the ability to find the right capital sources, and sometimes that might be multiple sources of capital that complement each other. Every experienced real estate investor has relationships with capital sources. However, that’s not the same as knowing, did I identify every capital source I could potentially get a quote from? Maximizing investment returns with the least amount of risk can only happen when you truly clear the market and explore all possible financing options, not just go to the one or two banks that have been reliable for you in the past. That is the biggest advantage of using StackSource; finding the right financing for your deal. 

You talk a lot about transparency. How does StackSource provide this to its clients, and why is it so important?

Transparency is key for us, because it’s one of the big pain points we heard about from investors. They can stay transparent by talking to capital sources they know, but that limits their pool. Or, they could go with a big old school commercial mortgage broker who has more relationships, but then you don’t know which capital sources they send your deal to. Two aspects of transparency are written into our Capital Advisor Code of Conduct. One, the client knows what’s happening, including what capital sources we’re going to, who’s declined them, and who is offering them quotes. The second is transparency of fees. Some of the more unscrupulous players in our industry get additional financial incentives from certain capital sources, which destroys investor confidence that they are getting the best available options. We believe that has no place in this industry.

Walk us through a deal you’ve done that demonstrates StackSource’s value.

We have a recent development deal where we brought three sources of capital totaling $33 million, including a senior lender with the best combination of rate and leverage, but it still wasn’t enough leverage for the sponsor and the developer to be comfortable. So we were able to find PACE (Property Assessed Clean Energy) financing and a co-GP equity sponsor to fill the capital stack. On another, we stacked $15 million of mezzanine debt on top of a $63 million senior loan. There are going to be a lot more deals like this in the future. The average multifamily or commercial development deal in the right states is always going to qualify for PACE financing, but then it’s about finding senior lenders that can actually work with PACE providers, because many banks do not. So finding the right sources of capital that fit with each other and can optimize the capital stack is something we’re focused on building into the platform. We have a major new launch of our platform coming up later this quarter, including functionality for borrowers and real estate investors to see which sources of capital matched on the platform can actually match with each other in order to optimize the entire capital stack.

What other ways will this make StackSource even more valuable for your customers?

Our new website is going to be very tailored to what we truly are now. We are becoming a respected debt and equity shop in this industry. We’re growing to be a middle-market player, and we really want to showcase that. So our true capabilities across the capital stack will be showcased on this new platform. We’re going to have more features available for finding capital sources before ever logging in and submitting a loan to StackSource, and there will be more features and functionality about browsing potential capital sources right there on our site.