Moody’s Launches GenAI-Powered Tool to Warn Clients About Portfolio Health

The GenAI tool takes huge buckets of financing information regarding loans across asset classes and markets and uses a tracking system of daily news stories to alert lenders and sponsors when vacancies occur or when an asset enters financial distress. 

“It’s really a powerful tool in that it brings it all together very intuitively and simply — it’s leveraging the GenAI and large language model punctuality,” said Joe McBride, Moody’s senior director of CRE product management, who helped develop the new program. “The core value to me is that we connected all these different data sets to client portfolio information.” 

McBride added that GenAI and large language models will bring to the forefront only the most important CRE financing information and allow the user to interact with the data without having to click through 25 different screens or run a full credit analysis. 

He used the hypothetical example of Walgreens announcing closings of several store locations. 

In this event, the Early Warning System would alert sponsors of buildings with Walgreens as a tenant or CRE lenders with Walgreens stores as the prime driver of rents within their loan portfolios. From there the Moody’s internal system can synthesize the current value of the loans, the health of tenants, the expectation of default, and the implied ratings according to the GenAI capabilities. 

“Across a very large portfolio, it’s being able to quickly see, ‘Hey, this is the distribution of ratings on tenants that power the rent that in turn drives net operating income that in turn drives them being able to pay back my loan,’ ” said McBride. “I can see across all different industry types, and sort off industry codes.”

Moody’s teamed with Microsoft (MSFT) — a part owner of OpenAI and Chat GPT — beginning in the third quarter of 2023 to develop the new tool for its clients.  

“We have a large central team that has been working on GenAI initiatives across the board within Moody’s that is pretty well connected to Microsoft,” said McBride. “We’ve been leveraging that central Moody’s team for their expertise on the GenAI part, but we’ve mostly built this particular thing with the software developers who are in the commercial real estate group at Moody’s.” 

Kevin Fagan, Moody’s head of CRE economic analysis, said that while the product is still in its early stages, the clients currently using it — which include 70 of the largest banks and lending firms in the country — are learning how to best integrate it into their business models. 

“The first step is operational efficiencies and then, over time, it starts to really reveal things you didn’t pick up on because you didn’t have time to gather all this data,” Fagan said. “But there’s a resounding agreement in industry right now, even the ones still deep into exploring this [tool] … even they are at the point where [they say], ‘We know we have to do this because if we don’t’ start using this now we won’t be ready later on when we wait for everything to be perfect.’ ” 

Fagan spoke to the increased transparency the firm’s new proptech tool gives CRE professionals and companies, especially regarding the huge amounts of news stories surrounding loans, buildings, tenants and defaults that flood into the system daily.  

To illustrate the tool’s capabilities, Fagan used the example of plugging in different financial metrics from the NCREIF Fund Index — an index of investment returns from the largest private real estate funds in the country — and asking the Early Warning System to run a discounted cash-flow analysis for offices in Dayton, Ohio, using these projections generated on the revenue and NOI going forward. 

“What does that do? It opens up time for your analysts to dive deeper into other things,” Fagan said. “And so, on top of the transparencies, as well as the operational efficiencies, it really adds a lot of clarity to investors in the CRE space.” 

Brian Pascus can be reached at bpascus@commercialobserver.com