How AI Is Transforming Commercial Real Estate Financing (Yieldstack Explained)

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Show Summary

In this episode of the Real Estate Pros podcast, host Michelle Kesil interviews Daniel Chesney, CEO of Yieldstack, a commercial mortgage brokerage software. Daniel discusses the innovative approach Yieldstack takes in automating the funding process for borrowers, leveraging AI and proprietary algorithms to match funding requests with the right lenders. He shares insights into the challenges faced during the development of Yieldstack, the importance of building trust with clients, and the strategies for scaling the business. The conversation highlights how Yieldstack supports real estate investors and differentiates itself from traditional brokerage models.

Resources and Links from this show:

• • • Investor Fuel Real Estate Mastermind
    • Investor Machine Real Estate Lead Generation
    • Mike on Facebook
    • Mike on Instagram
    • Mike on LinkedIn
    • Yieldstack’s Website
    • Daniel Chesney’s Email: [email protected]
    • Daniel Chesney on LinkedIn

  Listen to the Audio Version of this Episode

  Investor Fuel Show Transcript:

  Daniel – Yieldstack (00:00)
  When you’re in a seat receiving 200 requests a day for financing and 199 of them don’t fit your loan box, you see an area of inefficiency. A lot of the brokers that I dealt with on a day-to-day basis you know were pretty under-resourced, inefficient, and you know we’re typically charging too much for the services they actually provide.

  So the value that they provided didn’t offset the cost. And in an industry where an additional 48 hours to close a deal and an extra 2 % in deal fees can kill a transaction, I realized that those frictions weren’t just annoying, they’re deal ending.

  Michelle Kesil (02:08)
  Hey everybody, welcome to the Real Estate Pros podcast. I’m your host, Michelle Kesil, and today I’m joined by someone I’m looking forward to chatting with, Daniel Chesney, who is the CEO of Yieldstack, a full stack commercial mortgage brokerage software. So excited to have you here today, Daniel.

  Daniel – Yieldstack (02:26)
  I’m excited to be here. Thank you for your time, Michelle.

  Michelle Kesil (02:28)
  Yeah, absolutely. Let’s dive in. So first off, for those not familiar with you and your work, can you share what your main focus is?

  Daniel – Yieldstack (02:36)
  Yeah, of course. So yield stack is a full stack commercial mortgage brokerage, but we have access to best in class software that allows us to automate the funding process for the borrower all within one online platform to do things like remove friction, increase transparency, operate 24 seven and prices cheaply to the borrower as physically possible while maintaining a quality over quantity approach in terms of lender outreach. So instead of simply shipping off our deals to the entire market,

  ⁓ or just sending it to a few of our very close relationships. We use our in-house proprietary algorithm that matches data from each funding request to lender’s loan programs based on their parameters, guidelines, geographies, terms, essentially their buy box. So each funding request is only getting in front of the right eyes. So therefore those lenders are able to execute quickly and provide competitive terms. So we’re able to provide a very seamless centralized all-in-one marketplace for commercial real estate financing.

  especially in the lower middle market space.

  Michelle Kesil (03:34)
  Awesome, and how did you come up with this idea?

  Daniel – Yieldstack (03:39)
  Yeah, so I’ve always been extremely entrepreneurial, but also have been heavily involved in the real estate finance space, sat across a lot of verticals, including brokerage, real estate, private credit, real estate, private equity, and real estate investment banking. And when I sat in real estate, private credit at a lower middle market bridge lender, I noticed that roughly 80 to 90 % of our book of business came directly through commercial mortgage brokers. ⁓ So there was a hyper dependency there.

  And some brokers are really strong, but some failed in terms of quality.

  When you’re in a seat receiving 200 requests a day for financing and 199 of them don’t fit your loan box, you see an area of inefficiency. A lot of the brokers that I dealt with on a day-to-day basis you know were pretty under-resourced, inefficient, and you know we’re typically charging too much for the services they actually provide.

  So the value that they provided didn’t offset the cost. And in an industry where an additional 48 hours to close a deal and an extra 2 % in deal fees can kill a transaction, I realized that those frictions weren’t just annoying, they’re deal ending.

  And it’s just a very archaic industry, to be honest. Like the business is done over email and PDF and in real estate markets change every day, interest rates fluctuate, ⁓ but mortgage brokerage stays the same. So I realized that

  you know, the intersection of AI automation and a really state or really strong real estate advisory business could completely transform the industry. And, know, people want to see change. So, you know, six months back I made, you know, I met an exceptional co-founder who’s completely on the software technology and AI side. And we came together to build yield stack. So I’ve been kind of going strong ever since.

  Michelle Kesil (06:15)
  Awesome. And so how is this bridged with AI? Like how are the technologies, working to create this?

  Daniel – Yieldstack (06:24)
  Of course. ⁓ So for the most part currently, we like to push automation rather than AI. AI is really just a compliment to help move along the process, but where we exceed is automation. So kind of how the process looks like from start to finish is a borrower goes onto our platform and they submit a funding request. It takes between five to 10 minutes and the funding request has around 60 different data points that are fully conditional based on the type of property and loan you’re requesting.

  And those data points can span things from borrowed financials to property information to loan requests in of itself. Right? And then right before you submit the deal into our pipeline, our AI analysis will pop up. It’ll analyze your deal based on every single factor and calculate a lot of your deal metrics automatically, such as your cap rate, ESCR, debt yield, LTV, know, loan to cost, loan to purchase, ⁓ your liquidity compared to the overall investment, you know, profit, things of those nature.

  and then also give you a approval likelihood score and showcase some of the weak points and strengths of your deal and how to improve your deal to get maximum efficiency in terms of obtaining financing. So that’s kind of the first step where the AI shines. But once you kind of go through the funding request and submit it into our pipeline, our algorithm instantly matches the funding requests to the best possible lenders based on parameters, guidelines, geographies, and terms within 15 seconds.

  And right now the kind of model we’re working with for the algorithm is a two-stage model So first it goes through kind of an exclusionary phase which excludes the the loan programs we have in-house based on non-starters So those are things like you know geography is not being supported loan terms not being supported dollar value of the loans not being supported asset class is not being supported and You other things of those natures then once it makes it past that first stage it then goes into a ranking algorithm

  which now looks at all the loan programs that made a past exclusion, what are we left with? And now let’s rank these on kind of some of the smaller facets and economics of each deal. So now we’re looking at things like min-fico, experience, liquidity, leverage ratios, things of those nature. And then we’ll look at the entire ranking, see who’s at the top, and then distribute that deal to only the top 10 to 20th percentile of the lenders that have been matched.

  And then those lenders will receive an automatic email in their inbox ⁓ with an automatically generated investment memorandum with all the information they need on the transaction alongside any documents you received in the package. And then they can simply go into our portal, quickly take a look at it, and then submit a quote or term sheet directly through the portal, which the borrower can then compare using AI against their funding request to see the differences between things like leverage, points, rates, and flexibility.

  to help them make the most informed decision about choosing a term sheet that’ll lead to the best outcome. And then from there, kind of just go to a centralized due diligence portal on our platform and get to closing. ⁓ So, you know, it’s a very seamless process that, you know, takes a lot of man hours away from the broker, the borrower, and the lender, and people are loving it so far.

  Michelle Kesil (09:33)
  Yeah, amazing that you’re able to leverage technology to speed things up in that way.

  Daniel – Yieldstack (10:15)
  Yep, that’s definitely that’s that’s that was the purpose of all this.

  Michelle Kesil (10:18)
  Yeah.

  Awesome. And so a lot of the listeners to this show are real estate investors. How would this software support these individuals?

  Daniel – Yieldstack (10:31)
  Yeah, so, you know, when you have a real estate project that’s a little bit obscure in need of investment financing and you don’t have a go-to lender, you don’t have direct capital markets access or a direct banking relationship, right? Where our platform really goes to shine is it only takes five to 10 minutes of human input for uploading your deal economics. And from that point forward, you don’t have to move a muscle until quotes and term sheets start coming in.

  from the best possible lenders for your transaction. So you can rest assured whenever you submit a transaction, your deal is only getting in front of the right eyes. And because of that, the terms and quotes that come in are gonna be competitive because those lenders are tailored to your situation. And we’re completely free upfront. We’re very transparent with what we charge. It’s between 50 bips and a point subject to the dollar value of the deal, subject to closing as well.

  So we don’t make money unless we provide exceptional service. And if anything, it’s just a good way to see what type of financing, what type of leverage and rates are out there for a project of your nature, even if you don’t close it. So very limited human input involved, but a lot of output and success. So I think any real estate investor in the lower middle market space that doesn’t have a go-to capital provider for every single situation.

  could strongly benefit from yield stack in our platform.

  Michelle Kesil (11:55)
  Yeah, amazing. What have been some of the biggest challenges in this creation?

  Daniel – Yieldstack (12:03)
  Yeah, so, you know, we’re kind of on stage two of yield stack. We spent the last three to four months purely on software development and lender acquisition simultaneously. And in terms of the software development, it took a lot of time, a lot more time than we expected because it took a lot of product market fit, you know, constantly having to make changes, going to the market, seeing if they like the changes, seeing what they’re

  kind of UI recommendations or UX recommendation was, and then implementing it back into the product, which was great because we real feedback from real people in the industry that we’re working in. ⁓ But we understand that our product’s never gonna be perfect. It’s never gonna be tailored to every single situation. So constantly we’re gonna have to reiterate the product to conform around new loan types, new situations, new lender profiles. So software has definitely been

  kind of a high priority and something that we’ve been spending a lot of time with. But in terms of business outreach, lenders are really loving our product because for them, it’s just an easy way to get qualified free and tailored deal flow. But on the borrower side, on the other hand, it’s a little trickier because we’re an entirely new concept to a legacy business model, right? This business has been done the same for 20 to 30 years over email and PDF.

  And a lot of people in this space, have their go-to traditional broker that kind of does all of their book of business for them. So really getting someone past the first step of outreach and putting this new idea in front of them has been tricky. But I know once I can get in front of those guaranteed eyes and show them the platform and the process, that conversion can be much higher. So just getting yield stack out there in front of as many people and getting trust in the business model will continue to be my focus.

  Michelle Kesil (13:48)
  Yeah, definitely. That’s exciting. And so are you currently out there already? And are you serving specific markets? Or are you out there fully nationwide? What’s kind of the reach looking like right now?

  Daniel – Yieldstack (14:01)
  Yeah, so we opened up our barware pipeline on January 8th of this year. So very recent, not even a month. But we’re doing a lot of automated campaigns and manual outreach. We’re reaching like thousand people a day. We’ve already had somewhere south of $50 million enter our pipeline already. know, primarily, you know, sub $5 million transactions. We have the capabilities to go nationwide.

  But right now we’re hyper focused on the Sun Belt Trying to go region by region and build a strong foothold in each market before we kind of expand But that’s not to say if a fun request did come in anywhere. I couldn’t handle it But yeah, we’re seeing a lot in the resi space short-term financing kind of bridge hard money plays ⁓ But yeah, it’s been it’s been great so far trying to work through these deals get in front of more people obviously cold calling a lot

  So yeah, I’ve been very busy, but also very excited.

  Michelle Kesil (15:39)
  Yeah, absolutely. And what are you most focusing on scaling to within this project?

  Daniel – Yieldstack (15:48)
  Yeah, so we’re trying to build a really strong book of business on the barware acquisition front. So getting as many people on the platform is the most critical component right now, because if we have someone on our platform, we know we don’t have to hold their hand to bring them to submit their first, second or third deal. It’s just once they’re on the platform, they can take the liberty of submitting their funding requests on their own without any broker guidance. takes five to 10 minutes on their part. And then from that point on,

  The software kind of does the rest with some human oversight as well. So just acquiring borrowers, getting them demoed onto the platform, and then sending them account invitations so they can upload their future deals in their pipeline to us is extremely critical. I know that if I can get a borrower financed their first time using YieldStack, I will have them for life because they not only save significant amount in deal fees, but they also execute quicker and more efficiently.

  So just making that first step of outreach and getting them onto the platform is the most critical. And of course, as deals come in, getting them structured, marketing them out to lenders, having conversations is extremely important as well. But we’re definitely going to have to scale in the next few months as our pipeline grows and expands. So I’m looking forward to growing as part of the team.

  Michelle Kesil (17:05)
  Yeah, absolutely. That’s an exciting place to be in. What would you say are some maybe questions or hesitations that people have when it comes to getting on this platform?

  Daniel – Yieldstack (17:19)
  Yeah, of course. So like I mentioned before, making the switch from their already established relationship with a broker is always difficult because it’s someone they’ve trusted for X amount of years and switching over to a marketplace kind of just seems like a betrayal. ⁓ But in the lower middle market, it’s I believe to be less relationship based and more service based. So if we can prove we can be cheaper, faster, execute, know, execute and

  provide a very efficient way to get deals done, then we can slowly try to convert those clients. But another kind of concern that we’ve been seeing is people being scared of having AI run their deals. Because that’s kind of what we sound like on the surface to someone who’s not very educated on this type of software or AI. I like to let people know and stay rest assured that we’re a combination of real estate advisory and software. Where, you know,

  Yieldstack is first is a real estate advisory business. We’re a full stack brokerage. So even though software is automating a lot of the mundane and time heavy tasks, there’s always a human in the loop who understands the process, who’s educated in real estate, who has strong relationships, that is actively calling lenders and borrowers, marketing the deal and is up to date to make sure your deal closes. Right. So people are worried that they’re putting a hundred percent of the confidence in their deal in software and AI, but that’s not really the case. Right. It’s

  a perfect combination of the two that gets these deals across. So that’s something that comes up in lot of conversations, but I can easily address that. It’s really not the case.

  Michelle Kesil (18:55)
  Yeah, absolutely. That makes sense, especially for those that are maybe used to doing things a certain way for a long time. Yeah. And so what makes you different from other softwares that maybe have a similar goal?

  Daniel – Yieldstack (19:02)
  used to doing things. Exactly.

  Yeah, of course. So like I previously mentioned, Yieldstack is real estate advisory first supported by best in class software. A lot of the players that have tried to build a similar product in recent years have been the opposite, right? So they’re software companies trying to act as real estate advisory companies. And because of that, they have failed in actually executing transactions. And we’re not a tool that we outsource to brokers.

  We’re not software that we sell to lenders and borrowers. We are full stack brokers. We run the process from start to finish and we don’t monetize through subscription as a service or fixed fees upfront, right? We get monetized the exact same way any traditional broker would by taking a brokerage fee subject to the closing of a loan. So we only make money through successful advisory. So, you know, there’s not a lot of friction involved in that, right? You can go onto my platform, submit your funding request at no cost.

  And if nothing happens, you’re always free to stop using our services. But when we provide excellent returns, right, we get compensated for doing that. So we’re not simply a software that we’re selling. ⁓ We’re not just straight software people. We’re real estate people who have access to best in class software that can make this process easier, cheaper, more transparent and frictionless for all parties. And because of that, I think we’re better than, you know, the rest of the market, right? I think we’re truly the

  first full stack automated brokerage with a real tested product right now. you know, we always have to be on top of our competition, do research and, you know, make sure that we stay up there at the top. But I really think that yield stack is dominant right

  Michelle Kesil (20:51)
  Yeah, that’s great that you’re able to put all of that real estate knowledge into the technology world.

  And so if people want to dive into this software, is it available for everyone or who can access it at this time?

  Daniel – Yieldstack (21:10)
  Yeah, so we are two-sided network. So we deal with both lenders and borrowers. If you’re a borrower seeking debt financing for something in your pipeline and you want access to a marketplace that can bring your deal in front of the right eyes and execute faster and cheaper, ⁓ be more than happy to help you out. I will say that YieldStack is on an invite-only basis to ensure quality for both sides of the network.

  So lenders are only receiving deals from qualified borrowers and borrowers are only sending their deals to qualified lenders. So before, know, we don’t allow just anyone to go onto a platform and sign up. But if you are interested as a borrower and testing out our platform, you know, more than happy to hop on a demo or a phone call where I can evaluate your current pipeline and, you know, financing strategy and then show you the platform, see if there’s a fit and then send an invite. And then on the lender side, you know, if you’re

  a verified lender who wants access to qualified, tailored, and free deal flow, I’m more than happy to do the same on the lending side. But regardless, my LinkedIn DMs are open. I’m always looking at my emails and my texts. So more than happy to show anyone the platform and get them invited if it makes sense.

  Michelle Kesil (22:27)
  Perfect. Well, before we wrap up here, if someone wants to reach out, connect, try out the software, where can people connect with you?

  Daniel – Yieldstack (22:35)
  Yeah, so on LinkedIn, Daniel Chesney, ⁓ you can look at our website, yieldstack.ai, find my contact information there and my demos on there as well. And my email is [email protected] Always feel free to reach out. I’m always here to help and service the market. yeah.

  Michelle Kesil (22:53)
  Perfect, well I appreciate your time and your story. Thank you so much for being here.

  Daniel – Yieldstack (22:58)
  Yeah, thank you so much for having me. It’s been a great time.

  Michelle Kesil (23:01)
  Of course And for the listeners tuning in, if you got value, make sure you have subscribed. We’ve got more conversations with operators like Daniel who are building real businesses and we’ll see you on our next episode.