CO’s ‘Out of Office’ Series Talks Surfing and Economic Storms With Calmwater Capital

The commercial real estate industry is experiencing some market choppiness that puts even the Pacific Ocean to shame. Between rising interest rates, inflation, an impending recession and the residual impacts of the pandemic, there are suddenly significant waves to navigate — and not everyone can swim. 

But, what better time to take a deeper dive into what brought us here today, and hear how some of the commercial real estate industry’s most active deal participants are navigating the rough waters?  

Calmwater Capital is a Los Angeles-based bridge lender focused on value-add and opportunistic commercial real estate lending across the U.S. At the firm’s office on Wilshire Boulevard, Commercial Observer’s Cathy Cunningham interviewed Calmwater’s founder and managing principal, Larry Grantham, along with Meridian Capital Group senior managing directors Seth Grossman and Jason Kahn for CO’s first Out of Office series, in which we meet with some of the top names in debt and equity and learn not just about the market but what they do in their off hours. 

The four discussed the current industry whitecaps, before transitioning to a very different type of “board room” at Sunset Beach near Santa Monica. California-based Grantham, Grossman and Kahn are seasoned surfers, and lent Cunningham their expertise on the water as she tried surfing for the first time. 

Mindfulness expert Jon Kabat-Zinn once said: “You can’t stop the waves, but you can learn to surf,” and, while commercial real estate can’t literally be likened to the unpredictable depths of the ocean, perhaps there are some life lessons that are applicable to both environments.

“Clearly we’re at a time of unprecedented uncertainty and volatility and it’s OK to say ‘We don’t have all the answers,’ ” Grantham said. “But, uncertainty is nothing new — especially given the past few years and all the waves the pandemic brought.”

As industry participants adjust their steer to meet the changing tides, Meridian has been busy keeping clients mulling deals informed — especially important following a record year for most firms last year.

Clients are calling just to get market updates, even if there isn’t a live deal, Grossman said:  “I have deals that are literally going to hit the market for financing in the fall and sponsors are calling twice a week now to get updates to their underwriting because spreads are moving so quickly, leverage is moving, and the Treasury can be up or down 40 or 50 basis points over the course of a couple of days. So it’s a case of staying high-touch and trying to keep people informed.” 

“Treasuries are moving far faster than cap rates, driving gaps between what was financeable two months ago and what is financeable today,” Kahn added. “Deals that were in the planning stage now don’t pencil the same way for developers.” 

That said, “deals are still getting done, but will people be OK with a lower return in a higher rate environment?” Grantham asked. “I see equity investors more concerned about rates and financing, but I’m more concerned about the overall market around values. Values are high and a lot of properties are priced to perfection, so what happens if you have a speed bump on the financing side in addition to the asset-level side?”

But after this frank discussion, the water was calling. When asked what these Southern California brokers did for fun, they looked to the Pacific Ocean, and our correspondent was given a surfing lesson.

When the four had finished surfing, Kahn compared the water activity to the current breakers in the real estate market. 

“Oftentimes out on the water things don’t go to plan, so when you catch yourself in a situation where you’re a little bit off track you need to find a peaceful moment, keep breathing and work your way through it,” he said. 

After all, “You can analyze the science, the weather patterns and the waves, but you never know [what will happen] until you’re out here,” Grantham said. “There are so many variables— uncertainty of currents, and there are always waves coming— just like a real estate transaction.”

For the entire Out of Office series, click here