This year, lending activity was choppy, compared to 2016. At the start of the year, lending activity was slow, and while it picked up at the end of the year, Larry Grantham, co-founder and senior portfolio manager, and Ryan Malatesta, vice president, of Calmwater Capital expect activity to be flat or trend down next year. We sat down with them for an exclusive interview to get their 2018 outlook for commercial real estate lending.

GlobeSt.com: How has the lending activity like in 2017, and what contributed to slow activity at the start of the year?

Larry Grantham: 2017 has proven a little choppier than we originally expected. This year was significantly impacted by everything from the “Trump Effect,” to interest rate anticipation and actual movements, to declining acquisition activity, to increasing lending competition and decreasing deal urgency. 2017 was perhaps also affected by a general anxiety that the market is late in this commercial real estate cycle, which led to some investment concern and caution.

GlobeSt.com: What types of deals were lenders most attracted to this year?

Grantham: On the whole, Calmwater has not been focused on other lenders' deals this year. Rather, we continue to take a “bottoms-up” approach to CRE investments and focus on opportunistic situations. In the current environment, we have to work harder to find and properly underwrite these CRE situations. We assess them on a case-by-case basis to determine their viability, regardless of what other lenders are doing.

GlobeSt.com: What is your prediction for lending activity in 2018?

Grantham: I think the overall CRE lending market for 2018 will be flat to slightly down. We will continue to see increased competition. It will be interesting to see if this results in the average lender stretching on rate, leverage and/or structure to win deals in 2018.

GlobeSt.com: What concerns from this year will carry into next year, and will any new challenges arise?

Grantham: It will also be interesting to monitor how the continuation of interest rate increases impacts the overall CRE market. We have all talked about it for years, but we are slowly seeing the rate increase trends, which will undoubtedly affect cap rates and real estate values. We will have to wait and see in regards to when this will happen and to what degree. Overall, I suspect we will continue to see new entrants into the CRE lending space in 2018. Many institutional investors recognize the late stage of the CRE cycle and are seeking the safety of debt versus equity real estate investments.

GlobeSt.com: Where are the opportunities ahead?

Ryan Malatesta: As it relates to financing, we continue to see the banks pull back on leverage and overall appetite due to the regulatory environment that surrounds them. As a result, non-bank lenders will continue to fill this void left by the banks.

It will also be exciting to see some of the newer asset classes, such as co-working offices, food halls and data centers, become more mature and gain popularity among the investor pool. I'm sure there will be opportunity in these for both equity and debt investors.

GlobeSt.com: What types of lenders will most active in the coming year?

Malatesta: We are seeing a lot of private capital entering the debt space as a result of the banks being more conservative. Private money debt funds will continue to gain market share as a result, which will lead to exciting opportunities for lenders like Calmwater Capital.

GlobeSt.com: What is your advice to borrowers looking to secure capital in the next 12 months?

Malatesta: Borrowers should align themselves with institutional lenders when available, focusing on quality versus quantity. Borrowers should also look into securing long term fixed financing given the rising interest rate environment.

Instant Insights /

CRE Lending Market Trends Down in 2018

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