EFFORTPOST [Long][Business Drama] Real estate drama as large multifamily shops are going under

There are people who pool up investor money to buy apartment complexes/hotels/other forms of real estate. These people are called syndicators. They make their money by charging fees for putting the deal together, managing the asset, and then eventually selling it. A "typical" deal is 1% acquisition fee, 1% asset management fee, 7% construction management fee, and then a 30% pref (once the investors get all their money back, profits are then split 70/30 investors/syndicators). This in theory incentivizes the syndicators to do a good job since most of the money they make is by increasing the return to investors.

When 2020 came around, the Fed reduced rates to 0% and hoovered up every bond imaginable. This drove rates down into the floor. A great time to lock in fixed debt right? To the syndicator, definitely not. By doing variable rateloans, your interest rate could be at 2%, juicing your return and hitting your pref even quicker. Besides, interest rates probably won't go up that much in the 5 years you're planning on holding this thing as you flip it.

SOFR (a benchmark rate) went from 0% to 5% in a year and a half. A lot of these loans were SOFR + 200-400bps. A property could have a $40 million loan and have a rate of 2% in 2021. So their interest expense of $800,000. For 2023, their interest expense would be $2.8 million. There are rate caps, but those only last 1-3 years and now they will cost $100k+ as opposed to the let's say $20,000 before 2020. Suffice to say, a lot of places are completely fricked. Once the interest expense gets that high (or the loan comes due), your options are either putting in more (a lot more) equity or telling the bank its their problem now. Just a couple of examples:

Houston Apartment Owner Loses 3,200 Units to Foreclosure as Multifamily Feels the Heat

Hines Reportedly Handing Back The Keys To D.C. Office Building After Law Firm Departure

Developer of Troubled Downtown San Francisco Tower Gives Property Back to Lender

Cue Wallstreet Oasis. A forum where analysts pretend they're directors. You'll even see people posting under their real name. Over the past few years they've been wondering what the heck is going on in the real estate sector because it made no sense. In August 2021, someone asked who these Tide Equities guys were..

Just curious if anyone knows much about how these guys. Guessing that they originally met through the Benedict Canyon/TruAmerica prior jobs (same office, same principal).

Given the volume they are doing (I have heard a few brokers that have sold them deals refer to them as "ultra aggressive"), I am just curious if they have some secret HNW investor backing them, or some other creative way of acquiring north of $2B in asset value the past 5 years.

Note they say $2 billion in real estate. As of two weeks ago, they had $7 billion so they bought about $5 billion in under two years. Also two weeks ago, the two partners told investors that roughly 20% of their portfolio will need to do capital calls (asking investors for more money) once their lines of credit runs out. And even then, they might not be able to pay the mortgages on them..

Now, up to 20 percent of Tides’ portfolio — which spans about 32,000 units — could need capital calls, Andrade told Real Estate Alert, which first reported on the letter.

Andrade added that Tides tried many other strategies to raise cash before resorting to capital calls.

To weather the storm until more money comes in, Tides is temporarily using its own funds to help make mortgage payments.

“As we do not control the situation in those cases, we unfortunately cannot guarantee that we will remain with our perfect track record” of making on-time mortgage payments, the co-founders said in the letter, adding that handing back keys to the lenders was a “possibility.”

In case you thought the wording of it was a little weird, yes saying you have a perfect track record of making mortgage payments on-time is not a flex. One would assume that to be the case. I'm putting the rough date when these were posted.

Yeah that inning is now over and Tides is going to be handing back the keys next couple of years on tons of deals (1+ year ago)

Any specifics? Because based on just our pipeline (bridge lender), they are looking at a recap and bringing in CIM for a $100MM deal in Phoenix, a $100MM acquisition in NV, a $50MM acquisition in TX. LP's including institutional ones after doing their due diligence appear to be on onboard. And note we are just one lender and may not see every deal of theirs, so they appear to be not just be busy but also actually executing on deals.

This is kind of interesting looking back because what it's saying is that Tides was selling a property of theirs to basically themselves with a new set of investors. Looking at a couple of their sales they seemed to do this a lot. Someone looked at the history of the NV property.

The sale's history of the subject is actually kind of comical: (today)

07 - $21.2M

11 - $11.25M (REO)

19 - $54M (Tides bought)

22 - $65M (Tides flipped to itself with new investors)

REO means sold price after foreclosure. Probably soon to be foreclosed on again.

According to the other forum about them on wso they have a rich uncle who signed their mortgage docs. I have also heard from a very well known multifamily principal I know that they are super liberal in their underwritings. I know one person who works there. (1+ year ago)

Seconded on the aggressive UW. My company partnered with them on a deal. Lots of obstacles had to be navigated to get it approved by the IC.

Are they sharp guys and a great shop or overhyped? I heard they underestimate renovation costs.

I can't speak to reno costs, but they're definitely a legit shop. As someone else mentioned, the Robinson Group manages most of their stuff so they can achieve economies of scale with everything they own, but they're a pain to deal with.

Can confirm they underestimate Reno costs AND cut down expenses such as maintenance and utes going into stabilization

They're just buying properties built in the 1970s and 80s. Probably don't need that much work.

They are still actively buying... (11 months ago)

Yeah and they are still getting 75% LTC non recourse debt. Institutional groups like CIM and Investcorp will be 95 or 97% of the equity on some of their deals but apparently according to the outsiders looking in, they are going to implode lol. Sure, Investorcorp, CIM and literally every bank is wrong, the smart ones here have it all figured out..... Especially during this time, the investment committees are putting everyone through the wringer and killing deals left and right. The fact that LP's and banks have signed off their deals must count for something. Dont get me wrong, deals can still go south (as it did for even some of the biggest names in the business in 09, that is par for the course) but given how deals are structured, it wont be Tides that is getting burnt lol there is a bigger fish to fry.

The funds and banks can't possibly be wrong.

One of the founders just bought a $15m house.. so must not be too concerned lol (5 months ago)

New article on TRD: https://rb.gy/0nyo5n

Thanks. This man is delusional.

Sooo, what's the latest on the rumor mill? (2 months)

They've got a few more months left on their corporate credit line, when that dries up no more loan payments. Unless the lenders figure out that the capex draws have also been servicing their debt. The word of the day is "misappropriation of funds."

Someone on my team point blank asked a guy on their acq team if they are running a ponzi scheme they said no it's called a recap. lmfao

This guy was dead on with the timeline. Also accuses them of committing fraud which could turn non-recourse financing into recourse (them being sued into oblivion). He's alleging that they're faking invoices to say they're upgrading a property and then get money from a repair reserve. They're doing this just so they then can get cash to pay the mortgage.

you can type super long paragraphs on here if you think this is a good use of your time and talk shit about a company that you only know via he said/she said information or you can actually try to create what they did which is be in the NMHC 2023 Top 50 List. Seriously, what a waste of time if you do not have loan documents, SREO, PFS, actual operations data, etc. So much is wrong on here, for starters- no, not all (a lot but not all ) of their loans are non recourse, there is some recourse with burn off tests on some loans, and it's laughable to think there were no caps or swaps in place lol, like wtf? You think they were getting debt from loan to own lenders or raising equity via realty mogul? Try convincing the investment committee at institutional LP's like IVC (or institutional banks too for that matter) that interest rate risk management is not needed. In fact it will be shops like IVC running the show and even actually bringing the deal to banks to get financing. I could keep going but you get the point. (2 months ago)

This post is rather funny. It starts a long chain back and forth where the poster is accused of either being one of Tides guys or an analyst working for them. I suspect they accusers are right because his argument wasn't making much sense.

The continued popularity of this thread increased my curiosity - so digging in a bit more on a single project to see what things look like under the hood. Obligatory disclaimer that I have access to limited data, so take this all with a grain of salt. (2 months ago)

Acquisition - Purchased for $33M with an additional $3.8M in closing costs for acquisition basis of $36.8M. In-place NOI of $1.08M for implied, in-place cap rate of 2.9%.

It's not clear to me how this was going to be profitable for LPs from the beginning.

Great write up. To add here and make matters worse they have a 2 year initial term at SOFR+425, even with that 3% rate cap they are paying 7.25% current, with a balance of $27.148M as of April. That's a $2m DS at the rate cap ($2.5m actual DS). (2 months ago)

I cut a lot out, but this is saying they bought a deal in June 2022 at a 2.9% cap rate. Cap rate being NOI/purchase price. This is before financing costs such as the mortgage. So it would break even at ~4% mortgage, and be cash flow negative over it. Once the rate cap goes away, it's going to be a 9.25% interest rate.

And yeah lol, Tides on missing debt service: (2 months ago)

"Susan Saelee, a Tides executive, said a temporary fall in profit at some properties is an expected part of a business plan that depends on renovating empty units, then leasing them back out at an initially discounted rate".

Right, sounds r-slurred to me.

"We spend money so we can charge less"

Two floaters were refinanced into fixed rate GSE loans. Tides at East Glendale- 5.10% fixed rate, full term I/O. Tides at Chandler- 5.17%, fixed rate, full term I/O. Sorry for those who expected keys to be handed over. But hey there is always next time! (1 month ago)

Two refinances happened. haters btfo

A letter from AMC was released today and they stated all class B investors would lose some or all of their money. They noted the lack of transparency with tide. They also noted that they were meeting with general counsel and looking at options. They also ask investors to be ready to upfront more money to keep that operation running till more favorable conditions for resale could be reached. Good luck with that. (27 days ago)

AMC was one of the big funds that invested through Tides. This is their website. If you look under investments tab, you see a bunch of property addresses instead of property names. I'm guessing this was to hide the fact that seemingly every single property they had was through Tides (I googled 11 addresses and 10 came back as a Tides property).

Here's another watch list thread to see which well known syndicator is going to go pop https://www.wallstreetoasis.com/forum/real-estate/sponsors-going-under