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.
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Commenting because I'm interested as well.
I'm pretty sure they had a few Co-GP partners to get off the ground and help qualify for financing and raise capital, but I imagine the two principals are now able to carry that torch (both experience-wise & financially) on their own.
Regarding the comments from brokers - not at all surprised to hear that folks who bought a swath of multi in Phoenix over the last 3 years have hot hands and are remaining aggressive. The debt fund/bridge lending market is insane right now - you can get 70-80% LTC financing at 315-325 over. That strategy depends on interest rates remaining low for their buyer's takeout, so it isn't without risk, but they seem to know how to get in & out of properties pretty damn quickly. It will be interesting to see if they have longevity, or are simply a product of this never-ending "9th inning" business cycle we're in.
Yeah that inning is now over and Tides is going to be handing back the keys next couple of years on tons of deals
A broker had shared with me a that a few years ago one of the partners has a UHNW uncle who had backed them to start off. As they have done very well, I am sure they are financially well off and can do deals on their own now.
Know some guys here. They run a cookie cutter (boring) model for every single deal they do that has worked relatively well. Not sure how they will fair over the coming months/years, but have crushed it with their phoenix holdings. They have rich family, can confirm.
Also - they really don't get worked to the bone. I think they outsource work quite a bit (which seems to work so far). One of my friends who works there works relatively normal hours.
I can't say how but I saw one of their UW models for a deal they did and their assumptions are extremely aggressive. Not surprised if BX buys them out for a discount if they become distressed
They are still actively buying...
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.
LOL this is the kinda attitude that made everything implode in 08. Everyone can't be wrong right? Just from reading the comments on this thread I can tell half their deals are gonna hosed in the next 2 years. The guy below me gets it - fees baby.
Can confirm these guys are in trouble. Good opportunity to scoop up their assets when they default on their loans.
Source?
Confirm here as well. Word on the street they’ve got a big portfolio they’re trying to source pref on for cash in Refi’s
Can confirm with some of these folks. They were extremely risk-on past two years. They bought total ~$2B worth of assets… from my understanding, they were the largest buyer in Texas from 2019-2022. 95% of their SREO is with bridge lenders. They are insanely over-levered.
If no one can come to rescue, I’d imagine they will be fucked…
Maybe it’s time for those seasoned blue-blazer sponsors to eat them up within a year or two… As majority of their bridge loans are set to mature….
So much of what happened with these people is just this:
I can confirm that shit is starting to hit the fan. No idea how many properties are impacted but it is more than just a few.
As I said above they are listing a bunch of deals at the end of the year in this market... Only a truly desperate seller does that. I bet someone big is definitely not happy and forcing their hand to sell now. Or maybe on the debt side, they are starting to break a bunch of covenants (though I doubt anyone at tides would be able to preemptively figure that out, the lenders probably just holding everything back).
2023 is going to be a challenging year for them, but a great year for all their "friendly" brokers who will start selling their notes.
There is an article out saying they have $7.5B of assets - sounds like the next FTX.
Deal just traded in Phoenix for a 5.8% cap rate which means Tides is F*CKED
Everyone knows it too
And they just closed on a portfolio there this week, keeping that fee train going.
They are done. Can confirm a few of the lenders are making moves to unload their crap in Q1 and just waiting for the last bits of capital to dry up.
Hope dem sharks have appetite for Phoenix and Vegas.
I've kept quiet on this for a few years, but I'm increasingly confused by their decision making. They closed on a portfolio of Class C assets in Dallas over the last 30 days as well as well above market prices. No idea what their capital stack looks like on those deals or what capital partners are being told or thinking in those partnerships. Would be very interesting to get an inside look.
https://www.entrepreneur.com/business-news/how-a-31-year-old-built-a-75…
This article in a non-real estate publication makes it sound like Tides invented multifamily value-add investing. As someone in the industry, the success of the company appears to be from a combination of luck, market selection, obscene risk appetite, and near perfect timing.
The thing about snowballing your money is that one bad deal wipes you out. I am extremely curious to watch this play out.
No matter how hot someone gets at a craps table, if they keep playing they eventually lose.
I can confirm, that others have confirmed, that they've heard confirmation, that the tides are changing.
https://therealdeal.com/2023/02/03/multifamily-player-tides-equities-fa…
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
Fall back? Bro that's the main point of this entire scheme lol, especially considering they had very little of their equity at stake in the most recent deals. The promote became gravy at some point in the last two years while the meat was all the fees they were earning. Equity can be wiped out, earned fees can't. Food for thought. When in doubt, zoom out.
That depends on how the fees get structured. Are they ploughing those into deals as implied equity? How much were those fees? 50 bps? 100bps? We can sit here all day and talk about how "fees are the meat" but some fees are like a ribeye and some are discount ground beef. They claim to have $8b in AUM... how did they calculate that? Does that mean they bought 8b of assets, or did they buy $34b of assets and then slap some crazy cap rates on there to get to a fun valuation? Did they make a point on all that? Half a point? These are meaningful questions when you think about their "success". $20mm in fees versus $80mm is obviously a huge discrepancy. Do they have recourse on the bridge debt they've taken out? Because it's easy to say "fees can't be wiped out" but they 100% can if the bank comes knocking and wants assets back that are 90% levered and the founders have guarantee risk.
Generally speaking, I find it hard to believe that these guys managed to buy a "real" $8b of real estate while charging enormous fees and taking no guarantee risk. That just doesn't pass the sniff test, and while we'll never know the absolute truth (unless one of their investors is lurking around) it just defies all logic that a couple of complete unknowns managed to access billions of dollars of equity within the space of a few years without putting up guarantees and while taking enormous fees. Their website claims that they've "transacted" on $9b of real estate and 45,000 units. Maybe someone else here knows better, but does $200,000/unit make sense for Class B/C multifamily that needs real work make sense? One of the projects mentioned in the Real Deal was bought for 125,000/unit; even if you assume those valuations were a little lower in summer 2022 than would have been the case in 2021, that's still a massive difference.
Ozy why you always gotta get in the weeds...missing the forest for the trees.
These guys were clearly savvy, knew what they were doing and hustled a ton of big players in the industry. You really think they were dumb enough to roll their fees into the deals cmon. All their debt is non-recourse for a reason. Obviously if bad boys come into play its a different story but I haven't seen any allegations of outright fraud and feel like they were smarter than that but we'll see. BS UW is not illegal.
I bet when they started out (at a very PERFECT time I might add) they did normal deals, absolutely smashed them outta the park, and used that success to secure big capital partners and tight relationships with brokers. At that time, they cared about returns and promote because that's what they were working for, and they got it. I read as time when on, they very astutely started putting less and less equity into deals - at this point I would imagine their business plan changed closer to the cardone playbook. They created a monster machine, the one guy literally prides himself on it and quotes it - at this point they didn't care about returns. They already made their nut, now they just wanted to create a fee printing press. Acquisition, development, asset management and whatever else they charged. You basically had two guys hoarding mountains of fees - you really think they gave a fuck about returns anymore? Literally everyone says their uw was an overly aggressive shitshow they were just selling the dream and definitely knew it. They took everyone to the cleaners and made a killing and I bet they dgaf if they're done after this they can probably retire.
Just my 2 cents. Either way grabbing the popcorn to see how this all unfolds this year.
They’ve recently made some big asset management hires…
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.
Ryan? Sean? Clearly one of you wrote this, so hard to tell now because your emails sound exactly the same. (I’d guess Ryan on a Friday night)
Here’s a few items you should understand, I know you love that beloved NMHC top 50 list, and bring it up in all the calls you have, but that’s a death wish. Look at the guys at the top of the list, now follow a few steps, 1. download that list, 2. subtract their last years total apartments by the current year total apartments, 3. sort by largest to smallest. You see where all those guys from the top went, straight to the bottom, i.e. they were selling all their shit or didn’t buy nearly anything, look who’s at the top (spoiler Tides is top 3). You bought all your shitty assets at the top of the market, so no, not something most of the people want to try and create.
Sure your REO is impressive, when you’re the one valuing the assets, and throwing sub 4 caps on all those assets with fake NOIs, but go try and let an independent 3rd party audit that. That would be a big negative lol.
You think your non-recourse is safe? You have carry guarantees, completions guarantees, bad boy carve outs, etc etc. Those don’t just go away, especially the completions when you’re telling you entire AM team to notify you when you’ve completed 1/5th of your renovations and to call it quits because you will want to use that capex reserve to supplement your cash flow and debt service. Yes, those will trigger bad boys when the lenders find out.
I know you’ve never really been in an investment committee, since you were a low level AM analyst at a bottom tier company, but yes it’s pretty easy to get things through them. Also those rate caps will kill you when you have to buy them again to meet your extension covenants, some of which expire during the initial term, and the spreads alone are eating away at your 60% occupied sub 4 cap deals. Forget the extensions though, nothings getting you to those maturities, unless your pref money just enjoys burning cash.
Best outcome here is that you can end up sharing a cell with Sam Bankman-Fried, he seems like he’s a top though so idk.
Tell me you've never been through an IC process without telling me you've never been through an IC process. I mean, seriously, your entire post reeks of someone who has no clue what they're talking about. In a cheap credit environment, there is nothing easier than convincing an investment committee to veer off of best practices. That is why hugely sophisticated VC firms invested in obviously fraudulent companies like FTX - demanding oversight or diligence means losing a deal. Same goes for real estate.
For example, "actual operations data". You bring this up as if no one can understand how well a company manages its assets, but the truth is the opposite. Most costs can be figured out fairly well, because the biggest line items like insurance, taxes, and utilities tend to be pretty tightly grouped and thus there is a fair bit of transparency there. Maybe not exact... but if I'm out getting quotes for property and liability insurance at $1,000/unit, I guarantee you that no one is finding someone who is insuring their property for half that. Sure, electricity usage can vary a bit... but not enough to make a major difference. And guess what? These guys are short term holders, they're doing a shit rehab and flipping the property in the hopes of cap rate compression or major rental growth. Even if they could do all of this insanely cheaply, they're not holding the assets long enough for it to kick in - whoever buys the building(s) is going to sub in their own underwriting assumptions which are probably going to be more in line with the market.
Finally, the true tip off that you don't really know what you're talking about comes from your obsession with the NMHC Top 50 List. Who cares? Number of units owned isn't even a good proxy for deal size. A firm that is buying 10,000 units in southwest Ohio with 80% leverage isn't putting up more equity than someone buying a 750 unit portfolio in Brooklyn for 65% leverage. Beyond that, what is more impressive, owning 1% of 1,000 units or 10% of 500? The point being, stop obsessing over the glitz of "xx thousand units" (which is what the Tides people care about, evidently) and start thinking about it in terms of what kind of returns can be earned, and why, and how. These guys, like many others, seem to be playing a massive game of musical chairs, and churning fees all the while. And great, for a while they'll make a little bit of money. But when the music stops, they'll lose all of it, because they're not in these deals with zero risk so even the earned fees end up being at risk.
Also I strongly suspect a lot of these lists are influenced by self-reporting. I can name at least three companies that should be on the 2021 list and aren't. Which means there are probably many, many, many more that I have never heard of and which also choose not to be listed.
I think everyone on here is butt hurt that two 30 year old guys built one of the largest multi portfolios in the country in 2 years and they didn't. I'm sure there is plenty behind the curtain that we will find out, but its pretty damn impressive either way.
Yeah, that's what naive people said to defend Rafael Toledano, too. "Oh he's young and successful and you're just jealous."
I don't care what they've built. I care what lasts. The history of this industry is littered with people who made an impressive-seeming start and then collapsed because it was all bullshit. Why aren't we as supportive of Grant Cardone, or Nate Paul? Those guys also make huge claims for themselves which no one seems able to verify but which seem very suspicious.
If it turns out that they're taking small fees and guaranteeing all their loans, then no, it isn't impressive. Sam Bankman Fried, was also really impressive, until it turned out he was a criminal. When something seems suspicious, and too good to be true, it's not unreasonable to assume that something is off. Maybe these guys aren't criminals... but access to cheap credit doesn't make one a genius, either.
Oh he wants another one? If this gets 10 likes I'll dive into some of those 600+ spread deals, those are fancy :)
This might be the funniest thread on WSO. Even the name of their shop is ironic.
The dictionary definition of Tides is literally “the rising and falling of the sea.”
To echo everything above; the bigger you are the harder you fall. Couple that with a lack of senior leadership experience, excessive short-term growth at the top of the market, and an ongoing recession - There is bound to be some dirt underneath the rug.
Seems like as good a time as any to just leave this.
This is perfect! Since my post got the 10 likes, I guess I must do another one. I’ll try to keep in concise because the work is just getting started.
I think it makes sense to make it a bit bigger along the lines of this post. We all agree Tides is done, by far the worst of them all, but I think a lot of it goes back to the greedy enablers who let this all transpire, the lenders. Whenever there is a looming economic retreat, it always gets traced back to the lenders who thought they were being smarter, driven by fees, and protected by moral hazard.
The biggest loser of those lenders is MF1 (Who had i5? BINGO!). They gave Tides billions, but couldn't have just stopped with those idiots, the need more idiots to hand money to for fees. CLO MF1 2022-FL9. I started off looking into a few properties that were having some pain, such as Tides at Gilbert East, which a few weeks ago experienced a tragedy with a 14 year old boy getting shot at the property. When I pulled up the CLO, obviously it was MF1, so I scanned for Tides, and so many properties popped up. There are 40 properties totaling $1.5B in this CLO, 8 of them are Tides, which makes up 19% of the “diversified” offering. Some of the notes are structed in AB, because the commitment would be closer to 35% of the offering. The total initial funding of all the Tides notes in this one CLO is $285M, $48M future funded, and the actual total commitment is $522M. That’s A lot.
As I was digging into these, which btw these values are nearly all below par (probably 65 cents at MF1 basis), I noticed there was one asset with a huge commitment in this CLO. One portfolio called LA Lofts Portfolio has a initially funded amount of $225M ($23M future), and $329M total commitment. That one portfolio makes up 15% of the CLO. This one was to Laguna Point, you know the group that was all over the real estate outlets about defaulting… on THIS NOTE! Combining Tides + Laguna, that 33% of this CLO that you can probably just say buh bye to. I had to look at the second largest note in this one. ZMR Capital lol. Zamir who’s the CEO of the group is the same as Sean Kia (Tides) or Zach Haptonstall (Rise48) or Swapnil Agarwal (Nitya). They idolize Cardone and Carroll and think this is all they need to do, buy buy buy, crumby multi with high leverage floating debt, and have never worked at real institutional CRE firm. Not going to write too much more about this, everyone can go on pull the MF1 2022-FL9 offering and review the individual asset, but on a sponsorship basis, it’s clearly crap. That ZMR loan is called The Reserve at Brandon, for $93M ($25M future) and $207M commitment. Makes up 6% of the CLO and bring the total sum of Tides+Laguna+ZMR to 40% of the CLO. Can confidently say if you own any of the MF1 offerings, you’re probably going to be seeing some losses.
Systems broken. Pain to come.
One thing you are missing. Anybody can look at Trepp, presales or publicly available data and try to extrapolate but in the sources you look, you will however not find data from loans by balance sheet lenders, these are loans held on the balance sheet and are not securitized. You have the money center banks, lifecos and also some debt funds (some of them also keep loans in their BS) who fit this profile. I am guessing you dont have access to a SREO, I do. Any guesses how many loans are financed for Tides by MF1 or lenders who utilized CLO's? I can answer that question- it is a lot smaller than you think, so you root for them to fail and post long paragraphs on here if you think it's a good use of your time and you can try to find whatever data you want to help your thesis but just keep in mind you have no idea how the loans/assets are performing when it comes to loans held on the balance sheet.
This is hands down the best forum I've ever read on WSO. Please keep it going, we are live time watching sparks in the basement beginning to catch the carpet on fire before the whole house burns.
"We dont need to water let the motherf**ker burn, burn motherf**ker burn"
Thank you "Analyst 3+ in RE - Comm" - keep it coming!!!!!
Agreed, definitely feels like the beginning of the end for them. Will post more, mainly because that arrogant Tides guy here is begging for it.
Please post more if you are jobless, like I said, every month come on here and post about how Tides has returned the keys!, That should happen right? Hope it works out for for you :)
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.
Tides at Oakland Hills - Fort Worth, TX - Purchased June 2022
Thoughts
Berkshire and Limekiln
https://www.globest.com/2021/05/03/berkshire-residential-raises-1-5b-fo…
Let me know what you find about them, Berkshire owns some good assets (Not to be confused with Warren Buffet's Berkshire Hathaway)
MF1 is smoked. They've done $14bn of originations from 2018 till now. Like 80% of that has been in 2021/22. 1.3bn in NYC boroughs, $900m in PHX, $860M in LA. I've seen what they originate and my god they got aggressive with lots of high leverage loans. They have $800m to Tides and $450m to Grant Cardone, $275m to veritas, $200m to ZMR. They just had Fifteen group bail them out on a horrid DTLA portfolio but that deal is still overpriced.
I've noticed a lot of these CLO loans are 3/1/1 or 2/1/1/1 structures, so I think a lot of people are just praying rates go back down soon. I think there's still another 12-18 months before real pain hits because these short term loans may be able to be extended if borrowers can come up with enough money to plug the leaks.
Regardless, MF1 seems particular bad. Not sure how they make it out alive with a book of their size originated at the peak against the riskiest multifamily & development deals
Time will tell. It can literally go either way. We work in a leveraged asset class. No one knows where rates will go, which means no one knows where these sponsors will end up. If rates stay high, many or done. If the fed panics and cuts to 0 (honestly this is what it seems everyone is praying for) then these guys will look like geniuses
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).
There's obviously no way the property is covering that debt. I would say they are just drawing on their line of credit to pay, but given that this is MF1 and they don't question Tides on anything, Tides is probably just drawing on the Capex constantly to pay the debt service so will be able to carry it that way until its all drawn on. Eventually MF1 will wonder why only 10% of the property is renovated but 100% of the capex has been distributed lol, but that's already when the show has stopped, and all the bad boys have triggered and you have 20+ lenders with $6 Billion of defaulted debt trying to come after 2 young guys worth maybe $100m. If I was them I'd be spending that shit like I stole it (well sort of did), before it's all gone.
This is a very aggressive valuation of their net worth. My guess is they put no equity into their deals (how could they?) and give extremely favorable hurdles to their investors in order to churn deal flow. Which means they're living off of fees and the hope that someone else bails them out before the music stops.
Now, if they're doing billions of dollars of deals, that means that they're probably making tens of millions of dollars of fees (assume what? 1% acq fees?). After taxes and payroll... yeah, I'm sure they've made 40 or 50mm, which would be great if they were doing something more than playing credit roulette, but the only way that's nine figures of net worth is if they are being very aggressive with their exit assumptions on their REO schedule
They cannot draw down on capex to pay deb service. These are construction draws w inspections and proof of work/payment.
Outstanding thread. Been following for last 8 months and really enjoying the renewed activity and analysis. Many other shops also boomed in same towns as the big players listed here and will likely follow suit. Some on the bingo sheet others not. Not in real estate but could not figure out how who gave all these people money but damn basic human behavior never changes.
Even better rumor is that Eisendrath (who was fired from CBRE for nefarious reasons) owns a piece of the company and gets paid on every loan they do with MF1.
Anyone defending Tides is so stupid it makes my head hurt. It’s so painfully obvious they are screwed
Every single person in our industry talks so poorly on them it’s nuts. This happens every cycle. Underwrite any of their deals and you can see how abundantly aggressive they were.
Might take a bit but the pain is coming
Glad to see this thread finally becoming interesting!
Will MF1 force tides to start escrowing for replacement rate caps? That would sink this ship rather quickly once we get there.
Surprised there are no comments about the 65% LTV cash out refi on Tides at Downtown Chandler by Eisendrath via M&T Bank. Maybe it doesn't fit the prevailing narrative or maybe represents the only asset that pencils. Time will tell...
Per Brian, Fannie Mae fixed rate at 5.25% which lowered borrowing cost by 300 bps to increase cash flow by 5x (a meaningless metric without context-negative cash flow to 1.25x DSCR?).
Backing into the numbers using the info provided and assuming FNMA DSCR requirements of 1.30x and (1.25x best case) yields the following:
The market was strong back then for both rent growth and liquidity, its everything after 2021 that is in the bonds ect. that is being discussed.
Can you explain this in greater detail? I mean, conceptually I get what a "cash out refi" is, but who is making the statement? Is it Tides? FNMA? Why are we accepting at face value that the sponsor managed to take cash out of the deal? Is it 100% cash out, or 1%?
I mean, look through this thread and see the people who are saying "Tides is doing great! Trust me!" when that makes zero sense. From the perspective of someone with no dog in this fight, nobody involved in the refi you mention is incentivized to tell the truth; Tides wants to show their assets are still performing and returning money to LPs, lenders want to assure everyone they've got a lot of equity ahead of them in the capital stack, Eisendrath is a broker and thus should be assumed to be lying every time he opens his mouth, etc etc.
Take the numbers you posted. They were paying 8.25% at the time of refi (300 bps of savings gets us to 5.25%). To take a random benchmark, 30 day SOFR has been about 4.8%, which means they were paying 345 bps over that. 30 day SOFR has averaged almost exactly 3% over the last year to date. So they had an all in rate they were paying all year of 6.45%. So we can theoretically back into a principal balance that would result in ~$160k of cash flow, assuming a 6.45% rate and an NOI of ~4mm, right? Seems to me like your original balance was probably ~50mm or a bit more according to that math. Maybe someone can correct me (and this is real back of the envelope, so it's possible it is off by several hundred thousand dollars) on that.
All of which was a long winded way of saying, WTF does anyone involved mean by "cash out"? As best I can tell, even before you factor in fees and closing costs, Tides was required to contribute additional dollars to the deal. If you refinance a $50.5mm loan with a 48.5mm mortgage, you're short a couple million. Probably more like two and a half once you factor in fees and costs.
They took this to market earlier this year, and that NOI is actually fairly close to what their actual reported T12 was.
That being said, I have no idea how the hell any agency underwriter would be ok with sizing to their NOI. They have comically low above-the-line expenses at sub-20% OpEx ratio.
Insurance at is at least $100/door below market...R&M/contracts for this vintage/quality at sub-$140/door is ridiculous...G&A sub-$100/door...payroll under $900/door (which is the most reasonable expense they have). Sure, during the boom times you could get buyers to sign off since "they're just running everything below the line, it makes sense", but I would not expect the same out of an agency lender.
Put a typical OpEx ratio on for this type of product, and that 5.6 cap very quickly becomes a low-to-mid 4 cap...which obviously isn't market today.
Similarly, what's surprising about the imputed value above is they had the brokers guide to a similar value ($73M), and a deal did not get done. Make of that what you will.
Also just curious, where did you see it was a cash-out refi? Saw Tides' LinkedIn post, which made no mention of any cash coming out. PS not calling you out at all, I appreciate you doing the BOE math and adding to the discussion. EDIT - just saw Eisendrath's post. Disregard
Yeah this was crazy to me as well. Frankly, if you can convince an equity partner that the macro environment will allow you to get in and out quickly, you can run a building at these numbers... it'll just be a complete dump within a year.
Which makes sense, the entire vibe I get from what I know of Tides and from what people on this thread are saying is that they're slumlords who are playing roulette with every deal they buy. Growth is easy if you don't actually have a business plan and don't actually operate a building like a responsible landlord... it just means you end up in this situation when the market turns, where you'll lose everything because you were a slimy operator to begin with
Cash out or no cash out, I would think Fannie went through the SREOs of the guarantors (presumably Sean and Ryan) with a fine tooth comb and saw no major issues. If there were a bunch of deals with a sub 1.0x dscr, wouldn’t they be a pass on the refi? The fact that they were able to refi with Fannie indicates to me their portfolio can’t be the shit show that a lot of people on this forum (and in the market) think that it is.
Maybe M&T did the loan on a delegated basis?
Any Fannie experts care to weigh in?
It’s a total sh*t show of a portfolio
My sense is the guarantor on this one was the Mountain Capital group as mentioned above
I would not trust anything Tides or Eisendrafth says
WSJ out yesterday on them, Bonds Backed by Apartments Are Under Stress as Housing Market Cools.
The head of their acq team commented that they renovate units and put them back out at a discount. That seems counterintuitive? Lol
And yeah lol, Tides on missing debt service:
“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 retarded to me.
Makes zero sense. An upfront concession or two to drive occupancy on fresh renos may make sense (1 month free on 13 months, $750 off if you lease by X date, etc). There is no way that a rational/serious owner puts renos out at a lower base rent. Negative premiums aren't going to help your NCF.
"we haven't heard if notes being shopped or sold yet- anyone know any details in that regard?"
Supposedly one of their repeat lenders is shopping all of the Tides loans in at least one of their CLO pools.
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!
Wow - two acquisitions that occurred in Dec 2020 & Jan 2021 were able to refi after 3-years of massive rent growth. Let's wrap the thread up boys.
Do you genuinely not realize you’re providing no context
Going up in smoke.... literally.
https://www.reviewjournal.com/local/local-las-vegas/deadly-blaze-apartm…
Probably figured they scam everyone else and haven't been caught, might as well scam their insurance companies.
Tragic. Their property management co. (PMG Property Management) seems quite suspect. Very light on qualifications with the CEO photo looking like a practice shoot for the county jail mug shot.
Is it possible that a discount manager is being used so that Tides can upcharge its investors...
What a crap situation for this guy.
He only managed their assets, and so they paid him fees of like <2% for their entire portfolio, plus told the lenders that they had a 7% construction management fee, which they pocketed and made sure to keep from him. They got him to do a bunch of shady crap for him I won’t get into as well. Then when Tides got big enough, decided they wanted to share in those management fees so forced him to sell half of the company to become in-house. Well, they made him sell half the company for $0 by basically saying they would pull all their assets and go with a true 3rd party property management unless he agreed, and he’d have no more company, so was forced to sell. Guess it’s obvious that the next step they took was starting to charge the property’s 3-4% management fees because now they share it that, which is just so dishonest to the initial underwriting submitted to the lenders.
Here’s the kicker, a few months ago they went to a bunch of true national management groups to bid to take over their entire portfolio, because all of the equity was pissed that they don’t know how to manage. I mean just look at any of the comments from tenants, work orders never get filled, no one in the management office ever, and there was some even crazy stories about places being run as brothels/airbnbs/etc. So they are going to one of the big 3rd party property management groups to take over their entire portfolio in the next few weeks, which is even dumber if you ask me because now they’ll be forced to run these things at true expenses which will destroy the little cash flow they do have, won’t be able to get these management companies to magically find invoices for them to pull capex on, and lose all those fees they were able to generate by having it in house.
Just when you think these guys can’t get any shadier and dumber they prove you wrong. Amazing how the lenders and investors still haven’t caught on.
These guys appear over levered and over extended. Name came up in a few conversations at CREFC.
Letter out today from AMC. They state all class B investors will lose some or all of their investments. They reference lack of transparency from Tides. They are asking for more money from investors to save the day. No way. I’ll take my lose and move on. I also foresee a class action lawsuit ahead.
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.
Can anyone share the AMC letter?
An interesting sidebar convo......how fcking dumb/on the take were the guys at AMC who funneled retail investors into deal after deal? I remember getting the stupid equity pitchbook emails at least once per week in 2021 and 2022. Was AMC getting kickbacks or just charging stupid placement fees on top of the stupid sponsor fees Tides charged? How is AMC still even in business?
AMC got their asses handed to them last cycle buying a bunch of bad deals and looks like history repeats itself
The guy who runs it Jim Hopper is a total clown and have no clue how they raise equity
Hopper and his son are both total clowns. I have met with the Levine father and son who also work there. The whole organization is a clown show. Fraudsters.
They charge $75k + 6% fee on top of Tides 1-2% + a few other fees like guarantor fee (I've see as high $150k) or other fees they add in so that the min %/$ required by the lender to be in the deals at the sponsorship level is just those fees and the principals don't actually have to put any money in. Tides bakes all these fee's in and then has the audacity to say that every deal they bought is at a "great basis." I'm convinced the principals don't know what basis means, and think it's just slang for purchase price.
AMC has the most unsophisticated outdated DD requests, that also has nothing to do with financial projects, but more to do with legitimacy/lets make sure we can point to making this thing smell legal. Fraud helping fraud.
AMC will get the heat and then blame Tides, who will probably point back and say they were pushing them to get new deals for deal flow and try to pull some other excuse out of the air. More and more holes in the boat, plug em up boys!!
Would you look at the amount of properties they have tied up w/ Tides?!?! https://www.amcinvestments.com/investments
If you don't have any asset management team that is 100% on top of the ball with decades of experience, a gigantic back office AND is financially incentivized to manage these properly it can, go bad, real quickly. AND thats IF the market continues to move in your favor (declining cap rates, low interest rates, positive job growth & demographics etc.).
From my vantage point it looks like the perfect storm and its starting to go very very badly. The Vegas property above w/ PMG could simply be the tip of the iceberg. I see Eisendraft putting out linkedin closings, curious how Fannie/Freddie cant peel back the curtains on these clowns and see them for what they are. Maybe just not digging deep enough and M&T is rubber stamping everything?? It's obvious Tides needs money, shit most owner/operator's need money right now. I bet Tides needs it a little more!
And on top of it all this kids named their company tides, I mean this is just flat out superb.
"A rising tide floats all boats….. only when the tide goes out do you discover who's been swimming naked."
Dont mind me, Im just over here with my big ole tub of popcorn listening to the bloodhound gang on repeat via spotify.
Agreed. Math doesn’t lie, at some point they’ll be balloons due or rate caps will burn off and there won’t be enough cash for debt service. I wouldn’t be shocked if Sean taps into tenant’s security deposits or starts screwing vendors.
Also, regarding Eisendraths LinkedIn closings, we don’t know if those were cash-in refis. Maybe the pref groups kicked in more equity or Tides did a capital call from common equity.
Did I count AMC doing 48 deals with Tides??? How drunk were they? How do you even underwrite and close 48 deals in like 3 years. Obviously sold 12 for probably great profits but going to lose lots of Equity on those 36 existing deals
Also, here are the 11 deals that Tides has currently on Loan Watchlists
Nice geographic diversity!
Fortunately, they invested in top markets on assets with large loss-to-lease. ; )
Vegas deals were so damn stupid
They bought $825M of Vegas deals in the first 6 months of 2022, over 3,400 units at an average cap rate of 3.25% all using short term floating rate debt.
Whoever was giving them equity deserves to lose it all
Those 2022 Vegas deals were by far their worst deals
This is turning into a very long list of sleazeballs with a very loose definition of fiduciary duty or ethics and naive or just plain stupid investors that have been lured into JPowell's slaughterhouse.
Impossible to say what's going on from where I sit but if I had to guess...
The list of assets that pencil for sale or refi without significant cash in requirements is exhausted. Their remaining debt fund loans are upside-down with equity recovery nearly impossible without some miracle spike in values. They will need to renew very expensive rate caps just to stay at the card table. It would be a long shot play that might make their lenders whole but still leave them deep in the hole with no (or little) equity to recover. Overall, it is very unlikely that any equity investors get a penny of their investment back.
On the other side of the coin, their debt fund lenders are looking at impaired loans and contemplating note sales, foreclosures or extend and pretend with a clawback of asset management fees in order to allow the borrower to play ball with some kind of promote structure to motivate Tides help them recover all principal and interest due.
Is the Tide going out or is that a tsunami brewing...
Its almost comical looking it up
Tides from January of 2021 to today bought almost 30,000 units across the US at an average cap rate of 3.5%. 105 properties in Arizona, Vegas and Texas
Looks like almost all of it with Floating rate short term bridge debt
That current portfolio has -6.9% annualized rent growth
Current vacancy is 10.5%
This is a great thread!
I think Tides is trying to sell whatever assets they can (pref or JV equity player pushing the exit) and refinancing whatever else pencils into short term agency debt. (I would bet Tides at Downtown Chandler had their equity partner step us as a non-recourse guarantor and likely other deals you see). A good bank/bad bank strategy. They can then turn in the keys on the bad deals, lick their wounds, count their millions and call it a day. Let the winds blow over and recap at a later date. Hell, maybe they do an UPREIT instead and save the day. They are not the first borrower to get caught in this environment. I believe Bascom once turned over their entire portfolio to lenders sometime in 2009/2010. A recap from Oaktree and then they were back in business.
Someone mentioned Eisendrath and owning Tides. I've long suspected he has an ownership stake somewhere. He's definitely an investor in their deals. Fannie/Freddie changed the rules to crack down on originator ownership disclosures. Brian being a broker at IPA he likely can sidestep those disclosures since he's not the "lender". He's not the first person to do this as there are plenty of others. I'd be surprised if his fingerprints were not over 90% of the JV equity partners no different than he likely finances 90% of Tides transactions. Everyone has to do their own DD.
It will be interesting to watch how this unfolds. The fed is not stopping the rate climb and taxes/insurance are an absolute nightmare. Luckily, Tides does not have any payroll or R&M since all the properties are under renovations so they can still hit their return hurdles! They had an enviable market run. Maybe one day we will all be invited over to Sean's mansion where his personal chef can cook us dinner and we can debate the finer points of their business plan ... while retail investors picket outside.
Um, what? They don't have payroll because they are doing renovations? How does that make sense? Lets call a spade a spade - there was never any "renovation" plan, they were putting spit and plaster on units and hoping rising rents and compressing cap rates would allow them to pass the bag to some other idiot before the music stopped. Given everything else posted on this thread, the far more likely outcome for them is that their large pref pieces continue to accrue, the buildings fall further into disrepair, and eventually some amount of recourse kicks in when the assets are worth less than the debt.
I mean, if they lose it all, their run wasn't enviable. I can win a hundred times in a row at the roulette table, but if I still lose it all on the 101st spin, I'm no better off than I would have been if I had just lost the first time.
Fees are sexy and when you look at the sheer volume of business Tides has done, it makes you think the founders must be rolling in cash... but that gets eaten up real quick when you've got a team of 35 people (according to LinkedIn). That is millions and millions of dollars of payroll, payroll taxes, health benefits, etc. I'm sure they pay less than top dollar, but it adds up quickly. So sure, they've made $50mm in fees or whatever... but they're paying California taxes on top of being in the top bracket of the federal range, so that's 50% in total. That fee base gets eaten up real quick; the point of fees in this business is to pay your overhead and pursuit costs, the real money comes on the back end. And this is a perfect illustration of why. Tides is arguably the most active sponsor in the country the last few years, and it's very possible that with even some extremely favorable guarantees, the founders end up with basically nothing at the end of it
Sorry, allow me to rephrase. The financials I have seen on some of these properties (and as someone else reported here) show operating expenses WELL BELOW market expenses. This is an obvious sleight of hand of likely capitalizing expenses since they are "renovating" the properties. This only refers to payroll and R&M. I'm ignoring the taxes/insurance double whammy. I do not know how they report these numbers to lenders or their investors, but it seems to me their operating statements are well below the actual cost of operating a property.
As for the "renovation" ... I don't disagree. I've been in this business for a long time. Value-add is nothing new and somehow Tides PR firm has pitched them as the Ford Motor of multifamily as if they are the first firm to ever create a process or scale for their renovations to save a few bucks. Paint, landscape, upgrading units on older product is simply deferred maintenance to stay competitive in the marketplace. It does have a viable strategy as tired buildings need updating but let's not pretend this is something truly innovative.
This is the 5th most popular thread in RE on WSO. Incredible. The other 4 that are higher are generic about real estate and then this one is about a young shop in LA with two inexperienced kids scamming the multihousing investor world. Absolutely incredible.
Do you think these guys are getting any sleep at night? They are seemingly oblivious to their company collapsing around them. I was digging on LinkedIn who works there and it's clear no one there has institutional big shop experience, or who has already left them early on. Also, no one there seems old enough to even remember the last real cycle. No guidance at all or else they could have saved this calamity a while ago, you could see the flags at least a year ago.
All the nefarious info on this thread must be somewhat true, just based on the data alone, this will rock the multi-community unfortunately. The way I see it, they are stuck between a rock and a hard place, trying to be legitimate, while at the same time not having enough experience to succeed, so they cut just enough corners to keep them somewhat afloat for as long as possible. The concessions they are taking may sit in the legal grey area so far, but this will continue and continue as the markets worsen, tight cap rates expand, loose capital tightens, and eventually, there will be a "no going back" line that will be crossed (might have already been), and that's when you hear the vinyl scratch and music stop.
I foresee a class action lawsuit happening with their retail investors and syndicate shops. If they did do anything that puts them in the tref section then it's bye-bye birdy. That's just on the equity side, if these deals have any equity left in them that is, it looks like they borrowed from the gambit of the CLO world. On value add properties these high leverage short-term variable rate loans generally have many guarantees that I'm sure they had to sign. They'll have to file bankruptcy to get out of any of those guarantees. Also shocked the CLO shops who've had enough time to have their basis reduced through performance (seems like none of their loans are NPL yet) aren't yet selling sub-par, there is a ton of money out there for this.
Many people on this thread made claims about other shops or groups who have been able to just walk away from a few non-recourse deals that have gone bad and brushed the dirt off to fight another day. This isn't a few deals from some old timers, this is billions and billions of dollars from two kids who had no business doing what they did. They aren't going to correct this ship, it's not a matter of if but when.
Everyone has quoted Warren Buffet's famous tides quote (which again is shocking that they named the firm Tides), but as anyone who has received an email from the big guys at AMC (mentioned above) knows how they sign off. "You can ignore reality, but you can't ignore the consequences of ignoring reality." - Ayn Rand
P.s. I've seen a lot of Tides employees' resumes come across my desk recently. Looks like they all know something that hasn't been spilled yet and are trying to jump ship.
They've spent several years running an outright scam, same as Cardone or Nate Paul or [insert scummy operator here]. Why would anything change now? Either they know they're crooks, or they drink their own Kool Aid - either way none of this will change their professed opinions. They'll blame some outside force like interest rates for their troubles and never bother to admit that maybe running your shop like something other than a pump and dump scheme is a rational way to avoid interest rate risk.
They could not have saved themselves from this. Their entire business plan seems to be "do the shittiest possible rehab, hope rents keep going to the moon, and move on before the music stops." They were always going to be screwed when interest rates rose above zero, and in the scenario in which they weren't, they couldn't have bought any of the assets they did and so wouldn't exist in the first place!
Eh, I sincerely doubt it. What does this even mean? If you mean a lot of small equity investors will get wiped out, sure... but that won't impact anything. Everyone watching along realizes that when a company comes into existence and then, in the space of time it takes to renovate and stabilize a single asset has transacted on tens of thousands of units, that something fishy and borderline fraudulent is going on, so this won't take anyone by surprise.
Yeah I suspect that was always the case; the question was going to be whether they'd sock away enough money to cover whatever limited recourse they've got and keep some leftover. A couple more years of low rates and they might have gotten away with it.
Their biggest problem is going to be that because they have no experience and because they almost certainly lied on a lot of their loan applications, they won't find lenders willing to help them work out any of these shit deals. Experienced players who have a track record of executing on deals and performing on (or near) budget/schedule get leeway and help from lenders. Scam artists don't.
I know many think Sean is a stupid guy, but I happen to think he played the game well.
He bet with OPM, on the upside he got acq fees+ promotes.
When you charge 5% management on 31,000 units, you make money during the hold too.
On the downside, LPs will be the main losers, while he keeps his acq fees.
If he triggered any bad boy carve-outs, he'll be working on asset protection/leaving the country before the lender's come knocking.
The Investors were stupid for trusting AMC with their money given AMC lost a ton of Money last cycle.
Tides was just riding the wave (Bing!) with the AMC folks feeding them the booze
I do not think Sean was stupid per say BUT they went to so big that they will be the poster child for this cycle. That is difficult to come back from.
Everyone ate at the Buffet table too long, happens every cycle. Sean and his crew stayed WAY too long at the table which will hurt him in the long run. They could have walked away beginning of 2022 and taken their lumps and been fine but they stayed until March of 2023 doing bad deals when everyone knew the Party was over.
Mark my words, story after story will come out about their run and they will not be pleasant fun stories.
Its like that Tropic Thunder line...You never go Full....
I mean look at the last deal Tides closed
They bought a 1983 Vintage deal in March of 2023 in Phoenix. Tides on 7th. $340K a unit at a 3.15% cap rate.
They used Starwood for the 80% LTV loan (Yeah borrowing money from Barry Sternlicht, real smart).
They bought it from 3rd Avenue Investments who is a chop shop Syndicator.
That group bought it in Dec of 2018 for $32M and then Recapped it in Feb of 2021 for $60M then sold it to Tides for $105M
This was 3 months ago
Rents have been trending down for 9 months there now and vacancy is now at 12%.
I mean literally the equity is already wiped out there after only 3 months. Insanity
This thread is aging like fine wine
Several key facts:
AMC is trying to kick Tides out of the 34 deals they’re the LP on. They’re claiming that Tides called $17m in equity intended to pay vendors but instead went to paying debt service. Tides therefore owes vendors $12m on the AMC portfolio.
Tides is emailing investors saying that they are working on plans to avoid capital calls but in the meantime investors are being told to expect capital calls (lol). Also Tides is trying to pressure capital calls by saying if they don’t get enough capital calls the investors will lose the deals. Put more money in now or else you’ll lose what you already put in!
Eisendrath was co-GP on their first few years of deals in exchange for raising equity from Mountain Capital (Shirken), AMC, BevPac (Marciano Bros) and a few others.
Eisendrath brokered the debt on these deals to debt funds and any agency deal was also handled by CBRE (albeit someone else at CBRE while paying him a fee). Eisendrath is also an investor in MF1 who did a lot of the debt fund deals.
This is 100% accurate.
The investor update letter Ryan sent this week is so terribly bad. He’s trying to sound smart (and failing miserably) while bullying from a position of fear. It’s littered with flat out lies and falsities, and pure nonsense.
It’s a last ditch effort to save face as a response to that shitty AMC letter.
I’ve written my investments with them away along time ago, and this just put the nail in the coffin. If you can’t afford the money you’ve thrown away with them, I would call a lawyer.
Good bye Tides.
Love them, hate them
Anyone who doesn't even pay their interns yet buys a mansion is a piece of shit
Another one of their Loans, Tides at North Paradise, moved into Special Servicing this month
They bought it for a 2.8% cap rate in 2022 with floating rate debt that's now at 6.7%
How F*cking stupid can you be??????
A Sub 3% cap rate in Las Vegas...
As an expected update and reported by Green Street, Tides has told investors to expect imminent capital calls.
Where did that guy go with all the cheeky comments with an assortment of smiley faces? Please come back :), we want to know your thoughts on the recently news cycle :0 :D
Imagine buying a $15M house and then a few months later telling an investor he needs to pony up some cash or he loses his initial investment.
You would think that it is closer to 70% or 80% of their portfolio that is underwater. They were so highly levered that their capital calls are going to be giagantic.
Who were their lenders? Who are their big investors? Who is going to ultimately take the hit on their portfolio?
Someone should look into the purchase of Kia’s house.
He’s quoted as saying it’s an investment property because there aren’t as many Multifamily deals to invest in.
Aka he 1031’d into the house that he’s living in and most likely “paying rent” to his entity.
This post will generally discuss; in macro terms, what can be done at an operational level, and not in relation to any specific syndication group or sponsor, but more of a general conversation about what COULD be done IF someone had the inclination to do it.
IF what is mentioned in this thread is true, and IF vendors were not being paid by sponsors. It MIGHT indicate there was a scheme to distort net operating income systemically.
IF a sponsor (generally speaking) is pushing out into the future vendor invoices & payables, the question is to what end?
IF they're doing this and paying the vendors off after a property transacts, these expenses COULD BE hidden off-balance-sheet, which would inflate the NOI number. This makes some sense given the previous discussion about "laughably low operating expenses" being shown by syndication groups in general.
Inflating of this NOI would garner a higher sale price on the disposition. So in the event a sponsor carries AP off the books and is then catching it up after a deal transacts, this would be accounting fraud. I highly doubt anyone would do something so egregious.
Someone with more insight on this from the lending side might be able to tell us if a lender would view this as fraud, since a lender might be lending based on a NOI which is inaccurate.
IF a sponsor was to do something like this, the ponzi-like game could work until the market becomes illiquid.
IF a sponsor was to do something like the above describes, then they would have likely already exhausted the age-old strategy of categorizing everything they possibly could as capital expense; which again would be accounting fraud and as I understand it.
It is highly doubtful in my opinion that any group engaged in the above mentioned practices. That would certainly be a way to face criminal fraud charges & trigger bad-boy covenants. You all should likely drop this ridiculous speculation.
The legal hurdle for accounting fraud is significant. Where you see fraud, others see aggressive accounting. Public equities are washed with aggressive accounting, even from some of the largest, most reputable firms. Likewise, investor fraud can also be a significant hurdle depending on what the Limited Partnership Agreement/s and the Operating Agreement/s state, on in some cases don't state.
With that said, lying to lenders (which is a felony crime) carries a much lower hurdle. I expect this is the route things would go if these continue to play out.
I heard through the grapevine that Tides is going down this week and will be taken out of all their deals. Anyone heard anything similar?
I haven’t heard anything (nor would I) but there are so many different partnerships that that seems like a lot to do at once. The only way I could see that happening is if Mountain Capital had pref and recourse on all deals. Maybe they do.
Don’t get me wrong, i think tides will go under at some point soon but I imagine it will happen in tranches.
As the original poster of this thread, I can only say, who gives a f-CK?? Sean and Ryan are probably fingering each other over the number of posts on this forum regarding Tides. They are both closeted f-cks who have cleared enough in fees to live comfortably without ever doing another deal in their collective lifetimes. F-ck them both.
What happened to that little dude who was the cheerleader for Tides that trolled everyone who questioned their business model?
Reposting this from Rise48 thread as it applies here as well:
I feel like a goof ball for even asking this, but you think they know a lot of their project details are public because of their debt? They have to, right? But this response seems so clueless, it further confuses me.
For example, Rise48 purchased Marble Creek (1985 vintage) in Phoenix, AZ for $65M in 2021 on a TTM of $1.87M. That's a 2.88% cap rate, unadjusted. If you adjust for property tax and insurance, it would be even lower. Their internal business plan forecasted GPR @ $1,755 / unit. The ratings agency's forecasted GPR @ $1,270 / unit. They're currently asking $1,275 ($1,217 effective) for one bedrooms and $1,500 ($1,442 effective) for two bedrooms. That's a weighted average effective rent (assuming all units at marked to market today, which some surely will be lagging) of $1,380 or a 21% miss on revenue assumptions. Their forecasted stabilized yield was 5.78% and I'm getting closer to actuals of 3.58%. These is the reality of the fundamentals.
But how about the capital markets? Even with a rate cap and a fully renovated, fully leased asset, they're probably landing close to a 0.70 DSCR currently. How are they making up this shortfall to keep payments current? If you forecast a refinance today with a GSE based on a required 1.25 DSCR, you're looking at $28M in proceeds. Their capital stack is $50.8M of debt and $18.7M of equity. So you'd need to inject $22.8M, or 121% of the initial equity, to even save the deal. But why would you do that if you're stabilized closer to a 3.58% yield? You'd have to assume market cap rates are, or soon will be, below that mark to even have any equity left in this deal. The reality is the equity is gone and the debt is probably worth $0.75 - $0.90 depending on the condition of the property.
This is ALL public information. It is very easy to call b/s on any refuting the reality of what is going on. Special servicers will have even more details that are less public, but are accessible. Why even bother trying to refute this with a video?
@therealdeal needs to start properly citing this forum as their source. As someone who abused wikipedia throughout my undergraduate years they are clearly plagiarizing. Though I will say imitation is the highest form of flattery.
Sean Kia calling Zach Haptonstall from RISE48 this morning...
"Hey Zach, what up Bro its your boy Kia...hey man I cant believe Real Deal wrote another article about you....man you need to do another Video on them asap. Like make a bunch of noise about it please. Oh and we also have these sick apartments full of value add potential you should buy from us in Phoenix and Texas, lots of meat on the bone to do force appreciation on"
You trying to get quoted again?
This is awful
https://www.reviewjournal.com/local/local-las-vegas/its-just-been-a-mes…
https://therealdeal.com/national/2023/07/28/tides-largest-backer-warns-…
No way, they got lucky gambling in 2020-2021.
Look at some of those prices they purchased for, no way those trade in the future for a profit. AMC throwing more money at these deals now is just blowing out the basis to lose more in the future.
The debt isn’t even in a safe position on a lot of their deals.
If they didn't take on all that expensive bridge debt, they wouldn't have been able to afford to buy any of these properties in the first place.
That is the essential nature of their business that you need to understand. They outbid every competitor by loading up on debt and paying fantastic prices and by lying, knowingly or not, to their lenders, and then the idea is to find another sucker to hold the bag for them when they exit. It's not real estate investing, it's gambling, pure and simple, because their success or failure never really had anything to do with what they did as operators. They were betting on rents going up and cap rates staying low, macro conditions they couldn't possibly impact.
To have not taken on all this leverage means they wouldn't be in the game at all, so looking at their portfolio with a normal amount of fixed rate debt as a counterfactual is meaningless.
https://therealdeal.com/national/2023/07/28/tides-and-amc-find-an-expen…
Tides...here is some pref equity to save you....
RPM got a free look at Tides’ assets; first hand & they said “hell no”. What does that tell you?
Lenders next week realizing they are holding onto loans that have capex budgets fully drawn on, with 15% of the units renovated, and a bunch of unpaid contractors filing mechanics liens.
Isn’t it interesting how AMC told their investors in the original letter that Tides was at fault, that Tides had moved funds around inappropriately and that Tides had been hiding from AMC the truth about the dire state of their assets, operations etc. etc. etc.
A few weeks later they release a letter claiming Tides did nothing wrong and that everything is peachy.
Amazing what the desperate need for $50 million+ in capital over the next 12 months can do to change someone’s opinion on the situation in the Tides portfolio.
If you want to skip to the end of this story, all the equity is toast and the lenders are likely to take on enormous losses. It was no secret at all in the industry that Tides assets were total garbage.
Everyone just kept up the charade because they were getting paid to look the other way.
Can someone explain to me what the fuck these lenders are thinking? Sounds like they are negotiating and playing the extend and pretend game, but how do they think this will work in practice?
Are they going to hold exposure longer as these future criminals keep misappropriating funds, while caps keep expanding, and instead of taking a small loss now (initiating a foreclosure when these default at maturity or selling to a loan to own group at 90/95 cents) taking a huge loss in the future dealing with two absolute idiotic crooks who are inevitably going to file bankruptcy?
What kind of renegotiating are they doing, most of their deals are CLOs, they can't lower their interest payments, can they?
I see their biggest looming risk is the rate caps tides has to buy to extend, and can only play out two ways. Either they have to find the cash to buy tight in the money rate caps, which will be way too expensive and blow out basis even further, which will lose investors more money, or the lenders can let them buy wider caps (or no caps at all) and in that case tides will still be paying ridiculous monthly debt service that'll force them to continue to do their kansas city shuffle routine with funds and default just a little bit later.
At the end of the day it's simple, these are shit assets bought at way too high of prices with way to high of leverage, they are losses, why can't lenders see that and take the small L today instead of the large L tomorrow?
There's massive herd mentality amongst Lenders.
No one wants to be first and no one wants to be last. There were Lenders dumping loans at $0.95 in 2005/2006 and all of their peers were laughing at them.
You also have to consider the size of their loan books in that Lenders like MF1, Arbor, Ready Capital, and so forth can't just sell their loans for $0.95. They can sell the first loans for $0.95 but in doing so trigger a sell off whereby the actual recovery is less on a weighted average basis when it is all said and done. They would need to do some bulk sale, which would spook already thin markets, to get to that $0.90 range. And thus, you have what you have today.
Extend and pretend is the name of the game until you have a real catalyst. This is, in part, what makes investing so difficult. You can understand the fundamentals but until you have that catalyst, nothing is real. What will eventually be that catalyst? Who knows. I could guess a dozen different potential changes and could still be wrong.
Operations are about to fall off a cliff. Anyone who actually knows what is going on operationally knows that everything has been changing for the worse in almost every aspect on the operations side of the equation.
Vacancy up, turnover up, concessions up, delinquency up, evictions up, expenses WAY up.
The only thing that hasn't been going up is ACTUAL RENTS.
The truth is rents have been completely flat for a year. Groups who have kept pushing are sitting on huge vacancy numbers.
Asking rents and effective rents are entirely different animals.
I recently saw a project with a 15% "Loss to Old Lease" number applied to leases signed less than 2 weeks ago.
Who are they kidding? Thats your current market rate!
Since The Real Deal uses this thread as their go to for breaking news, but makes it PC, I think it's fair to read between the lines on their recent post: https://therealdeal.com/national/2023/09/18/tides-equities-touts-workou…
"...it had secured workouts on several dozen loans, extending maturity dates and cutting interest rates on floating-rate debt. “It’s the bulk of our portfolio,” Kia said Friday, though he declined to specify the number of workouts or which properties they involved."
MF1 was their largest lender, and did 40-50 of our 100+ deals over the past few years. They are screwed if they want play hard ball with Tides so they forced good ol SW to modify the loans or face defaults on 5-10% of all the CLOs (~10?) MF1 issued. There's an old saying on wall street that if you owe the bank a million dollars that's your problem, but if you owe the bank a billion dollars that's the banks problem.
"The Real Deal was unable to independently confirm Tides’ claims. None of the lenders on the watchlisted loans — Starwood Commercial Mortgage, Ready Capital, MF1 Capital, FS Rialto and Colony Commercial Mortgage — returned requests for comment.
Arbor Realty Trust, which is a lender on a number of Tides loans marked performing in Morningstar, declined to comment on whether it had modified any or was in talks to."
Only MF1 has modified the loan, no other lender in their right mind would cut interest rates, and MF1 only did so with extreme caveats. A. Tides has already been ousted on misappropriation of funds, so that is no longer new news, but MF1 has now required all the future funding to be highly scrutinized by lender instead of automatic disbursements, B. additional equity must be put into the each deal, generally this is AMC money in the form of aggressive pref, C. additional guarantees needed (which is hilarious because when they go bankrupt all those guarantees are pretty much worthless).
Arbor, Starwood, and Rialto said F off - and that they are happy to take back the keys.
"Because Tides debt is securitized, any workouts will eventually be made public in servicer commentary. As of Friday afternoon, none had been reported by Morningstar or Trepp."
No one at Tides knows what any of that means. Morningstar reported that MF1 modified the loan last week, not available on trepp yet, but Morningstar also mentioned that the expected loss levels are now 1.5x because of Tides sponsorship.
"Andrade said Tides had locked in six-month rate caps as opposed to 12-month terms on a number of deals. A shorter term would give Tides the option to buy a new cap for cheaper if rates come down in the interim."
Or, hear me out, they're in such a capital crunch they don't have enough money for that 12 month rate cap, so scrapping together whatever they can to buy themselves 6 months, but Ryan's responses are fun.
“You’re basically getting a three-year rate cap locked in place so your loan rate is effectively fixed,” Kia said. “You’re basically fixing a lot of these loans.”
Yeah except your basis is blown out but sure, doesn't matter when every deal you bought "was at a great basis" FYI Sean/Ryan - Basis doesn't mean purchase price. Also doesn't this contradict with your previous methodology of short term rate caps which helps if rates go down? So which is it?
"Amid those workouts, the firm has made capital calls — fewer than five, its executives said — to compensate for cash flow declines at struggling properties.
Tides claims it is not throwing good money after bad. Its leaders said they only asked investors to put in more cash on properties that will have a “positive outcome,” because they had secured loan modifications."
Tides got personally guaranteed pref money where they could, from AMC, Mountain Pacific, and Electra and the rest they had to capital call for. Yes they are throwing whatever they can to keep everything afloat because they don't know that they should cut the foot off to save the leg.
There a 100 ways you can try to be clever and create a narrative about what's going on, but it always comes down to the basics, is the collateral worth the debt. Answer: It's not.
I am seeing this kind of stuff playing out behind-the-scenes in real time. I am seeing delusional behavior on behalf of lenders and sponsors who are close to being wiped out, barely grasping for air. But the game keeps moving along.
What's both confusing and interesting is that, in theory, many of these sponsors CAN extend for a looong time (a lot of these CLO loans are 2+1+1+1 i believe). It seems like some lenders are playing ball. No one wants to make these paper losses realized. Some office deals are finally being pushed over the edge but that has been a trainwreck ongoing for the last few years coming to its resolution.
I think it's going to take another 1-2 years for all of this multifamily non-sense to play out. If rates go down significantly, Tides and all the others will look like geniuses. If that happens, maybe we all should YOLO and start buying multifamily while underwriting declining proforma cap rates... because apparently real estate never goes down* (assuming you can source dumb money to keep throwing money at multiple loan extensions for your over-leveraged ZIRP real estate).
If rates stay elevated, a lot of these folks will be wiped out. The smart structured finance people know these assets are underwater/close to it. What happens if these Sponsors need a 2nd extension and your pref money was for the 1st extension? Now your pref investment might be wiped out unless you double down.
Rates are not coming down unless we go into a Recession which is also really bad for assets like Multi-Family which are reliant on Job growth etc
That's why these groups are screwed
Either the economy stays fine and rates stay high and they are screwed
OR
Economy turns negative and rates come down and asset performance continues to deteriorate as renters dont need all that exposed wood and fancy tile back splashes so NOI drops and they are screwed
This does not end well....it never does
Yes agreed definitely strategic given their newest offering. Some of these modifications are ludacris though, MF1 has lost their damn minds for allowing this shit show to go on.
I probably haven't got to the meat and potatoes yet, just started digging on the servicer/lender commentary and will probably have more commentary in the next few weeks, but the first one I see some info on is Rancho Palos Verdes (Tides on Gilbert East).
Per the remittance report:
Also few other items i'd like to high light from that report:
That's just the surface of this terrible deal, also a deal where there is existing preferred equity (prior to MF1 modification) by MCP, which is personally guaranteed by sponsorship, accruing and in the teen returns.
It transacted at $269K/unit, but after all the fees, accruals, and bs, somewhere in the $300K/unit basis break even.
In the Real Deal article, Tides made it sound as if these guys were just their best friends and changed everything for them, but feels like this one is where MF1 made them write a check and do some basic mods which kicks the can for them down the road to save MF1s position for a few months, but make it even harder for Tides to get out of it. The rate mod here for example, it didn't say they got an actual interest reduction, but a hard pay of 5% with any amount deferred until repayment, i.e. accrual of the rest. The spread here is 410bps, so by the time this thing matures in 2/2024 (just 4 months, they would have accrued $643K of senior deferred payment (based on Chatham SOFR curve) PLUS accrued payment from the pref they started when they acquired the deal from MCP (that's 100% recourse). That's a lot. Big Basis Brain.
I think the most interesting thing about the modifications is the adjustment to strike for rate cap. This loan is currently hedged at a strike of 3% (all in 7.1%) and they had to modify it to a strike of 6% (all in 10.1%) (comical basically asking for a few shekels to be thrown in the bank) because they presumably couldn't afford to buy a year rate cap. So come 2/2024 they are paying that whole 5% at property level or out of pocket, plus having the other ~4.5% variable accruing (in front of the existing pref accruing). If they extend that period of 2/2024 - 2/2025, they would have accrued approx. $1.5M in senior balance. That's $9.7K/unit in value.
The only thing that would've made sense here was that they are out pacing these two accruing notes by renovating the property and creating value (in Rise talk "Forced Appreciation"), but based on the above they used the project expenditure reserves to paydown the principal, plus must of tossed in additional scraps somewhere since the initial funding was $34,778,000 but now they are at 33,943,004. Hard to really tell what they did here without further commentary, but looks like there was additional equity somewhere, maybe the Designated Reserves helped. Unless they are dumb enough (not saying they aren't) to get another pref piece to toss in the remaining equity and pushing that basis out further by maturity.
The Capex budget was originally $3.5m, and $1M of that was funded at close. Again so reckless that MF1 did this for them. How the hell did they have $400k of AP now, probably because they were using the monthly funding from MF1 to pay debt service, instead of using the capex funding to uh pay capex expenses. Huge red flag on the play. How did they see that and say "please proceed"?
MF1 made these mods to get them to 2/2024 and there really is no way this will be refinanced or sold for a profit, Tides will either hand back the keys at maturity (only 4 months away) or lose it sometime during the first extension period. Either way this thing doesn't look like a "Huge Win" or MF1 helping out Tides, but more like Brutus helping out Cesar.
Will follow up with more of the mods, I've only seen MF1 doing them so not sure where The Real Deal got "almost all their lenders" from.