Tides foreclosed on Vegas property - Start of many?
is it finally happening? The multifamily syndicator defaults that have been talked about for so long, or is this a special case
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Most likely a bit of both.
Tides seems particularly egregious when it comes to these firms.
Tides was going to always crack and be one of the first. I think the big key ones people are waiting to figure out is when will Nitya and Rise go under. Especially Rise, considering they're continuing to buy.
Same just saw a acq come across for Rise prospecting a deal. Crazy it was in the sunbelt area, which institutional borrowers have been less than willing to invest in.
Nah it's happening. Tides is straight up cooked.
Another couple in TX from an article today
https://therealdeal.com/texas/dallas/2024/07/17/tides-equities-faces-mo….
notes 3 more foreclosures teed up for august. Losing 6 properties in a month is p impressive
any idea how you can try to purchase the properties being foreclosed on given the funds?
In Texas you have to show up at the auction with a cashiers check for the amount you are bidding. More likely these lenders have arranged a sale right behind their FC to the extent they are getting out of it immediately.
The deals you’re seeing foreclosed on are currently worth nowhere near the loan balances. I’ve yet to see a lender willing to take a loss on a distressed or foreclosed deal, Tides included. You’ll see that happen when lender hiring picks back up and originators jump ship to get away from the garbage loans they made - then the remaining people can just blame the old guy and not get fired themselves.
When does MF1 break? Pretty sure that's there largest lender
This is the real question. How many foreclosures has Tides had to date? At least like 8 right? MF1 has somehow not foreclosed on a single tides deal…
MF1 is fully pot committed at this point. They can’t do anything because Tides will take them down, it’s estimated that they have about 1.5b of exposure to Tides and about 7% exposure across all 10 CLOs they issued over the past 5 years.
Also MF1 mostly did their shittiest deals so they are in the worst position of all these lenders.
Thanks for creating a new thread - the old one was getting too difficult to navigate
Seriously. Was thinking exactly the same.
I would think the vast majority of their deals will be foreclosed on within the next 12 months
Just the reality of the situation and they will regret being as aggressive as they were
I don't think this is the first deal of theirs to be foreclosed. They're getting wiped out all over the place.
But no, not a special case, this is going to happen to a lot of their assets. Unfortunately, it won't hurt them, because the same reason they made so much money (defrauding naive investors) will also allow them to keep tapping the same well of people who don't have the sophistication to vet a GP or a deal
I strongly disagree
They put a bunch of their own money into trying to save deals which is all going to go down the drain. Then they staffed up to show they could be a serious outfit right before they were going down the drain. They also are going to have so many failures it will be next to impossible to come back from. Every cycle has these sort of victims and Tides will be one of them where I really doubt you hear from them much
Agree with Rick Kane here. They’re losing their shirts and while the loans are recourse, there’s plenty of recourse provisions that clawback a significant, if not all, their net worth. Tides equity is also a lot different than the Rise48 equity and naive investors. Tides naive investors were AMC led naive investors and institutions. AMC won’t be doing deals with them any longer nor will institutional partners. It’ll be a very long time before they recover and they can’t replace their naive investors with other naive investors like many other operators are still doing (Rise48).
I mean, staffing up has almost no cost if you're going to end up laying those people off. And do we know how much money they put into these deals? They made capital calls... which isn't the same thing when they took no equity risk in the first place. Haven't heard of them mortgaging the 8 figure homes they bought, so I doubt they're in too much distress.
Tell that to Bruce Eichner.
They put partial guarantees on a cross collateralized portfolio. That'll have an extremely quick burn rate.
Oh I don't have any insight into their assets, but I'm sure you're right.
I was more saying that there are a ton of naive idiots out there who gave these obvious conmen money in the first place... and the that well has not been tapped out, not by a long shot. All of these scummy syndicators will be back with another pitch under another name in no time at all, and will find another set of morons to defraud.
Where's that "Associate 3 in RE" from the original Tides Equities thread? Can he make an appearance again? Really want to let him know that the "wait" has been worth it.
I anticipate the lawsuits will hit the clerks' offices when retail capital learns of phantom income next year when they're preparing their 2024 tax returns and receive their K-1s on these deals.
Remember that even if these loans are non-recourse that does not mean it doesn't have tax consequences. Let's assume the total project costs were $50M and it was capitalized with $40M of debt (80% LTC) and $10M of equity. The lender just purchased the property via a credit bid in the foreclosure auction for $20M. The equity is gone.
But, the lender also took a $20M credit loss and should write this off as a bad debt expense. It should show up as a debit on the lender's books and they should subsequently 1099 the borrower for the corresponding credit of $20M which should flow through.
So let's assume you invested $100,000, 1.00% of equity. Not only did you lose your equity but you should receive a K-1 with $200,000 of income. Tax that at 40% and you owe the IRS $80,000 even though you lost your investment of $100,000 and never received any meaningful cash, if any at all.
This is all on top of the fact many of these syndicators aggressively use the 2017 tax bill to cost seg out and accelerate depreciation to pass through to LPs. But that's a whole different issue.
Fun times.
How come the investor receives a K-1 with $200,000 of income?
I'm trying to figure out how to simplify this for folks that may be less familiar with this.
Ledgers must tie out. If the Lender has a $20M expense then there must be an offsetting $20M of income somewhere. In this example, the Lender gave the Borrower $40M. The property sold for $20M and thus the Lender took a $20M write off, $40M - $20M = $20M. The Lender will subsequently send a 1099 to the Borrower for the $20M of debt canceled.
So while the Borrower is not liable to the Lender for the $20M loss (assuming this is non-recourse), it doesn't exclude them from tax consequences to the federal government. So on the K-1 you'll see $20M of income. If you own 1.00% of the partnership that income flows down to you, i.e. $200,000 then taxed at 40% = $80,000 of tax liability you incur.
At the end of the day, the federal government wants their cut. If the Lender is claiming a $20M of expense, it doesn't simply stop there. There needs to be that offset via income.
This is a very basic concept yet too few understand this because - honestly - it hasn't been an issue in this cycle. Very, very, very few deals have such major impairments such that the full equity is wiped out and then a major portion of the debt is wiped out that would trigger a meaningful, concerning tax consequence. But it's going to a topic much more discussed going forward as the tax year rolls around.
Discharged debt isn't considered cancellation of debt income for non-recourse loans, the cancelled debt is considered the sale amount. This causes a gain in real estate since the basis/equity is so low. So for your example, the investors have a $10 million basis and the $20 million credit loss is considered the sales price. This causes a gain of $10 million (let's pretend there's no depreciation at the moment). So the person who invested $100,000 will have what appears to be a normal $100,000 gain. See here (search amount realized on nonrecourse debt).
The difference seems minor, but cancellation of debt income has several work arounds you can use without having to declare bankruptcy.
Edit: mixed some numbers up, see reply below
Admittedly this is not my area of expertise and (thankfully) I have never had to personally deal with this.
The important part of what I was trying to communicate was the double whammy effect and perhaps a triple whammy if you’ve been aggressively depreciating.
With that said, doesn’t it depend on the process you go through. And how that amount is classified for tax purposes? I was under the impression in a short sale scenario the lender would send you a 1099 for that amount and that would be considered ordinary income. Separately, you’d have capital loss of $100,000 as the LP that you could use to offset gains elsewhere or carry forward.
Once again, not my realm of expertise. But what’s the differentiation here?
I feel like there's more to it than you're describing, not least of all due to the corrections below. How did this play out during the GFC? I have to believe there is some alternative for equity holders who lose the entirety of their investment and then are faced with a tax bill. Aren't there any legal provisions for its forgiveness?
There's a lot of nuance given the variability of the circumstances deal to deal and we will see a lot of variance depending on the details of each specific partnership. I would lean away from corrections and towards clarifications as we were starting to discuss some of those nuance and details above.
With that said, big picture - the outcome is still there's a tax liability that comes as a surprise to less sophisticated retail investors.
This is nothing new. The same thing happened post-GFC and lots of retail investors got burned as they learned this first hand. A lot of those retail investors went away and never came back. Ten years later, we're doing it all over again. Admittedly, it's part of the cycle. But it's a larger part of this cycle given the increase in each of accessibility as a result of social media, investor relations platforms, and so forth.
To offset the depreciation, unless they already cleared it out they won't have a real taxable value.
But lets say they had this 200k depreciation offset long term cap gains on something else, then yes they would randomly have a 200k income with nothing to offset it.
Did any of their capital calls work? Are they going to be able to save any properties?
do they have any loans with Arbor and ReadyCap?
Yes, two DFW deals were ReadyCap
Anyone have the data point on how much equity has been wiped already due to foreclosures on them? Looks like they lost about 6 deals so far, if average closing price is ~$50M, so $300M of deals, if they were 75% levered then about $75M wiped so far of equity?
How can they lose $75M of investor money and we haven't heard of lawsuits yet...?
Empire is crumbling fast, RPM is only doing property management on ~12k units. At Tides peak, their portfolio was around 32k units.
Yes, and once the layoffs start happening you know they’re done!
Tides changed management of their entire portfolio to RPM like June/July ish of 2023. RPM only lasted until late winter/early spring this year when RPM started sending lenders notice of nonpayment for multiple properties and tides changed PMs again. Their on their 3rd or 4th PM company at most of these properties in the span of 2-3 years since most of their deals are 2021/2022 vintage
I always laugh when you see a firm brag about how many units they have, especially if they haven't owned them for at least a decade.
Like, no shit... you exist in a zero interest rate environment, you can buy 320,000 units if you want but if you haven't actually executed on a business plan and you never put any money in, then you don't actually have an asset that's worth anything.
Tides has a couple of foreclosures rolling now in Phoenix too. Lights out time.
I still can't wrap my head around how lenders became comfortable with these deals/business plans, or how anyone with any sense invested (at least, invested anything beyond what they were okay losing entirely).
This tale seems to be as old as time, but damn.
Many of these companies specifically target people without the sense to know better.
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