Tides touts loan workouts across bulk of portfolio

After a summer of threatened capital calls, promised investments yanked and watchlisted loans, multifamily firm Tides Equities finally reported some good news. 

The Los Angeles-based company headed by Ryan Andrade and Sean Kia said 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.

“Of the ones that need help, effectively all of them have received some sort of loan modification, which is awesome,” Kia added.

Tides desperately needed the workouts because its debt payments soared as the Federal Reserve jacked up interest rates, and the firm couldn’t raise rent revenue as fast as it had hoped to on properties across the Sun Belt and Southwest.

As of late August, nearly $1 billion in mortgages backed by 27 Tides rental complexes had been watchlisted, many because cash flow couldn’t cover debt service, according to data from commercial real estate analytics firms Trepp and Morningstar.

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.

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.

Kia and Andrade said the loan extensions would push maturity dates back by two to four years. 

Their hope is that interest rates will fall, allowing Tides to refinance its loans at more favorable rates. In any event, the workouts push back potential foreclosure actions and give Tides time to complete planned renovations and raise rents — its game plan all along.

Of Tides’ loans packaged into collateralized loan obligations, two-thirds were issued in 2021 and 2022, according to Morningstar data. Most had initial terms of two or three years, meaning they were to mature this year, next year or in 2025.

In the meantime, Tides said it had secured “rate cap relief” on a number of deals. Sponsors with floating-rate loans are required to buy a rate cap — protection against higher interest payments if rates rise above that cap.

The catch is that caps expire when the loan does and buying a new one becomes more expensive as rates rise.

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. 

In other workouts, the firm said it had scored longer-term caps at a discounted rate.

“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.”

The workouts have a rationale for Tides’ lenders, too. The private firms that doled out the debt can stem losses and avoid, for the moment, the cost and hassle of foreclosure.

Federal regulators, wary of cascading loan failures and eyeing an upcoming wall of maturities, have asked financial firms to “work prudently and constructively” with credit-worthy, commercial real estate borrowers and grant short-term loan accommodations.

Still, lenders such as MF1 and Arbor have recently filed to foreclose on multifamily assets after borrowers dogged by rising rates defaulted. 

One looming question for Tides is whether interest rates will actually go down.

Skeptics have dubbed the extension strategy ‘extend and pretend,’ as lenders defer write-downs in hopes of a rosier future. Others have reworked the quip as ‘survive ’til ‘25,’ when rates are expected to ease. 

The secured overnight financing rate forward curve is considered the leading indicator of where rates will go. The curve currently shows rates at about 4 percent in 2025. Last week’s average rate was 5.3 percent. 

Improved financials also depend on rent growth. Tides underwrote many deals as if net cash flow would at least double over three years. It will be challenging to achieve those gains through improvements alone.

Meanwhile, rents in the Sun Belt, where Tides bought the bulk of its portfolio, have plateaued since their 2021 highs. In some cities they have even declined. The average monthly rent for a one-bedroom apartment in Phoenix, where Tides owns hundreds of units, is $1,300, down 10 percent from a year ago, according to Zumper.

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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.

Kia and Andrade declined to say how much they called.