Sean Kia and Ryan Andrade took the stage at the Beverly Wilshire last month and dumped out a bag of Tides Equities’ dirty laundry.
Some of it the audience had smelled before. There were the sweeping capital calls last summer, the dozens of lifeline loan modifications, the more than $1 billion in floating-rate debt on the verge of default and, most pressingly, the foreclosures shrinking Tides’ multifamily empire.
But the Tides guys, fresh-faced and well-prepped, didn’t show up to self-flagellate over old news. Especially not before a home crowd. The Los Angeles-based principals were there to do business and, somewhat surprisingly, that meant copping to their mistakes.
When Kia and Andrade, speaking at The Real Deal’s LA Forum on Sept. 12, criticized the herd mentality or rigidity that characterized their investment strategy, they often chalked up the failings to the follies of youth.
The 30-somethings started Tides in their mid-20s. They’d had a trial by fire. Now, their pitch to the industry, with their deals hanging in the balance, was they’d come out stronger, and for that they were still worth investing in — or financing.
“I think it’s important to — if you’re a good person of character — to … just trust that the people on the other end of the call are good people, too,” Andrade said of negotiating hard talks with investors.
If their comments, at times, sounded overdosed on optimism, it’s because the Tides guys’ survival is tied to their salesmanship.
Kia and Andrade on a phone call a few weeks later pushed back on the idea they were trying to sell something on stage. Andrade said the appearance was a chance to show TRD’s audience of lenders, investors and brokers “who we are as people.”
A chance to curate good karma.
“People see you’re a good person, they want to work with you again,” Kia said.
However you frame it, their goal is singular: to convince the industry they deserve a redemption arc so they get to see the next cycle.
Boxed in
The problem for Tides may have been that things, at the beginning, just worked too well.
In 2016, Andrade and Kia — two self-described “econ nerds” — underwrote a bunch of deals and decided the crappy apartment market in Phoenix was an ugly duckling with swan potential.
They followed the data, Kia said, projecting job, wage and population growth for the city. They did a $3 million deal that October, syndicating equity from 31 investors, and within months were topping projections, Kia said.
Eyeing economies of scale, they expanded, first with 10,000 units in Phoenix, then in Texas and Las Vegas — two other regions where the data signaled demand would grow. They picked properties that fit a very specific “box,” Andrade said, to streamline management and bulk buy the appliances and materials to renovate.
“A takeaway that I took is learning the difference between an actual fact … versus an industry-held belief.”
“One turns to two, two turns to three, and, you know, the rest is sort of history,” Kia said.
When the market was up, the assembly-line model was genius. Tenants were flooding Sun Belt states to escape the pandemic. Organic rent growth was soaring and renovations would justify even greater hikes. And Tides had the speed and strategy to meet the demand.
Then the rally stopped. Prices peaked, inflation started rising and tenants couldn’t afford groceries, let alone a new, refurbished apartment.
“You started losing a piece of the tenant population,” Andrade said.
Tides had been spending $15,000 per unit on renovations, amounts greenlit by lenders and limited partners. When they considered cutting costs to $8,000 per unit to refurbish, rather than rehaul, they had to go back to lenders to amend the underwriting and investors to okay the change. Getting new approvals was like “turning a cruise ship,” Andrade said.
“It went from kind of a blanket business plan that worked everywhere, to being very asset by asset and submarket by submarket,” he added.
Rate shock
When interest rates rose, the strategy was finished. The partners had borrowed with floating-rate debt.
No one in the industry expected the Federal Funds rate to fly as high or fast as it did. Many have blamed the Federal Reserve for the distress that followed.
Andrade, ahead of the interview, said he reviewed models from May 2022 — two months after the first hike. Tides had accounted for peak rates of 1.8 percent based on the forward curve for SOFR, a projection of where interest rates might land in the future. An analysis by financial services firm Pensford shows the same 1.8 percent as the projection three months out from the same date.
Andrade said Tides stress-tested 3 percent — a “Draconian scenario” — and bought rate caps — protection against rising rates — at 3 percent for two or three years.
“We were just woefully inaccurate,” Andrade said. “Not just us, the industry at large, right?”
SOFR would ultimately top out around 5.5 percent and only dipped below 5 percent in late September, on the heels of the Fed’s 50 basis point rate cut. Rate caps soared as rates rose. When Tides’ first maturity dates dawned, the partners could neither afford to replace the caps nor refinance.
“We did not play enough defense,” Andrade said.
He also faulted Tides for adhering to the industry groupthink that inflation was transitory and rates would only rise a modest amount.
“A takeaway that I took is learning the difference between an actual fact … versus an industry-held belief,” Andrade said, referring to the SOFR curve as an example of the latter.
Follies of youth
Throughout the interviews, Kia or Andrade would tie most of those mistakes to inexperience.
“You just don’t know you don’t know,” Kia said.
Chalking up lost investor funds and underwater loans to being young and dumb could read as flippant — playing Monopoly with real money. But the partners repeatedly said they had been humbled by the consequences of their naivete.
“Just like any, you know, hard-knocks boot camp, you go through the ringer and you learn, and you get stronger and you grow.” Andrade said.
People told them they wouldn’t earn their stripes until they weathered a downcycle.
“In 2018, when we were flying high, we’re like, ‘Yeah, sure whatever,’” Kia said.
Now they get it.
“It’s a very humbling experience,” Kia reiterated. Then came the silver lining.
“But I think if you’re willing to put in the work and you’re willing to show that humility, people are willing to work with you and they’re willing to give you that second chance,” he added.
That seems to be Tides’ goal now: getting its lenders, in particular, to extend a second chance and keep the business alive through ‘25 and beyond.
“We lost their money but we also made them so much money over the past seven years. Some would invest again for sure, some maybe.”
Andrade and Kia can only do so much to make that happen. Sometimes bad debt just can’t be worked out, and sometimes burned lenders won’t risk getting burned again.
One of the few tools the partners do have is to follow best practices — be honest and transparent, focus on solutions — which may be why they hammered home the point.
“If you treat [lenders] with respect, like the age-old saying, like treat people with respect, and how you want to be treated, like it actually works, right?” Kia said.
For Tides to keep playing, that has to be true. The co-founders’ habit of capping sentences with a question — “right?” — signals they need their audience to believe it, too.
Tides 2.0
Kia and Andrade teased a Tides 2.0 that would prioritize Class-A multifamily assets, which are currently trading below replacement costs, they said. The principals cited projections that huge deliveries in 2023 and 2024 would settle in 2025, then “fall off a cliff in ’26 and ’27,” stoking demand.
“We think that’s a great thesis, right?” Kia said.
Tides has to make it through this cycle first, which means interest rates have to fall far enough and fast enough that they can sell or refinance the assets they own, many of which are worth less than their debt.
Kia pointed to the Fed’s dot plot, which projects rate moves and as of late September showed a 50 basis point cut this year and another 100 basis point decline in 2025, as a source of hope.
“I think that’s a transactional market,” Kia said.
Rates would still be much higher than the period when Tides was doing the bulk of its buying. Kia did not say whether a 200 basis point rate cut would save deals that have yet to mature or those that have nabbed short-term extensions. The cost of rate caps, a requirement to extend floating-rate loans, has dipped significantly on the expectation that more cuts are coming — a clear benefit to their business.
Keeping the Tides train going, though, is a two-part equation as dependent on monetary policy as the firm’s relationships with the debt funds and investors that make its deals happen.
Many of those industry ties have been weathered by distress.
On the equity side, Tides’ largest backer, AMC Investments, criticized the firm for its “lack of transparency.” Tides asked AMC to raise more cash.
Foreclosures have also wiped out the equity investments of limited partners and the firm’s quest for preferred equity earlier this year threatened to eradicate capital invested across 30 deals.
Kia and Andrade, on the phone call, said investors would likely contextualize those losses when deciding whether to invest again.
“We lost their money but we also made them so much money over the past seven years,” Kia said. “Some would invest again for sure, some maybe.”
Lender loyalty
It’s the decisions of lenders, though, that will have the biggest impact on Tides’ next few years. If debt funds work with the borrower, it gets to keep its assets; if they don’t, it’s more likely to lose them. So much for Tides 2.0.
MF1 is among the few lenders that has extended some grace. Though, the debt fund has outsized exposure to Tides’ distress, which effectively forces it to throw the borrowers a bone.
Tides, throughout the interview, seemed to cite that working relationship as a template for how talks with other lenders have progressed.
“It’s better for us, in our opinion, to say, ‘Hey, look, let’s pull your brain power into this, we’re partners, now let’s come together and find a solution,’” Andrade said. “That’s where we have found the most success.”
The principal did admit that some properties cannot be saved, even if you’re “confident that you’re going to get there.” Small shops like NewPoint Real Estate Capital have taken assets in foreclosure and big firms like Rialto Capital Advisors are gearing up to.
As it went, while Kia and Andrade sat on stage at the LA Forum, a property in Austin, a $30 million deal that had been financed with a $23 million bridge loan, was being scheduled for foreclosure sale.
The principals, asked about the handful of assets that have gone back to the bank, didn’t mention that one specifically. Instead, Andrade spoke of a helpful “inflection point” — lenders are either saying yes to taking properties back or “no, we’re going to give you an extremely good loan modification, better than we expected.”
But the latter doesn’t mean the former is off the table.
Late last year, Tides told TRD it had secured workouts on several dozen loans — most made by MF1 — that had extended maturity dates and cut interest rates. A look back at the deals shows Tides still cannot cover loan payments with revenue — a sign rate cuts weren’t deep enough — and has been forced to request extensions of forbearance agreements on a monthly basis. Some of the loans come due in a matter of months, according to Morningstar Credit.
Andrade said the firm is mid-negotiation on those deals. Kia said the cash flow crunch in the loan data does not reflect the modifications.
Each property that goes back to the bank is another vote of no confidence in Tides, a sentiment that insiders say can spread rapidly from one lender to the next.
Andrade on the follow-up call, again, downplayed the threat. He countered that Tides’ willingness to work with lenders on assets they knew they would lose spoke volumes. Some lenders would see that “integrity, ethics and character” as reason to finance their deals again.
The partners said they had recently sent a deal to a lender that had taken back an asset.
“We got a quote from them,” Andrade said.
In Tides’ world, what goes around comes around. To skeptics, the notion smacks of manifest thinking. But for borrowers in as tight a spot as Kia and Andrade, speaking the truth you want to exist isn’t such a bad strategy (even if they deny it’s a strategy at all).
“Sean and I are just good people,” Andrade said on the phone call. “We don’t need a reason to be honest.”
With the “math broken” on deals, straight talk is the second-best tool they have. And that’s why they’ll let it all hang out on stage, even if there is some impulse, even subconscious, to run and hide.
“You want to show [lenders] that you’re in it for the long haul,” Kia said. “You’re not going to move to Mexico and retire after this cycle. Right?”
Listen to the full conversation with Sean Kia and Ryan Andrade on Deconstruct.