Tides Equities, true to its word, is turning over a new leaf and shopping Sun Belt Class-A multifamily as its value-add properties go to seed.
Finding deals isn’t a problem, as principals Sean Kia and Ryan Andrade told a crowd at The Real Deal’s LA Forum last month.
“We’re underwriting dozens of deals monthly,” Kia said, spotlighting the “great thesis” of buying fresh-faced multifamily below replacement costs.
But on one property, locking down equity proved a deal-breaker.
Tides, weeks ago, was under contract on Ascend at Black Canyon, a Phoenix-area new development priced at $76 million, when “the equity backed out,” complicating the firm’s quest for financing, according to materials reviewed by TRD.
A request for acquisition financing detailed that Tides’ search for a 60 percent loan-to-cost mortgage turned into a quest for 85 percent leverage, including a 15 percent preferred equity stake, after the original partner’s commitment was off the table.
Absent the partner’s equity, Tides couldn’t close, Andrade confirmed. The deal fell through.
The botched execution calls into question whether the problem was Tides’ reputation. That is, did the mounting foreclosures or the losses of investor capital put off their would-be partner?
Andrade insisted otherwise. “That’s completely inaccurate,” he said.
“The equity partner actually signed off on the deal and approved the deal,” the principal said, adding that the co-investor was a California-based high-net-worth individual.
“He couldn’t get the liquidity in time for the closing date,” Andrade added.
The financing request includes a paragraph explaining Tides’ track record, seemingly to assuage would-be lenders.
“Although Tides has had struggles with their existing value-add portfolio in-part attributed to rising rates and high leverage debt, the acquisition of Ascend represents a different deal portfolio with a strong JV partner,” an executive summary of the request reads.
The summary touts the principals’ willingness to plug their own equity into struggling deals, and cites the failure of retail investors to gin up more capital as the cause of most of Tides’ foreclosures.
“The assets with institutional JV partners will survive the market turbulence,” the request reads, referring to Tides deals that have not gone under.
Andrade and Kia, speaking after the LA Forum, shot down the idea that Tides’ flubs would blacklist them with previous lenders or equity investors. The principals agreed some “would for sure” work with them again, as Kia put it, and “some maybe.”
It’s unclear whether the would-be equity investor had worked with Tides before.
The syndicator still likes the Ascend project, a Class-A multifamily complex wedged between a highway and a stream called Skunk Creek on the northern outskirts of Phoenix. The property is still in lease-up.
Andrade said the firm may try to buy it later and is scoping other Class-A deals in the city, as well as in Texas and Nevada.
“We’re being very selective,” he said.
Meanwhile, Tides is making moves with its Phoenix value-add stock — for better or worse.
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The firm sold Tides on Country Club, a distressed 582-unit complex, for $118 million in the second quarter, a 30 percent premium to what it bought it for in 2020, according to a Kidder Matthews report.
The Arizona Business Journal reported Mack Real Estate Group had filed to foreclose on two of the firm’s Phoenix-area properties: Tides on Cave Creek and Tides on East Broadway.