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After two Tides workouts, loss expectations raised
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Soon after workouts, Tides fell behind on $150M in debt
Special servicer may be less amenable than lender who gave syndicator a break
Servicers have flagged another $150 million in Tides Equities debt, citing late payments by the troubled multifamily syndicator.
Tides was marked at least 60 days delinquent on $48 million in securitized debt provided by Ready Capital and backed by apartment properties in Fort Worth, Texas, according to Morningstar and Trepp.
A $100 million loan tied to a Las Vegas property, originated by Arbor Realty Trust and packaged into a collateralized loan obligation, was marked less than a month late as of Oct. 1. Sean Kia, who heads Tides alongside Ryan Andrade, said the firm is “actually current on the $100 million loan.”
“It is not delinquent,” he said.
The action by servicers comes just a month after Tides said it had modified “effectively all” of its distressed debt. Those loans were overwhelmingly made by the firm’s primary lender, MF1 Capital, not the lenders whose loans were flagged in October.
The delinquencies won’t necessarily lead to foreclosures. But they show Tides has yet to overcome its debt issues. It remains to be seen if the modifications Tides secured on MF1 loans are replicable on its other financing.
To understand how Tides managed so many workouts with MF1, it is important to know how modifications on CLOs and commercial mortgage-backed securities work. Generally, the firm that doled out the debt plays no role in workouts.
“In order to get a modification — change the contract terms — the loan has to be with a special servicer,” said Stephen Buschbom, a research director at Trepp.
A loan lands in special servicing if a borrower becomes 60 days delinquent, shows evidence of imminent default or asks to be transferred to get ahead of a delinquency.
But because MF1 lent so heavily to Tides — about $1.3 billion, according to Morningstar — and so much of that debt was struggling — $425 million this summer — MF1 had an incentive to facilitate workouts before a special servicer got involved.
As J. Paul Getty was thought to have said: “If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.”
In August, about $645 million of MF1 loans to Tides were modified and sent to special servicing, according to Trepp. On four loans totaling $122 million, the debt was transferred before or on the same day it was modified, indicating MF1 had a hand in hashing out new terms.
MF1 did not respond to a request for comment.
Modifications of the MF1 loans changed rate caps and interest rate reserve accounts and removed various tests. Commercial lenders often require borrowers to maintain certain metrics, such as a debt yield or debt service coverage ratio, to show the loan is performing well.
On one loan backed by a Tides property in Las Vegas, Tides was required to put a $5.2 million deposit into an interest reserve and $400,000 into a rate cap reserve, according to a remittance report obtained by The Real Deal.
“From what I’ve read, it was a pretty good outcome for Tides,” Buschbom said of the modification terms he reviewed, noting that he hasn’t seen them all.
However, on the overdue loans, Tides’ fate is in the hands of special servicers, which have no allegiance to the sponsor.
Commentary from September shows Tides was “attempting to work out a payment solution/plan” on the Fort Worth deals originated by Ready Capital before the loans landed with a special servicer for “imminent default,” according to Trepp. That debt backs two properties: Tides at Woodhaven and Tides on Meadowbrook.
Kia said Tides “is in advanced loan modification discussions with the special servicer on those two Fort Worth assets.”
“[We] are hopeful to have something inked shortly,” he added.
Buschbom said the delinquencies likely won’t do Tides any favors in workout negotiations.
“When you hear the comments from the special servicer … they say that’s never a good route to go,” Buschbom said.
The special servicer, as a third party, works on behalf of the bondholders who invested in the debt. It aims to hammer out a fix that secures those investors the highest possible return.
To nail down a modification, a borrower’s best tool is more capital, which can be used to pay down the balance. Borrowers can also put more cash into reserve or buy a new interest rate cap — insurance against rising rates.
For special servicers, delinquency doesn’t inspire much confidence that a borrower has extra cash on hand. If the owner is failing to make loan payments while diverting cash away from the property, it could breach “bad boy” provisions, which are designed to deter practices that can make loans unrecoverable for lenders.
Loans in CLO pools, such as Tides’, are non-recourse, meaning special servicers can’t go after the borrower’s personal assets to repay lenders. But loan terms often include a bad boy carve-out that holds the borrower personally liable if the borrower commits fraud or “gross negligence,” Buschbom said.
The Real Deal found no evidence that Tides has breached those terms.
At Tides on Charleston, the Las Vegas property that backs the Arbor loan, Tides could still get its ducks in a row without third-party intervention. The loan has yet to go to special servicing, according to Trepp.
Still, problems are evident. As of August, the loan had a debt service coverage ratio of 0.49, meaning cash flow at the apartment complex funded less than half the monthly debt payments.
The property has been the site of three major fires since 2020. Blazes in February 2020 and June 2022 displaced 39 people and hospitalized one. Combined, the damages were estimated at $1 million, according to the Las Vegas Review-Journal.
The most recent fire, in June 2023, killed one resident, hospitalized six others and displaced 18.
Correction: This article previously stated that MF1 lent $2.2 billion to Tides. $2.2 billion is Tides’ total CLO debt. MF1 lent $1.3 billion to Tides, according to Morningstar.
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