Tides Equities is looking for new cash to shore up 30 of its properties across the Sun Belt, The Real Deal has learned.
The Los Angeles-based firm is shopping around for about $69 million in preferred equity to pump into the 7,300-unit portfolio, according to marketing materials obtained by TRD.
The investment is needed to “meet projected financial obligations through the stabilization and sale of the assets,” the marketing materials said.
Tides, a syndicator that pools equity to buy up apartment complexes, is shopping for the preferred equity alongside one of its largest equity partners, AMC Investments, which has already put more than $300 million into Tides’ properties. The firms hired JLL to market the preferred equity investment.
Tides’ search for preferred equity comes after many of Tides’ loans on its properties landed in trouble. Because Tides relied on floating-rate debt, its monthly debt service soared across its portfolio once rates rose — and the firm could not hike cash flow fast enough to meet the rising debt payments.
Tides has “successfully modified” loans tied to a number of properties in the portfolio, but did not say how many. Each modification was different — some loans were extended, others required additional funding for interest rates or had monthly mortgage payment deferrals, according to Tides.
But more cash is needed.
The preferred equity will be used to address debt service shortfalls, pay to replace rate caps — hedges against rising rates — and pay goods and services expenses that have not been paid yet.
“We are looking to understand what true market terms are for pref [sic] equity on a portfolio of this size,” Tides co-founder Sean Kia said in an email. “The market has moved considerably over the past few months when the 10-year [Treasury note] was north of 5 percent and curious to see if preferred equity economics have gotten more competitive.”
Preferred equity investors are paid out before common equity holders in the event of a sale or liquidation, but after senior debt holders. Because it sits higher in the debt stack than common equity, it generally holds a higher rate of return.
Tides and AMC are offering a 15 percent return on the portfolio, with profit-sharing of between 25 and 100 percent, depending on the building, when the property is sold.
About 4,000 of the units are in Fort Worth, Arlington and Dallas in Texas, while 1,500 are in Phoenix and about 1,700 are in Las Vegas. The largest property is the 436-unit Tides at North Arlington.
The marketing materials show many of Tides’ properties are struggling with occupancy — Tides at Woodhaven, for example, was 67 percent occupied as of last month. A fire also broke out at the property in 2022, leaving one person dead and 25 other people out of apartments.
Tides’ $27 million loan from Ready Capital tied to that property was marked delinquent in September and is now in special servicing, so Tides and the lender can “work on a payment solution,” according to Morningstar.
When the loan was handed out in 2021, the property was 96 percent occupied, according to a report from Morningstar.