Tides Equities Successfully Negotiates Loan Modifications to Push Maturity 2-4 Years

LA-based multifamily firm Tides Equities has secured loan workouts on several dozen properties, extending maturity dates and cutting interest rates on floating-rate debt. 

The reason: Ryan Andrade and Sean Kia's company needed to restructure its debt since the Federal Reserve raised the interest rates, causing the payments to do the same. At the same time, the company was unable to raise rent revenue as quickly as expected on its properties across the Sun Belt and Southwest.

The plan: Tides' hope is that interest rates will fall, allowing it to refinance its loans at more favorable rates. Meanwhile, several deals have been awarded a “rate cap relief”. Sponsors holding floating-rate loans must acquire a rate cap, which will provide protection against elevated interest payments if rates surpass that cap. The challenge lies in the fact that these caps expire when the loan does, and purchasing a new one becomes costlier as rates increase.

According to Andrade, Tides has secured six-month rate caps instead of 12-month ones in several projects. This shorter term allows Tides the chance to acquire new caps for less money if the rates come down. In addition to that, Tides got some longer-term caps at a better deal. 

"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."

This move will benefit Tides’ lenders too, since these firms will be able to avoid foreclosure, at least for now.

What’s expected: Tides is left waiting for interest rates to go down. 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. 

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.

In the meantime: 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.