"Only when the tide goes out do you discover who's been swimming naked."
Warren Buffett
----- About Tides Equities -----
1. Tides purchased $6.5 billion of apartment properties in Texas, Arizona, and Vegas since 2020.
2. Google searches for "Tides Equities" are up 15x over the last year, likely due to an increase in headlines such as, "Tides Equities flew too close to the sun" (The Real Deal).
3. We recently created a case study on a Tides property in Austin that was purchased a year ago and is now 114%+ LTV, 0.4x DSCR, with a floating rate and near-term maturity, which made us want to keep peeling back layers.
----- Tides Arizona properties -----
Tides has a huge footprint in Texas, but Texas is a non-disclosure state, which makes gathering information difficult. So we focused on Arizona, where it's easier to find property information, especially since entities follow naming conventions like "Tides on 71st Owner LLC."
----- Findings -----
- $2.2 billion of apartment AZ properties purchased since mid-2020.
- Tides was especially active in late 2021 and early 2022.
- We estimate that Tides' average going-in cap rate was 3.88%.
- We assume Tides borrowed 70% LTV financing at S+150.
- We assume NOI hasn't fallen.
Key questions: How would Tides' Arizona portfolio change in a 5% cap rate and 7.5% borrowing rate environment?
Our estimated answers:
- Values: $2.2B → $1.7B (22% decline)
- Equity: $649M → $166M (74% decline)
- LTV: 70% → 90% (29% increase)
- Debt service: $30M → $114M (280% increase)
- DSCR: 2.81x → 0.74x (74% decline)
- CF after debt service: $54M → ($30M) per year
----- Good news, bad news -----
Good news: Our analysis suggests Tides has equity to protect as long as cap rates stay below 5.55%.
Bad news: Even if Tides has equity to protect, it's bleeding something like $30M a year in negative cash flow. Also, our estimates are relatively inflated in Tides' favor since we assumed steady NOI and have found multiple examples where Tides borrowed more than 70% and/or bought at below our estimates of market cap rates.
----- Our takeaway -----
We wouldn't be surprised to see very significant levels of defaults, lawsuits, and/or expensive rescue capital.
----- Disclaimer -----
We don't pretend to have special insight into Tides or any other owner. This analysis could be inaccurate. Feel free to recommend changes or adjustments in the comments. If Tides recommends changes or adjustments, we will post those responses.
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