Trammell Crow "Eats Crow" (1975) vs. Tides (2023)
Back in 1975, Trammell Crow's formula of recruiting, training, and capitalizing young development partners--after decades of success, leading him to be the nation's largest private developer--hit a huge snag.
Interest rates surged by 50% in the early 1970s, causing debt and equity capital markets to stall and pushing Trammell Crow's empire toward potential bankruptcy.
Leading up to the crash, emerging debt markets (e.g., first-generation mortgage REITs) provided abundant capital that "undoubtedly prompted land speculation and bad deals in the Trammell Crow empire."
Crow's land holdings alone, reportedly "came to some $400 million, most of it financed with floating-rate bank debt. And income was not covering the interest charges."
According to this 1975 Forbes article, Crow had an interest in $1.5 billion of properties or about $8 billion in today's dollars.
Wait a second...
An aggressive sponsor with excess capital.
Interest rate spikes.
Floating rate debt.
No debt service coverage.
Maybe history really does repeat itself.
Fast forward to today...
Tides Equities (a very aggressive sponsor) acquired $7 billion of apartment properties near the market's peak over the last few years, following a very similar playbook: Excess capital and floating rate debt. Now with interest rates up significantly, there's little to no debt service coverage.
A few differences between Trammell Crow in 1975 and Tides Equities in 2023...
1. Trammell Crow, unlike Tides, provided recourse guarantees to lenders on behalf of his partnerships, which undoubtedly kept Crow engaged.
2. Trammell Crow had many strong properties that generated liquidity in bad times and allowed survival. Tides only has apartments in Texas, Arizona, and Nevada, all purchased in the last few years.
3. Trammell Crow had dozens of key debt and equity relationships that flexed in difficult times, promoting survival. Tides seems to lack similar relationships; much of Tides debt is tied to CMBS debt, which is notoriously inflexible, and Tides' equity consists of many pass-the-hat type contributions.
Trammell Crow stepped up in his first big crisis, leveraged his strengths, and emerged decades later stronger and more dominant than before. It's hard to see a similar path for Tides and other easy-money syndicators.
Would you be surprised if 30%+ of Tides' apartment loans default?
There have been three instances over the last 50 years, where vintage mortgage defaults reached 30%. Will multifamily loans originated in 2021-22 face similar outcomes?
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