Tides' Principal Punishment & Greystar's Modular Bets

Founder Mode: Starwood Comes at Tides’ Principals

“If you treat [lenders] with respect, like the age-old saying, treat people with respect, and how you want to be treated, it actually works, right?” - Sean Kia, Tides Equities

“Hand back the keys and walk away” is the platonic ideal state of a syndicated deal gone wrong. You take the L and hopefully take away some lessons in what not to do, but you live to fight another day. That’s what CRE (and America) is all about - many shots at the dream.

Turns out, some lenders will tolerate that state of play for only so long. The sharpest-elbowed among them aren’t simply content to pick up the carcass in a credit bid. Instead, to borrow the immortal words of the Count of Monte Cristo, bad sponsors “must suffer as I suffered. They must see their world, all they hold dear, ripped from them.”

Tides (Cont.)

That seems to be where lenders are now at with Tides Equities, one of the defining players in the ZIRP-era multifamily syndication boom. In November alone, there have been at least 5 actions taken by lenders to go after Tides’ principals Sean Kia & Ryan Andrade personally, according to New York court records reviewed by The Promote. Three of them were taken by Starwood. The lender, which took over Tides on Trinity in a $76M credit bid last month, alleges that Kia & Andrade must cough up at least $7.2M as per their Carry Guaranty (nifty explanation here). Starwood is alleging a similar situation @ Tides on Chadwick, which it took it over in a $45M credit bid, and alleges that the lads are on the hook for at least $5.4M. And at Tides on 44th in Phoenix, which Starwood took over in a $26M credit bid last month, it says that the Tides principals are on the hook for $5.7M from the Carry Guaranty, on top of a Recourse Guaranty and $800K from an Equity Funding Guaranty – (couldn’t fully tally the overall amt. Starwood is demanding by press time; its attorneys didn’t respond to requests for comment, nor did Kia & Andrade.)

Meanwhile, at the 636-unit Tides on Copper Creek in Austin, Tides defaulted on a $103.6M loan from Rialto and handed the keys back to the lender in Sept. This month, Rialto sued Tides in New York as well as Andrade personally, alleging he’s on the hook for its failure to obtain a new interest rate cap 👲, to the tune of at least $4.9M.

“Plaintiff brings this action for a monetary judgment as against Borrower and Andrade as a result of their respective failures to uphold their contractual obligations with respect to the Loan,” the suit reads. Rialto has already sued Kia in California court (he’s an LA guy, listing his Brentwood mansion for $25.5M) over the same matter, it stated.

And at Tides on McCallum, a Dallas asset it surrendered this summer in a $28M credit bid, the lender, Mark Fogel’s Acres Capital, is also coming after both Kia & Andrade personally. Acres is suing the duo for allegedly defaulting on their various guaranties (completion guaranty, recourse guaranty), incl. failing to maintain rate caps, failing to complete renovations and letting the complex fall into disrepair. It wants them to cough up at least $8.2M. Kia told TRD that he and Andrade “fortunately have a good relationship with Acres and have been in constant communication with them on this.” 🙏 

Greystar’s Modular Bets

The country’s largest apartment operator is experimenting w/ modular housing, a move that the industry will be watching closely. Today, Greystar will open a 6-building, 312-unit complex in PA developed using the technique - assembled in chunks in an offsite factory, then transported to the location and stacked like Legos. The firm, which manages close to 1M units in N. America, is working on 6 other US modular projects, per WSJ, all to be built at its modular factory in PA.

Nailing modular has long been a dream for developers. IF the process goes well, it can speed up construction, reduce labor needs and allow for builders to buy materials at bulk discounts. Most real-life experiments haven’t panned out as hoped though – Forest City Ratner, which developed a 32-story modular tower at its Pacific Park complex in Brooklyn, claimed it had “cracked the code” on modular, only to exit that business in ‘16. Historically, modular projects have been harder to finance – lenders don’t love having to put in heavier chunks of funds upfront – and get permitting for, but we’re seeing signs of change: modular construction market share more than tripled between ‘15-23 to 6.6%, per industry trade group Modular Building Institute. Related is using the technique at part of its Lake Tahoe workforce housing project, while Amherst is incubating its own modular platform.

The upside can be worth the effort. The PA project, Greystar’s Andy Mest told the publication, was built 40% faster than a comparable standard project, required 1/3 fewer workers and was about 10% cheaper to build – you’d imagine those efficiencies will improve after more at-bats.

“We’re focused on the juiciest or the biggest segment of the market—seven stories and below,” Mest said. “Other people can build the taller, sexier things.” 🧱💃 

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BlackRock To Swallow HPS

With BlackRock’s $3.2B deal to buy Preqin this summer, Larry Fink became private real estate’s Anna Wintour, taking control of an asset that can make/break fund managers. His latest move would thrust BlackRock directly into the arena: the money management giant has a handshake deal to buy private-credit behemoth HPS, per the FT, and a final sale price could be as high as $12B (HPS IPO chatter from this summer was happening at a $10B valuation, so this is a girthy mark-up).

HPS, founded by GS I-banking vet Scott Kapnick less than 2 decades ago as JPMorgan unit Highbridge, seized much of the lending action from banks retreating from the space post-GFC. Its sheer size – nearly $150B AUM as of Sept. end – made it a viable target for BlackRock, which needs a bulky asset in order to square up against the likes of Blackstone and Apollo – Mickey Mouse managers wouldn’t move the needle. 🐭 

HPS has framed the regional banking crisis as a big opportunity to expand its CRE bets. At the moment, it does much of its investing in the space through a JV w/ Related. Competing for primacy will require money money - as we wrote this summer, “there seems to be a sense among the merely large firms that if you’re not among the biggest, you might as well not play.” With Fink’s firepower behind it, we could see much bigger bets in the space.

Thinking about: Does a megadeal like this boost the valuations of smaller CRE-focused pvt. credit players such as Madison Realty Capital? Madison sold a minority stake to Divesh Makan’s Iconiq in ‘22.

Wertzberger’s Williamsburg Wager

Don’t have all the info yet, but: L3 Capital is selling a Williamsburg assemblage at Kent/N6th to entities connected to Joel Wertzberger, per sources. Price $50M-ish. TBD whether JW is doing this through Joyland, Hamilton Eastman or w/ his BridgeCity crew (Moishe Loketch, Allan Lebovits, made immortal by their hits on Traded – read 1 of my favorite things I’ve ever commissioned )

Quickies

• 🎞️ Cushy gig —> actual job: The changing fortunes of NY real estate scions

• Repayment or literal death: RE tycoon must pay back $11B… or else ⚱️ 

• Blackstone facing foreclosure on $275M Club Quarters hotel portfolio 🛏️

• Deutsche sells $1B CRE loan book

• Done deal: Jacob Schwimmer closes on Gary Barnett’s East Harlem site - $70M-ish 

•  Ryan Serhant raises $45M (Camber Creek-led round) to techify the brokerage biz 😊 (my take: Ryan is 1/1 as a media—>sales machine; more Qs about the AI part but he’s a better bet than Knakal to take a crack at it)

Unquotable Quotes