Tides Equities’ Kia and Andrade Face Threat Of Bankruptcy

Foreclosure is no longer the biggest threat to Tides Equities’ co-founders.

Sean Kia and Ryan Andrade are now in danger of losing their shirts.

Last month, three lenders hit the thirty-something principals of the quaking multifamily firm with lawsuits alleging they are personally liable for tens of millions of dollars.

Barry Sternlicht’s Starwood Mortgage Capital sued for more than $18 million tied to loans on two Texas properties and a third in Phoenix, The Promote first reported. Meanwhile, Acres Capital alleged the sponsors owed no less than $8.2 million on the debt backed by Dallas’ Tides on McCallum. And Rialto Capital Advisors sued Kia and Andrade separately over Tides on Copper Creek, demanding $5 million from Andrade.

The sponsors allegedly breached guarantees — including commitments to finish renovations and pay interest — that triggered recourse obligations, causing the lenders to pursue the borrowers personally for various debts.

Andrade is potentially on the hook for over $30 million and Kia for at least $26 million, according to court documents.

It raises the question of whether the sponsors have the liquidity to cover those amounts.

“It’s an enormous amount of money,” Zachary Streit, president of advisory firm Priority Capital Advisory said. “That kind of obligation bankrupts most people.”

Neither Andrade nor Kia returned requests for comment.

Streit qualified that bankruptcy isn’t certain: “There could be some kind of a workout.”

Kia, who commented on Acres’ suit last week, said he and Andrade had been in “constant communication” with the lender.

But the fact that Acres and the other lenders went after the sponsor personally signals negotiations had hit a wall, in turn driving the lenders to flex their muscles, one real estate attorney said.

Starwood, Rialto and Acres had already taken back Tides properties in credit bids that failed to cover the debt owed. The new suits are a path to recoup those deficiencies, the attorney said.

It’s unclear if Kia and Andrade have the cash to cover the alleged debts. But the flurry of filings in just one month signals their lenders have little confidence that they can.

“My sense is that it is a snowball effect and that [lenders] are filing and filing early, hoping there’s something left to collect,” Streit said.

Before interest rates soared and floating-rate deals went bad, Kia and Andrade generated impressive returns on their fix-and-flip strategy for Sun Belt multifamily. But after the market turned, the principals said they dug into their own pockets to fund operating shortfalls and pay down loans before calling on investors to put up more capital.

“We said, Let us be the stand-up guys, let us try to put our money where our mouth is,” Kia said at The Real Deal’s Los Angeles Forum. “And then we realized, ‘Okay, this isn’t going to last forever.’”

The principals have been fighting distress for more than a year and a half.

Kia listed his Brentwood estate for $25.5 million this fall, 20 months after he bought it for $14.5 million.

The worst-case scenario for Kia and Andrade is that November’s filings are just the beginning.

Tides did $7 billion in deals over the past few years. There is publicly available loan performance data for $1.4 billion of its debt. $905 million of it is watchlisted, overwhelmingly because revenue is not covering mortgage payments, according to Morningstar Credit.

Some $238 million is in special servicing, $185 million is delinquent and the sponsors have already faced foreclosure on a number of properties and lost a few.

It’s possible Tides’ other lenders, including Ares REIT, Ready Capital and MF1, could mimic their peers’ strategy and file suit in the hope that there is still something left to grab.