From roughly 2020 to 2022, “syndicators” took over the apartment investment market. During that time, this group of dimwitted rent seekers used bridge loans to finance their apartment acquisitions. At 85% leverage, the bridge loans left only a sliver of equity to raise, for which these syndicators used third parties or online platforms built for anonymous fundraising from average Americans with cash to burn and no place to earn a yield in the zero interest rate environment of the time.
To the extent there was a business case underlying these acquisitions, it involved two sets of assumptions. First, that heavy renovations on apartments, financed by additional bridge loan money, would lead to immediate and massive increases in rent. Second, that benchmark interest rates would stay at or near zero for the foreseeable future.
These assumptions were foolhardy for a variety of reasons, but the point is moot. Syndicators’ primary motivations involved pocketing acquisition fees — collected up front and not tied in any way to future performance — before the Fed turned off the money tap and investors realized they had been duped. To that end, they’ve been wildly successful. Many of their investors, on the other hand, lost everything.
Tides Equities
One of the most voracious syndicators during the apartment bubble was Tides Equities, based in California. Headed by Sean Kia and Ryan Andrade, possessing a combined skill set that might equal that of a middling undergrad analyst, Tides ultimately acquired over 30,000 apartment units — a staggering figure for a team with no apparent investment management acumen.
In their estimation, however, Tides had plenty of serious tools to catalyze their business. Aside from the boost provided by the loosest money regime ever — supported by the Fed and the Donald Trump and Joe Biden administrations printing trillions of dollars — Kia and Andrade possessed a glossy online presence.
These two amassed over $8 billion in assets under management. Unfortunately, they were unable to keep the momentum going. After a solid two years stacking up mediocre properties at obscenely high prices, the Fed increased benchmark interest rates.
Raising interest rates to levels still below historical averages was enough to collapse Tides’ investments. As of 2023, news outlets were calling 20% of their portfolio distressed, but the real figure is far worse, encompassing nearly all of their properties and loans.
In the last two months, Tides has defaulted on a $103 million loan for a large property in Texas, sought additional capital — which would essentially wipe out existing investors — for 30 of its properties in the south and southwest, saw three properties in Fort Worth foreclosed, and another two foreclosures in Dallas.
For every loan default, foreclosure, and dilutive capital injection, there are scores of moms and pops, the original investors in these properties, who will lose the entirety of their investment. As for the Tides founders, they’re doing just fine.
The others
One need not be familiar with every syndicator to understand their basic nature: largely unskilled, inexperienced, and emotionally undisciplined but deeply motivated by rent-seeking — the acquisition of wealth not by creating value but by deftly prying it from others.
Jay Gajavelli, founder of Applesway Investment Group, worked in information technology prior to launching his real estate syndication career. Gajavelli was tutored by online scam artists professing to teach real estate investment — people like Brad Sumrok and Grant Cardone.
Unfortunately, Gajavelli was not taught how to actually maintain the physical buildings he acquired. From a recent Wall Street Journal piece:
“At one of these apartment complexes in Houston that Jay owned, it’s called Timber Ridge, and dozens of tenants had complained about massive rat infestations, several feet high piles of uncollected trash in the parking lot, mold, roaches, abandoned units that squatters were living in, crime happening at the apartment complex due to a lack of security. At one point, the mailboxes had been vandalized such that no one could receive mail.”
In 2023, Gajavelli saw over3,200 units in Houston go to foreclosure. Valued at $229 million, these properties were worth less than the loans underlying them.
That same lender recently foreclosed on more Applesway properties, backed by $60 million in bridge loans.
GVA is another high-profile syndicator. Based in Austin, Texas, GVA was founded by a golf marketing executive, Alan Stalcup, with no discernible real estate or investment management experience. Despite that, Stalcup “loved tax efficient passive income” enough to acquire 30,000 apartment units during the bubble.
Recently accused of fraud by a partner, Stalcup and GVA have seen over $1 billion in loans tied to their properties decimated by distress or foreclosure. To his investors, Stalcup recently offered this advice:
“If you’re still feeling uneasy ... please go for a walk ... barefoot in the grass or on the beach and force yourself to smile and recount five things you’re grateful for.”
Other syndicators whose fortunes have fallen include Rise 48, ZMR, and Nitya Capital. In each case, the story is the same. Talentless but ambitious founders rushed to fund property acquisitions during the bubble that went pear-shaped when rates increased. Properties owned by these syndicators are now largely distressed, in many cases sporting debt service coverage ratios under 0.5, meaning the properties generate less than half of the cash required to make loan payments.
Caveat emptor
When the free market is so thoroughly subverted by the central bank and federal agencies, as it has been in the U.S., the proliferation of con men is guaranteed. The incentive to position themselves close to the source of newly created money is part and parcel of their character and an outgrowth of a desire common to swindlers — that of making something from nothing.
While the syndicators are bad enough, the ultimate con is the central bank’s money manipulation that made all of this malinvestment possible. Without zero interest rate policy and the fresh “printing” of trillions of dollars, pumped into the capital markets through the transmission belt of wholesale lending, there would be no apartment bridge loan market on par with what we saw in 2020-22. Instead, a free market would exist based largely on merit and ability — naturally leaving behind this group of apartment syndicators that possessed neither.
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