According to The Real Deal.com (TRD), AMC Investors, a participant in apartment complex purchases by syndicator Tides Equities is alleging that Tides "owes contractors after tapping funds earmarked for renovations to stay current on debt payments."
Tides is a Los Angeles based syndicator of investor funds which it then invests in properties. It aggressively purchased apartment complexes in the sunbelt in the pandemic area for low interest rates on adjustable loans. The loans are maturing and the rents collected on the apartments are insufficient to cover the costs.
According to TRD, AMC, in a letter to its investors, wrote: “We regret to inform you that we discovered issues with Tides’ lack of transparency which has resulted in unexpected cash shortages," while adding: "the cash shortages were caused by Tides diverting funds meant to pay vendors for work completed to instead pay mortgage payments."
Tides responded to TRD that the letter was "outdated" and that Tides and AMC are working things out after AMC conducted "further due diligence."
On the other hand, this is another example of the ongoing problems faced by commercial real estate (CRE) companies which use adjustable rate mortgages in order to leverage their investments. I've documented the ongoing issues in CRE throughout this page, especially the problems in San Francisco, which are summarized here.
Follow Up on Bond Market
A couple of days ago I suggested that much of what would happen in real estate in the next few days to weeks would develop based the bond market's response to the Fed's rate hike. Here is where we are today.
The U.S. Ten Year Note yield (TNX) moved above 4% on 7/28/23 but has since then moved back below that key yield. This is a relief for now.
The bond yield's retracement seems to have put a bottom under the Nuveen Short Term REIT ETF (NURE), which is also a positive. There was heavy selling in this ETF as bond yields rose.
Meanwhile, the SPDR Homebuilders ETF (XHB) continues to hold steady.
Overall, as I've noted repeatedly, the real estate sector remains very sensitive to the action in the bond market. So far, the TNX 4% yield seems to be the key. REITs seem to be more vulnerable than homebuilders to the fluctuations in yields, especially when they rise above 4% on TNX. Homebuilders are showing more resilience than I had expected.
I'll have more on REITs and homebuilders in this weekend's Portfolio Update for subscribers of Joe Duarte in the Money Options. com. If you're not a subscriber, take a FREE ride for two weeks.
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