Inflated Claims
Progress Residential
Every so often, we read articles about giant investment firms buying up houses in America to either resell at a profit or, more often, rent to people who can’t afford a home. I have mixed feelings about these stories, because on the one hand it’s not good that a company like Blackstone owned 80,000 homes while the average American is struggling, but also 80,000 homes isn’t that many homes in a country the size of the US. It’s hard to know whether Blackstone is driving up real estate costs. To me, an important question is - what’s happening to people who live in these homes?
Let’s talk about Progress Residential:
Over the past six years, 19 of the 32 homes on Tammy Sue Lane have been purchased by a billion-dollar investment venture, part of an unprecedented flow of global finance into the American suburbs.
Progress capitalized on the 2008 housing crash, raising money for an investment fund that focused on going into suburban neighborhoods and buying reasonably-priced homes to rent them to families who couldn’t afford to buy. Perhaps, in some universe, this could be seen as a charitable venture - the financial crisis did decimate millions of homeowners, though in hindsight that was a choice the government made rather than a necessity. However, the company behind Progress was quite explicit in its sales pitch:
To raise money for the project, Pretium Partners sent confidential invitations to people wealthy enough to put up at least $2 million. Executives projected annualized returns of 15 to 20 percent, according to a 238-page solicitation to investors in 2012. In total, Pretium Partners raised more than $1 billion, and the resulting real estate venture became Progress Residential.
They predicted - correctly - that they could step in and buy up cheap houses, turn around and rent them for long term profits:
With the Progress Residential venture, [Donald] Mullen bet in the other direction — that the houses it was buying would increase in value. By 2019, according to a news release at the time, the venture had nearly doubled investors’ equity.
Great, so Progress bought cheap houses, doubled their investors’ returns, and continues to buy up houses as a brisk pace even after the housing market recovered. So, returning to the original question - how’s it working out for tenants?
While buying up block after block, Progress also has been accused of aggressively evicting tenants. Congress is investigating whether Progress and other major rental firms violated a national moratorium on evictions during the pandemic.
[…]
More than 3,000 people across the nation have joined a Facebook group for tenants called Victims of Progress Residential. The site is an eruption of tenant complaints — about evictions, but also lost security deposits, costly fees, calls that go unanswered and an array of maintenance issues — that echo those of Progress renters in Rutherford County.
Meanwhile, Progress utilizes its cash balances to buy homes out from under people, and get itself good deals:
Within 15 minutes of a house appearing on the Multiple Listing Service real estate database, the company’s computers assess whether it should be flagged for review by the company’s acquisition team
[…]
Within two hours of the listing, Progress can make an offer.
[…]
Progress’s most significant advantage, however, may be its ability to make all-cash offers, and quickly. A typical buyer must borrow money, and the financing arrangements can add uncertainty and delays.
All those advantages pay off for investors: In an analysis of more than 70,000 sales of single-family dwellings, university researchers showed that investors paid about 10 percent less than an individual buyer for a similar house.
Again, this is all perfectly legal. Once Progress has bought these houses and raised rents, it finds every sleazy way imaginable to extract money from its renters:
The company often forced tenants to pay for home repairs even when the damage should have been covered by the company, [Megan Cook] said.
[…]
Four other former employees said Progress often refused to relinquish security deposits, even when a tenant left a house in good shape.
[…]
Progress also embeds an array of fees and penalties in the provisions of the leases tenants sign. In a lease on Tammy Sue Lane, for example, tenants are required to pay: 10 percent of the rent if the payment is more than five days late; $7.95 a month for a firm picked by Progress to collect utility payments; $9.95 a month for failing to buy renter’s insurance; and a $35 “convenience fee” each time rent is paid with a credit card.
If the company sends out a maintenance crew, Progress charges a $75 fee unless the company determines the repair to be its own responsibility. If the company files an eviction case, Progress charges tenants a $200 “eviction administration” fee, according to the lease.
These fees can add up quickly for residents, who are essentially at the landlord’s mercy to fix anything that goes wrong with the house. The landlord who pays the repairmen, who can decide whether a repair is covered, and charge tenants if they decide it isn’t.
Then there’s Progress’s aggressive stance on evictions, which it may have done in violation of the law during the pandemic:
Pretium Partners filed to evict more than 1,200 of its renters in the first half of this year, before sharply curbing the practice once the congressional review began […]
Progress is under Congressional review, but hasn’t yet been cited for violating the moratorium. Meanwhile it’s evicted thousands of families from its homes during a global health crisis. Even outside of a pandemic, having an eviction on your rental or credit history can make it extremely difficult to find new housing. Progress is ruining peoples’ lives in the name of investor returns.
Meanwhile, executives at Progress think it’s all quite amusing:
An executive at Pretium Partners dismissed the idea that owning and renting are significantly different. Whether they’re renters or homeowners, people still must make a monthly payment — for rent or for a mortgage, Dana Hamilton, Pretium Partners’ head of real estate, said on the real estate podcast.
“I laugh because when people try and distinguish owning a home from renting a home, the reality is most people don’t own a home — they rent the home from the bank,” Hamilton said. “From the outside, it really looks the same.”
Hahaha! This sucks, man. As the country deals with new waves of COVID-19, skyrocketing wealth inequality, and increased cost of goods, it’s worth taking a look at how corporate landlords and real estate trusts are treating the people who are forced to live in their housing, some of whom they’ve locked out of the housing market with their aggressive allocation of capital.
Meat
Since the US economy is - at least on paper - doing quite well, some people have turned to inflation as the boogeyman du jour. The media has declared it a top story for months now, a constant stream of articles warning of economic doom just around the corner:
The truth is, inflation is not strictly a scientific measurement. In fact, in some cases it’s a self-fulfilling prophecy:
But attention is now focused on another variable: Do people think inflation is here for a while?
Because people’s expectations can factor into inflation, the answer plays a critical role in determining how the Federal Reserve and the administration manage the rising numbers—and how soon and how much the Fed will raise interest rates.
So, people being worried about inflation can lead to inflation, which then means the government has to act to curb inflation. What a convenient narrative for people who have either political or philosophical reasons for wanting the government to curb spending! Surely that won’t be misused.
Speaking of, let’s talk about meat prices. One primary driver of inflation “sentiment” in consumers is the prices they pay at the store for necessities, like meat. If shoppers see the cost of ground beef has gone up, they think to themselves, “that’s inflation!” What if - I am just spitballing here - it was actually just monopolistic price gouging? Surely, that wouldn’t be allowed to happen in our Free Market Economy:
Four of the biggest meat-processing companies, using their market power in the highly consolidated U.S. market to drive up meat prices and underpay farmers, have tripled their own net profit margins since the pandemic started, White House economics advisers said.
Financial statements of the meat-processing companies - which control 55%-85% of the market for beef, poultry and pork - contradict claims that rising meat prices were caused by higher labor or transportation costs, advisers led by National Economic Council Director Brian Deese wrote in an analysis published on the White House website Friday.
Sure, sure, of course. We’ve talked before about all the negative consequences of meat processing being controlled by a small number of very bad companies. So, are we sure this is price hikes and not some other factor?
Those [financial] statements showed a 120% collective jump in their gross profits since the pandemic and a 500% increase in net income, the analysis shows. These companies recently announced $1 billion in new dividends and stock buybacks, on top of the more than $3 billion they paid to shareholders since the pandemic began.
Well shucks, I guess it’s been a good year and a half for meat companies, even if it hasn’t been so great for their employees. If you needed an even more on-the-nose example of how inflation is being used by companies to hide their pandemic profiteering, look no further than the president of the North American Meat Institute:
"It is no coincidence this blog post appears on the same day as the Consumer Price Index is released showing gas and energy prices are up nearly 60 percent over the past 12 months which is nearly 10 times the rate of inflation for food," President Julie Anna Potts said in a statement.
Yes, pay no attention to our profits doubling as meat prices go up 25%, because gas prices are also up! Is any of this illegal? Maybe, if the processors all colluded to fix prices, but given how friendly US courts are to monopolistic corporate vultures, I wouldn’t expect to see the meatpacking cartel pay any real price for this behavior.
Ghost Kitchens
There is a saying, often in reference to political reporting, that if you need to know what’s really going on in the country, read the business press. I tend to agree with this sentiment, but once in awhile you get an article in the business press that starts like this:
A few seconds after a cook turned on a stove in a tiny mobile kitchen in a Houston parking lot in April, a fireball erupted from the propane burners, flaring out into the center of the trailer owned by Reef Global Inc.
While the cook escaped harm—she happened to open a refrigerator at the same time that shielded her from the flames—it was the second such incident at the same Houston trailer in four months. The first one injured a different cook, as flames scorched her face and gave her third-degree burns on her hands that caused skin to peel off her fingers, rendering her unable to work. A similar fireball in San Francisco injured another Reef employee in the spring, according to former Reef managers briefed on the three incidents.
And continues thus:
The episodes are among many operational challenges that have faced Reef, a leading player in the emerging business of delivery-only kitchens, as it pursues a strategy of rapid growth to open hundreds of kitchens around the U.S.
In addition to the three fireball incidents, Reef has faced multiple citywide shutdowns over permitting and other regulatory violations, challenges connecting to local utilities, higher-than-expected costs and a labor shortage, said former executives and managers.
Okay. First of all, I do not think the woman in Houston with a burnt face and third degree burns on her hands considers her injuries an operational challenge. Second, when you have to include “three fireball incidents” in a list of things that have gone wrong with a business, you may be underselling the seriousness of said operational challenges.
We have talked a bit about ghost kitchens, and how the business model has taken off. VCs are betting heavily on a new normal in which people don’t go out to eat as often. The idea of a ghost kitchen makes sense conceptually - situate a bunch of good delivery options in vacant lots around a city or town while cutting down on the overhead of running a brick and mortar restaurant. Maybe this is a good idea, but how do you get these thousands of kitchens stood up in places that want them?
One theme that emerges often in these sorts of stories is that VC-backed, growth-focused companies with large piles of cash tend to believe they can just kind of do whatever they want when it comes to local laws and regulations. So you end up with situations like this:
Since the summer, local officials in New York City, Houston, Detroit and Chicago have suspended operations at some or all of Reef’s fleets of trailers for violating regulations, totaling more than 25 closures. Many of the suspensions were for kitchens that were operating without permits, while others were for failing to tow the trailers to a central commissary every day, a requirement for food trucks in many cities.
As it turns out, many cities already have laws governing food trucks and mobile kitchens. Go figure! You’d imagine a company that raised $1.5 billion dollars would be able to hire local compliance or permitting teams, but I guess not. Or, perhaps more importantly, have any idea how to run a mobile kitchen:
Utility hookups routinely take months longer than expected, requiring expensive generators and water deliveries, according to former Reef managers. Food waste is a consistent problem, as is a broader labor shortage in the food-service sector that has sent its cooks’ wages soaring.
Over the summer, Reef was losing $30 million dollars a month. Not great! They’ve laid off some people, signed a deal with Wendy’s - pushing many of the overhead costs onto franchisees - and attempted to streamline operations. Oh, and they want to raise another $1.5 billion dollars to expand, because as we’ve seen, scaling a money-losing business is a good way to…make…profits? I don’t know.
Where did the first $1.5 billion go, though? Reef blew much of its initial investor cash buying up parking lot companies:
SoftBank backed it in 2018. Reef quickly used much of the $1.2 billion it raised to buy two giant companies that manage and operate parking lots, becoming what it says is the largest parking-lot network in North America.
Reef initially had plans to turn unused portions of parking lots into community areas - with food, entertainment, and other services to bring locals together. Whether such a utopia was ever possible is debatable, but the company has now gone all in on setting up trailers in empty lots and maximizing restaurant profitability, rather than improving social infrastructure or providing a dining experience.
Again, though, the problem is they aren’t good at doing the “kitchen” part of ghost kitchen:
In one meeting of managers in the kitchens division, an executive posted a slide that read, “Speed: If everything seems under control, you’re not going fast enough.” Managers wanted 1,000 kitchen trailers operating by June 2021—a number the company missed by more than 600, according to former executives and managers.
That is a pretty big miss! In addition to the very boring hurdles of city permitting and utility installations, it appears Reef’s parking lot strategy isn’t going well either:
Real estate has been another problem: Despite Reef’s parking roots, Reef found it wasn’t able to put trailers on many of its lots, as some had enclosed garages, where propane tanks and utility hookups aren’t allowed. Others were owned by landlords who didn’t want food trucks, former employees said. As a result, Reef rents lots from other parking owners for more than 70% of its kitchens, current and former executives said.
There is something very 2021 about a company becoming the largest private parking lot owner in America in order to build thousands of pop-up kitchens, and having to rent 70% of its kitchen lots from someone else. It’s perfect.
There is a Reef kitchen near my house, and I have eaten there twice. What drew me in was Fuku, David Chang’s new restaurant brand available exclusively through Reef. One thing I noticed when picking up my food was that the Reef location houses not one but three different pop-up concepts, which seems challenging for a one or two-person team inside a shipping container. While my food came out just fine on both occasions, I may have been the exception rather than the rule:
Rollouts of new restaurant brands often ran into food-quality issues. After the launch of David Chang’s Fuku, reports from customers to delivery apps of undercooked chicken from Reef’s kitchens concerned executives, former and current managers and employees said.
For Fuku and other new brands, Reef executives routinely told employees to order food on their corporate cards and leave good ratings, former managers and other employees familiar with the practice said.
This is a nightmare for restauranteurs, and a cautionary tale for celebrity chefs who want to use the ghost kitchen to grow their brands. As a matter of fact, this week Fuku announced it is dropping Reef for a competitor. Notably, they have a different business model:
Reef cooks food for brands under licensing deals, while Kitchen United rents kitchens to chains looking to expand their delivery footprint. [...] Reef's trailers are situated mainly in parking lots, while Kitchen United's ghost kitchens are accessible to consumers and are similar to food halls.
Perhaps the future of ghost kitchens is as extensions of existing fast food brands like Wendy’s or KFC, but for now, as long as companies like Reef are in charge of placing them around the country, they will be a worse option than ordering from a proper restaurant.
Don’t Give a Google Review to the Hitmen You Hired to Kill Your Mistress and Her Lover
According to the indictment, Maund paid Peled's Speartip Security over $150,000 prior to the planned killing. The team surveilled their targets before Brockway and Carey confronted them in the parking lot of an apartment complex. Lanway and Williams were both shot and killed and then had their bodies dumped near a construction site on Old Hickory Boulevard in West Nashville.
Maund then wired $750,000 dollars to Peled and wrote a positive review of Speartip's services on their Google profile under his own name, stating: "They get the job done in an expedited time. Couldn’t imagine using anyone else!!"
Usually when we talk about people hiring hitmen, it’s for a few thousand dollars off parody websites, but apparently if you’re willing to spend $900,000 dollars to cover up an affair, you can get the real deal, though there’s always the chance you’ll leave an obvious paper trail and get everyone involved thrown in jail.
Short Cons
MIT Tech Review - “One year after that rollout, legitimate publishers accounted for only two of the top 10 publishers on Facebook in Myanmar. By 2018, they accounted for zero. All the engagement had instead gone to fake news and clickbait websites. In a country where Facebook is synonymous with the internet, the low-grade content overwhelmed other information sources.”
Bloomberg - “High-earning investors in the U.S. pay up to 20% in capital gains tax and as much as 37% on short-term gains. In Puerto Rico, they pay nothing. And companies based on the American mainland pay 21% in federal corporate tax plus an individual state tax, compared to just 4% on the island.”
ProPublica - “Even if their horses finished far out of the money, some owners had a salve for the sting of defeat: tax write-offs. Six of the 20 thoroughbreds selected to run in this year’s Derby were owned by ultrawealthy Americans whose horse-racing operations have produced a combined $600 million in losses that they could use to offset their federal taxable income…”
Tips, thoughts, or a real definition of inflation to scammerdarkly@gmail.com