The Deep End
Rent
We have talked before about US rents - a key part of the Consumer Price Index driving inflation fears. People (economists) like to say skyrocketing rents are due to lack of housing supply and a sudden surge in demand - a curious argument when more than a million Americans have died and many more are still working from the same homes they had two years ago. Office occupancy in cities is far below pre-pandemic levels, and in no danger of recovering any time soon. So what is driving double-digit rent increases in some areas?
What if I told you that major property owners and landlords in some of America’s hottest housing markets were using software that encourages them to hike rents way above market rate?
“Never before have we seen these numbers,” said Jay Parsons, a vice president of RealPage, as conventiongoers wandered by. Apartment rents had recently shot up by as much as 14.5%, he said in a video touting the company’s services. Turning to his colleague, Parsons asked: What role had the software played?
“I think it’s driving it, quite honestly,” answered Andrew Bowen, another RealPage executive. “As a property manager, very few of us would be willing to actually raise rents double digits within a single month by doing it manually.”
The software in question is called YieldStar, owned by a company in Texas that licenses it to over 30,000 landlords across the country. Where YieldStar goes, high rents - and hefty profits - often follow:
The nation’s largest property management firm, Greystar, foundthat even in one downturn, its buildings using YieldStar “outperformed their markets by 4.8%,” a significant premium above competitors, RealPage said in materials on its website.
What sets it apart from competitors - and, in fact, RealPage purchased its major rival in 2017 - is that YieldStar uses data provided by landlords in its network. RealPage has access to many of its clients’ rental agreements, providing granular data on what tenants are actually paying, as opposed to, say, average asking rents in advertisements.
The company claims it deploys an ‘algorithm’ that calculates things like unit size, comparable listings, and proprietary data to give pricing recommendations to landlords. While landlords can of course ignore the software’s suggestions, many of them - 90%, by some accounts - list apartments at the higher rates.
A landlord trying to fill a vacancy faces a decision with competing incentives - she wants to rent the unit as quickly as possible to avoid losses, but she could potentially raise her price for a new tenant, since it is more difficult and sometimes against the law to hike rents on an existing tenant. Does she put the unit on the market at a much higher rate and risk extended vacancy and lost money? YieldStar says yes:
At the time, the street behind Camden’s townhouses was shut down while a grocery store was being built. Leasing staff wanted to discount rent for the townhouses because of the nuisance, said Kip Zacharias, who worked with Camden as a consultant.
Instead, YieldStar suggested boosting rents. “We were like, ‘Guys, just try it,’” Zacharias said.
The units ended up renting for significantly more than staff had expected, he said.
[…]
Such [leasing] agents sometimes hesitated to push rents higher. Roper said they were often peers of the people they were renting to. “We said there’s way too much empathy going on here,” he said.
Definitely too much empathy. Can’t have leasing agents - or, derisively renters’ ‘peers’ - offering anyone a deal. Instead, a computer will tell you to raise rates no matter what and, presto! More profit. Dramatic rate hikes may cause tenants to leave, but you make up for it by charging each new tenant more and, before you know it, you’re making lots of money!
Camden’s turnover rates increased about 15 percentage points in 2006 after it implemented YieldStar, Campo, the company’s CEO, told a trade publication a few years later. But that wasn’t a problem for the firm: Despite having to replace more renters, its revenue grew by 7.4%.
“The net effect of driving revenue and pushing people out was $10 million in income,” Campo said. “I think that shows keeping the heads in the beds above all else is not always the best strategy.”
Sure, it may seem cruel to refer to the people living in your buildings to ‘heads in beds’ but have you seen the P&Ls? By removing human empathy from the equation and forcing hundreds more people to undergo the chill, enjoyable process of moving and apartment hunting, Camden and YieldStar proved you can raise rent indefinitely and people desperate for housing will continue to pay.
It also helps to have an effective monopoly in the neighborhoods you’re renting to:
In one neighborhood in Seattle, ProPublica found, 70% of apartments were overseen by just 10 property managers, every single one of which used pricing software sold by RealPage.
In theory, those ten property managers wouldn’t have any way to collude to set prices and raise rents, right? Welllllllllll:
Experts say RealPage and its clients invite scrutiny from antitrust enforcers for several reasons, including their use of private data on what competitors charge in rent. In particular, RealPage’s creation of work groups that meet privately and include landlords who are otherwise rivals could be a red flag of potential collusion, a former federal prosecutor said.
So the company has private work groups with corporate landlords to discuss pricing? Hahaha, sure, yeah, that sounds completely fine. Even if RealPage wasn’t facilitating backroom price collusion, its software could do the same thing without human intervention:
“Machines quickly learn the only way to win is to push prices above competitive levels,” said University of Tennessee law professor Maurice Stucke, a former prosecutor in the Justice Department’s antitrust division.
Algorithms are math equations written by humans. If your company decided years prior that its goal was to maximize revenue for its landlord clients, the algorithm could take the data for a particular area - including rental data from its own clients - and suggest every landlord raise their rents. When the algorithm’s creators fed back in the results - more money! higher rents! - the algorithm would, rightly, decide that the correct answer in all cases was to raise rents. Every one of its clients would raise rents, feed that data back into the system, and before you know it you’re paying 30% yearly increases to live in Seattle. Fun!
RealPage denies enabling collusion, of course, because pointing to a piece of computer code and waving your hands and saying ‘math!’ confuses regulators and judges and juries to the point they may believe you. But if your software is written expressly to raise rents for your clients and those clients take 90% of its suggestions, rents are going to go up!
Circling back a little, who’s that fellow Roper who said the solution was to take ‘empathy’ out of the equation?
A genial, self-described “numbers nerd,” Jeffrey Roper was Alaska Airlines’ director of revenue management when it and other major airlines began developing price-setting software in the 1980s.
Competing airlines began using common software to share planned routes and prices with each other before they became public. The technology helped head off price wars that would have lowered ticket prices, the Department of Justice said.
The department said the arrangement may have artificially inflated airfares, estimating the cost to consumers at more than a billion dollars between 1988 and 1992. The government eventually reached settlements or consent degrees for price fixing with eight airlines, including Alaska Airlines, all of which agreed to change how they used the technology.
Ohhhhh, sure. The main architect of YieldStar was a guy who oversaw a yearslong, billion-dollar collusion project between airlines in the 80s. Sick. He used the same excuse - math!! - for his misdeeds:
At one point, federal agents removed a computer and documents from Roper’s office at the airline. He said he and other creators of the software weren’t aware of the antitrust implications. “We all got called up before the Department of Justice in the early 1980s because we were colluding,” he said. “We had no idea.”
Yeah, we’re just some computer nerds making software, we shouldn’t be held responsible for our clients using it to rip off consumers! Anyhow, in the mid 2000s Roper went to work at RealPage ‘improving’ its pricing software, and now here we are.
There’s a good amount of evidence that YieldStar is driving up rents in metros where its biggest clients own significant property:
Many favor cities where rent has been rising rapidly, according to a ProPublica analysis of five of the country’s top 10 property managers as of 2020. All five use RealPage pricing software in at least some buildings, and together they control thousands of apartments in metro areas such as Denver, Nashville, Atlanta and Seattle, where rents for a typical two-bedroom apartment rose 30% or more between 2014 and 2019.
[…]
In contrast, these same companies control fewer buildings in metro areas such as Philadelphia, Tampa and Chicago, where rents have increased more slowly, the analysis found.
As a Philly resident, I predict the brisk pace of new apartment building construction in my city may usher in more corporate landlords content to sit on above-market units indefinitely until they find willing renters. If left unchecked, YieldStar could easily warp more rental markets as property companies plow their profits into new development.
So what can we do about this? Well, obviously, someone can sue RealPage, but it’s not an easy case to make, because there are many layers of software obfuscation to unravel to prove price fixing. You could, like, just read what its executives say in their promotional material, or what its clients say about the software, but that would require a belief that companies are not allowed to charge whatever they want for a basic necessity like housing.
It seems like every time we talk about inflation around here it ends up sounding a lot like rapacious corporate price gouging. Weird.
TMTG
We have talked quite a lot around here about Trump Media & Technology Group, perhaps because any project Trump-adjacent is virtually guaranteed to be a scam, or because everyone involved is a weird swamp creature prone to saying outrageous things to reporters, I don’t know, but here we are again, in familiar environs.
In response to a stalled effort to go public, the company has claimed the SEC is unfairly targeting it for violating various securities laws, delaying its public listing based on frivolous claims or a political witch hunt or whatever.
Well, it turns out the SEC has lots of internal documents from a whistleblower:
…one of hundreds of previously unreported company messages, documents, photos and audio recordings that Wilkerson has provided to the SEC in connection with a whistleblower submission — reveals a stunning portrait of the animosity that has built up inside Trump Media since its high-profile debut last year.
Where to begin? Will Wilkerson, one of the first executives at Trump Media, kept meticulous logs - and recordings! - of the goings-on at the let’s call it fledgling start-up, because that’s what you do when dealing with people like this:
[Wes] Moss and [Andy] Litinsky were further unnerved when [Patrick] Orlando routed roughly $8 million into Trump Media, via an unknown group called the ES Family Trust, but refused to say where it had come from, Wilkerson said. Their previous investments had come from people they knew, but this money appeared to have been routed from a bank in the Caribbean island of Dominica through a cryptocurrency company, according to wire transfer and financial documents from the transaction that Wilkerson shared with The Post and the SEC.
Patrick Orlando is the founder of DWAC, which, according laws governing SPACs, was supposed to be created with no acquisition target in mind. But, according to Wilkerson, it very much wasn’t:
On April 14, 2021, Moss and Litinsky learned in a meeting with Orlando that the Benessere deal was no longer viable but that Digital World could be an option, Wilkerson said; an entry in the computer log notes that day that “the BENE deal is OFF!!!!”
After leaving the meeting, Wilkerson said, the men were so stunned by the suggestion of something they believed to be improper that they wondered whether it was a government setup or if Orlando had been wearing a secret recording device. The log quotes Litinsky in calling it the “roughest day so far” and says, “Patrick [Orlando] pitches [us] plan b, I get scared, is he wearing a wire?”
Orlando’s original SPAC, Benessere, didn’t have enough money for Trump, so the financier suggested creating a new one - DWAC - with the TMTG acquisition in mind. It was so blatantly not-legal that the TMTG execs thought he might be a federal informant sent to entrap them, so they recorded their next meeting:
The men arranged a brief follow-up meeting with Orlando shortly after — this time, to record their conversation with him, during which they stated their concerns. “We can only engage in discussions after they’re public. That’s the rule,” Litinsky can be heard saying on the recording, a copy of which Wilkerson shared with The Post and the SEC.
Orlando responded, “That’s exactly the rules we have to play by.” He then added, “We have to be very smart. Obviously, we can talk hypothetically about if there were another vehicle,” at which point Litinsky cuts him off. Later, Orlando says, “We’ll make some magic happen.”
Normal stuff! Orlando went ahead and founded DWAC, and - surprise! - announced the TMTG merger. Maybe if the founders kept their mouths - and their daily logs - shut that would have been the end of the story. But Trump, who’d been handed ninety percent equity in Trump Media for investing none of his own money or doing any work on the project, wasn’t happy:
…Trump called Litinsky with a question: Would he give up some of his shares to Trump’s wife, Melania?
Litinsky tried to brush it off, telling Trump “the gift would have meant a huge tax bill he couldn’t pay,” Wilkerson said in an interview. “Trump didn’t care. He said, ‘Do whatever you need to do.’ ”
Five months later, Litinsky, who first met Trump in 2004 as a contestant on the TV show “The Apprentice,” was abruptly removed from the company’s board.
Not content to bully executives into handing their equity to his wife, Trump began to interfere with his own company’s operations:
Trump’s umbrella company, the Trump Organization, disputed a long-signed agreement between the start-up and Trump himself, demanding more control over how Trump’s likeness would be used, Wilkerson said. And Trump’s adult sons — Donald Jr. and Eric — began asking for large stakes in the company, Wilkerson said, even though they had been almost entirely uninvolved.
Obviously, the sons got involved once they caught a whiff of money. Orlando begged for Trump’s favor with fawning missives:
In June 2021, he’d raised tensions when he sent Trump a birthday letter in which he devoted hundreds of words to Trump’s “thought leadership” and “quick and genius guidance” during a recent meeting discussing the company’s name and logo.
“I was unaware of the extent of your brilliance,” Orlando had written. “On your birthday, my only wish is that you realize how proud we are of your successes to date.”
I think we all assume that everyone in the Trump orbit treats him like this, because lickspittle flattery - along with well-done steak and Diet Coke - gives him sustenance. His sons soon demanded the same groveling adoration:
The log cites daily notes of Moss, Litinsky and Wilkerson strategizing how to handle the Trump family’s growing interest in the business’s rising fortunes; one person advised them, for instance, that Trump Jr. “needs a bedtime story and some love,” an entry shows.
Soon, Trump Media execs were spending much of their time dealing with a family full of petulant narcissists:
On Sept. 23, 2021, the log records cite Litinsky saying, “President trump calls me in morning to yell at me because don jr is upset.” The next day, “Don jr calls Wes and yells at him.” On Oct. 12, “djt calls in crazy mood and he tries to renegotiate the entire deal … don jr walks in room and wants to get paid.” On Oct. 30: “djt is pissed.”
Then came Devin Nunes, wet sack of a former Congressman and Trump sycophant, who was appointed CEO despite a total lack of qualifications:
Company filings show Nunes is paid a base salary of $750,000 a year that could increase to $1 million in the second year, plus bonuses and equity. He had no prior experience leading a tech company.
…in Nunes’s first days at the office, Nunes began exhorting workers to come in early and stay late and berating company officials over what he saw as flawed decision-making.
Nunes installed allies in the company’s upper ranks, and soon got himself - and Trump Jr - installed on the board, replacing Litinsky. What had begun as a coterie of MAGA chuds and opportunist grifters attempting to build Twitter But More Racist, had now become another Trump business cliché - funded by shadowy international sources, packed with incompetent loyalists, and so busy settling petty squabbles it couldn’t do any of the ‘business’ it’d set out to do. The launch of Truth Social was a flop, from which it’s never recovered, because hardly anyone at the company knows how to make, maintain, or even use an app.
Now, with TMTG facing lawsuits and investigations, its app languishing, and the prospect of Trump rejoining Twitter when Elon Musk buys it, we can savor the stories of backstabbing, infighting, and the speed at which Trump managed to take what could have been a massive financial windfall and squander it because the man and his family are incapable of not doing crimes in any facet of their professional lives.
Horizon Worlds
Metabook has had a rough year - its stock is way down, and its pivot to the metaverse has been widely mocked. The centerpiece of its VR strategy is Horizon Worlds, which launched with a myriad of bugs and safety issues.
Much ink has been spilled by business and finance writers about Horizon’s active users and Meta’s hiring and firing and the billions its flushed down the toilet to add legs or whatever.
What I’d like to do instead is focus on journalists writing reviews of what it’s like to actually visit Horizon. Here’s the WSJ:
On a recent night, a female Journal reporter visited one of Horizon’s most popular virtual worlds, the Soapstone Comedy Club. It had about 20 users in it, all appearing as avatars. When the reporter introduced herself and tried to conduct an interview with a small group, one user replied: “You can report on me, baby.” The same user then asked her to expose herself.
One user who was flirting with a woman in the crowd was interrupted by what appeared to be his real-life girlfriend yelling obscenities at him in the background.
Hooooly shit. Nothing kills the mood like your IRL girlfriend interrupting your pick-up attempt at a VR comedy show. What else is happening in the metaverse?
The next day, a male Journal reporter visited a “house party” in which he was one of two people in attendance. He and the other avatar jumped into a boxing ring and fought for a round while wearing jack-o-lantern sparring headgear, then played beer pong. The other avatar never spoke and the game ended after about 10 minutes. The reporter’s avatar later fell into the pool and couldn’t figure out how to get out. There was no one around to help.
I mean, if I had Mark Zuckerberg’s wealth and the world’s top tech talent I’m not sure I’d spend $10 billion dollars a year building a first-person version of The Sims, but maybe that’s why I’m not as rich as he is.
Anyhow, here’s The Economist:
It is night-time at the Soapstone Comedy Club. In fact, it always is. The club is a space in Horizon Worlds, Meta’s flagship metaverse app, where users can watch and perform comedy in virtual reality (vr). “It’s hard to do stand-up when you have no legs,” quips one performer, gesturing to his hovering avatar, before accidentally dropping the virtual microphone and floating offstage. A night out in vr lacks some of the atmosphere of a real bar, though it does cause authentic dizziness and nausea.
Here’s Bloomberg on what it’s like to have a work ‘conference’ in Horizon:
Joining the event wasn’t as simple as pulling up a video link. I had to enter the company’s Horizon Worlds app, the virtual universe where people can build and join their own mini experiences, and fire up the Connect conference from my events queue. A bright blue loading screen with a flashing “warning” sign dropped my avatar into a hallway leading to an expansive virtual courtyard, with some multi-story buildings, greenery and a water feature with a slowly rotating Meta logo.
[…]
A sign directed me across the courtyard for Chief Executive Officer Mark Zuckerberg’s keynote, so I thumbed two joysticks — thankful for my experience as a casual gamer — to maneuver around the fountain, up some stairs and into the Horizon version of a metaverse amphitheater. Not expecting to have to “walk” to the event, I was about a minute late, but I did spot a sign saying 1,200 people were already there.
Yeah, if there’s one thing I love it’s logging into a meeting and then having to walk (???) to wherever it is taking place. I appreciate Meta’s dedication to making attending virtual meetings as authentically time consuming as it would be if you worked in their giant Mountain View campus.
Have you ever had anxiety dreams about showing up for a meeting or presentation without your notes? Good news, Horizon can recreate those too:
Then I began to panic that I couldn’t have the headset on and type at the same time. Apparently, there’s a way to set up the headset to “see” the world around you via small cameras on the device. I didn’t know to enable this, and was left squinting through the nose hole to clack at my keyboard, retrieve my controller, and pull up my Slack or Twitter on my real-world laptop.
Cool, cool. Oh, and those coworkers you have with genetic mutations preventing them from being able to operate a mute button?
Event etiquette in VR is still under development too, it seems. I had to move to avoid overhearing some of the dozen people in my room talking during the presentations, and one poor soul with a stuffy nose relentlessly sniffling and blowing it.
Sick. I can’t wait. Matt Levine often jokes that Twitter is run by people who don’t use the site and/or actively dislike it, and it feels like the Meta teams building Horizon Worlds have the same level of disdain for both the app and its users. Defying parody, Meta’s own metaverse team doesn’t spend time in the metaverse:
“For many of us, we don’t spend that much time in Horizon, and our dogfooding dashboards show this pretty clearly,” Shah said.
“Why is that? Why don’t we love the product we’ve built so much that we use it all the time? The simple truth is, if we don’t love it, how can we expect our users to love it?”
Shah told employees that “everyone in this organization should make it their mission to fall in love with Horizon Worlds. You can’t do that without using it. Get in there. Organize times to do it with your colleagues or friends, in both internal builds but also the public build so you can interact with our community.”
Get in there! The Soapstone Comedy Club could use some new acts. And there might be a journalist or two stuck in the pool.
Fraudsters: A Roundup
A few of our favorite charlatans have been in the news lately. Trevor Milton was convicted of fraud and will be sentenced in January. Alex Jones was ordered to pay $965 million dollars to Sandy Hook families by a Connecticut jury. Elizabeth Holmes is trying to get a new trial because one of the government’s witnesses wants to recant some of his testimony.
And, with an honorable mention because she’d absolutely have ended up in here sooner than later, Liz Truss resigned after six weeks in office, leaving a head of lettuce in charge of the UK.
Short Cons
The New Republic - “Sacks is quietly becoming the leading practitioner of a new right-wing sensibility that has emerged in the political realignments provoked by Trumpism and the pandemic.”
Miami Herald - “A pawn in the hands of a professional handler working on behalf of a governor seen as a likely Republican contender for president in 2024, Emmanuel said he believed he was part of a benevolent mission run by a kind and compassionate woman. Huerta told him she was a military veteran. He trusted her.”
Yahoo News - “Tiffany Brown, 43, received a $156 million contract to provide 30 million self-heating meals for Puerto Ricans in the wake of the devastating hurricane in 2017. Federal investigators claimed that she provided only 50,000 meals and none of them were self-heating as promised.”
ProPublica - “Comey was sympathetic to his visitors and recognized the importance of cyber expertise to the FBI’s future. At the same time, he wasn’t going to overhaul the bureau and alienate the powerful old guard to please a group of short-timers.”
Tips, thoughts, or Land Reform Movements to scammerdarkly@gmail.com