New York Is Set To Become A More Dangerous Place In 2020

New Yorkers are weeks away from sweeping changes to their criminal justice system. A series of laws passed by the state legislature will take effect Jan. 1, 2020. The legislation concerns bail reform and new requirements related to the collection of evidence and the process of a speedy trial.

These laws will vastly and widely impact law enforcement and crime in New York, and not for the better. While well-intentioned, these measures will make New York City revert to the dire state of the 1970s, which some of us personally remember and some may associate with the 1979 film “The Warriors.”

From a public safety perspective, the new laws are a nightmare. Allowing criminals to be free and roaming the streets will only accelerate crime and send New York City back to the “bad old days” when lawlessness was rampant. I worked the streets as a detective when the city regularly saw thousands of homicides per year. In the 35 years since I’ve been retired, I am glad that crime has gone down significantly and the city has become one of the safest large cities on the planet. Politicians are making laws that can reverse decades of progress.

I certainly agree with the spirit of criminal justice reform and have personally supported bail reform. Thousands of people get entangled in the system, which can be unfair and cruel at points. For instance, a teenager with no prior record who gets arrested for a small amount of marijuana shouldn’t be sent to Rikers Island for months just because he can’t afford bail. However, these reforms will have severe unintended consequences that politicians are too short-sighted to think through properly.

The kind of bail reform presented here will put serious offenders on the street while awaiting trial. Bail will be eliminated all misdemeanors, most nonviolent felonies, including Class A drug felonies and even certain burglary and robbery charges. Even some homicide charges can have bail waived under these changes.

The NYPD will be forced to issue Desk Appearance Tickets (DAT) to people they arrest for all misdemeanors and many felonies, essentially crippling all enforcement. Under the new rules, it’s entirely possible for a person to be arrested for a robbery, get it downgraded to grand larceny and released without bail, then later in the same day commit another grand larceny, get another DAT, and be out in time to commit more crimes before supper. It may sound ridiculous but under these new farcical regulations, it could really happen.

Even more alarming are the potential effects of the new discovery requirements. Witnesses and crime victims’ names and home addresses will be released to defendants as soon as possible, within 15 days. Police and prosecutors already have a difficult job convincing witnesses and victims to come forward, under the new paradigm the task will be nearly Sisyphean. Detectives will now have to warn witnesses and victims that, their attackers may be on the street and have their name and contact information while awaiting trial. Undoubtedly this will discourage already scared and traumatized individuals from cooperating with investigations.

The current anti-police climate in the city has already contributed to lowering the morale among members of the NYPD. I speak to cops every day, and many of them tell me they are hesitant to act in the line of duty because they know city politicians and the top brass that reports to them won’t have their back in the event of a complaint. Police have always been ready to risk their lives for service, but now they risk their reputation and livelihood just by doing their jobs.

The discovery changes will require police to turn over evidence such as security camera and body camera to the defense within 15 days. The process of securing chain of custody of evidence can be time and labor intensive. These laws ignore NYPD budget and time restraints, and will drain existing resources, reducing the availability of detectives to carry out their core functions of investigating crimes.

These regulations can also hamper long-term investigations. If a suspect in a criminal enterprise (such as a gang member) is arrested and quickly released along with the names of all witnesses and victims, his or her accomplices and associates will have a heads up on investigations. They will be better able to elude prosecution and continue their criminal activity.

Especially unsettling is that grand jury testimony, which has for hundreds of years been kept secret in order to protect victims and help build cases, will now be disclosed to defendants and within 15 days. Keeping grand jury testimony secret has been effective for decades at securing witness cooperation and assuaging victims’ fears. Revealing grand jury information may also put jurors at risk of jury tampering and encourage someone facing indictment to flee and become a fugitive.

These new laws were passed for entirely political purposes and without regard for the safety of our city’s population. They were crafted without proper input or consultation by the police department and prosecutors. Such drastic changes will radically alter the criminal justice system on every level and create far-reaching consequences. The city is entirely unprepared for these imminent changes, which is a very scary thought. I hope the governor reconsiders these actions.

https://dailycaller.com/2019/10/29/dietl-new-york-dangerous

Alphabet’s Sidewalk Labs secures conditional nod for Toronto smart city

Alphabet Inc Sidewalk Labs unit secured conditional approval to move forward in the process to build a smart city in Toronto after agreeing to develop a smaller area than initially proposed and make concessions on data collection and privacy, the city’s waterfront development board said on Thursday.

The directors of Waterfront Toronto met to consider “alignment on critical issues” between Waterfront and Sidewalk Labs on the company’s proposal to build a futuristic urban development project along Toronto’s water front.

The approval means the project will go through a formal evaluation and further public consultation before a final vote on March 31, 2020 by Waterfront Toronto, a corporation funded by the city, provincial and federal governments.

Sidewalk agreed to decrease the initial development to 12 acres, after outlining a development of 190 acres in June. It also agreed to scrap a proposed “Urban Data Trust,” which many critics warned had the potential to compromise the privacy of individuals’ data.

Sidewalk had also wanted to be the sole developer of the area, but they have now agreed to partner with “one or more real estate developers” that would be chosen through a “customary” competitive public procurement process led by Waterfront.

“While a final Board decision whether or not to proceed has yet to be made, we are pleased that we are now able to move to the evaluation stage,” Stephen Diamond, chair of the Waterfront Toronto board of directors, said in a statement.

The project proposes features such as a thermal grid to lower power use, traffic signals that use data to prioritize pedestrians who need more time to cross roads and a self-financing light rail transit that connects the Greater Toronto Area to the waterfront, among other features, according to a master plan released by Sidewalk Labs in June showed.

The master plan released in June by Sidewalk said the project will add C$14.2 billion (£8.4 billion) annually to Canada’s GDP, C$4.3 billion in tax revenue, and create 44,000 permanent jobs by 2040. Andrew Tumilty, spokesman for Waterfront Toronto, said the group does not yet have adjusted figures, adding that would be worked through in the formal evaluation process.

Waterfront Toronto has a mandate to approve projects, although some aspects – including sales of government land – would still have to be approved by the relevant level of government.

The project has faced hurdles. Critics said Sidewalk Labs’ proposals for data usage and storage took too much from individuals, and did not create enough opportunities for Canadian businesses.

Sidewalk and Waterfront Toronto had until Thursday to resolve “threshold issues,” as Waterfront termed them, including data usage and scope of the project, that would satisfy both parties and allowed the project to move forward toward final approval.

https://www.marketscreener.com/ALPHABET-24203373/news/Alphabet-Sidewalk-Labs-secures-conditional-nod-for-Toronto-smart-city-29491743/

Ackman thinks WeWork could be worth ‘zero’

Bill Ackman says SoftBank (OTCPK:SFTBF,OTCPK:SFTBY) “should have walked away” from WeWork (WE), according to FT sources.

The hedge fund manager spoke yesterday at the Robin Hood investor conference: “I think WeWork has a pretty high probability of being a zero for the equity, as well as for the debt.”

He also sees WE as “putting good money after bad.”

Now read: SoftBank Is Trading At A Huge Discount Of 50% »

https://seekingalpha.com/news/3511675-ackman-thinks-wework-worth-zero

2 Owners Of Large Rent-Stabilized Portfolios Fall Behind On Loan Payments

Investors are starting to feel pain from the state’s new rent regulations, with two landlords of those kinds of units now behind on their debt obligations.

Emerald Equity Group and Sugar Hill Capital Partners fell behind on loans issued by LoanCore Capital over the last few months, The Wall Street Journal reports. The loans, backed by a collection of more than 600 rent-regulated units in Upper Manhattan that the companies separately own, were for more than $200M and packaged into securities.

The firms had purchased the properties with the hope of moving units out of rent stabilization, per the WSJ. Under the new laws, passed in July, landlords’ ability to increase rents on stablized units and take units out of regulation and into the free market has been significantly reduced.

The real estate industry has vehemently criticized the legislation, saying it will result in a drop in investment in the city’s housing stock and potentially drive capital out of the city. Tenant advocates have praised the laws as a crucial step toward dealing with the city’s housing affordability crisis.

Isaac Kassirer’s Emerald Equity is delinquent on $86M in loans on East 117th Street buildings and on $85M in mortgages on an apartment building in Manhattan Valley. Sugar Hill has missed payments on properties along Central Park West.

Emerald and LoanCore are discussing resolving the issue, and one possible outcome is that the lender will take the properties over, a source told the WSJ. Generally speaking, lenders will likely seek to renegotiate loans with their sponsors over foreclosure, Ariel Property Advisors President Shimon Shkury said.

Investment sales in the city have been sliding, particularly among multifamily properties, which many say is a direct result of the rent regulation reform and a disaster for the city. In the third quarter of the year, multifamily sales volume in Manhattan dropped some 60% year over year, according to data from Ariel.

The Real Estate Board of New York’s analysis found that in the first half of the year, total dollar volume for that asset class in the city fell 37% between the first half of 2018 and 2019, and transactions dropped 31%.

“The results were unsettling,” REBNY President Jim Whelan said at the group’s fall lunch last week, adding the drop resulted in a $66M loss in tax revenue for the city. “I would like to represent to you that the decline in investment sales was an aberration and won’t be repeated. Our fear, though, is that it’s the start of a trend.”

https://www.bisnow.com/new-york/news/commercial-real-estate/rent-stabilized-unit-owners-behind-on-loan-payments-101506

SL Green signs two more leases for One Vanderbilt in Manhattan; 64% leased

SL Green (SLG) signs two leases at One Vanderbilt Ave.,  its tower in east midtown Manhattan set to open in August 2020.

The tower is now 64% leased.

Alternative investment firm Oak Hill Advisors sign a 15-year, 45,954-square-foot lease covering the entire 16th floor.

Carlyle Group expands its 15-year lease to occupy an additional 33,034 square feet on the entire 34th floor, bringing its total footprint to 160,778 square feet on floors 34 through 38.

Previously: SL Green’s One Vanderbilt is ahead of schedule, under budget (Sept. 19)

https://seekingalpha.com/news/3510640-sl-green-signs-two-leases-one-vanderbilt-manhattan

Burned-Out Building Tally Could Decide Fate of PG&E’s Investors

• Plans could be nixed if more than 500 buildings are destroyed
• Utility says the whole system for assigning blame is broken

A home burns during the Kincade fire near Geyserville, California on Oct. 24. Photographer: Josh Edelson/AFP via Getty Images

PG&E Corp. investors looking to learn their fate may not get the answer from the bankrupt power company. Instead, the key data point could pop up within days on the website of California’s forestry service.

That’s where firefighters are tracking how many structures the Kincade Fire has destroyed — 94 at last count. If the tally tops 500, and it turns out that PG&E equipment started the fire, the backers of two competing reorganization plans have the right to withdraw because of the soaring liability.

The collapse of those efforts could lead to painful losses for junior bondholders, and all but assure that stockholders get wiped out.

“Everybody has been worried about these financing outs, where both parties have the ability to walk away if there is a large fire,” said Jared Ellias, a bankruptcy law professor at the University of California Hastings. Both groups can re-evaluate whether this is “the world they thought they would be in when they made these commitments.”

The Kincade fire is raging across about 70,000 acres, according to the website of California’s Department of Forestry & Fire Protection, forcing thousands of people to flee. PG&E said that one of its transmission lines failed near the origin of the Kincade fire shortly before it was reported to have started. The stock fell 24% Monday, and some of PG&E’s bonds plunged about 15 cents on the dollar.

“The market reaction indicates that all the plans are off the table and that par recovery on the bonds is somewhat in question,” wrote Cantor Fitzgerald Managing Director Terran Miller in a Monday report.

In the short term, it’s unlikely that the rivals will completely give up their efforts to take PG&E out of bankruptcy, Ellias said. “They both spent a lot of time working on this,” he said.

But if the fire expands much more, the damage estimates that underpin their proposals will be way too low. The 500-building threshold gives sponsors a way to scrap their commitments and try to craft a revised restructuring plan.

PG&E and a group of its bondholders are pushing competing versions of a reorganization plan for the court to consider. The San Francisco-based utility giant is dueling with creditors that include Pacific Investment Management Co. and Elliott Management Corp.

Both plans hinge largely on reaching settlements with victims of past fires and their insurers. And both could fall apart if the Kincade fire claims get too large, because new claims get more priority for payment in bankruptcy than any existing unsecured debts.

This means the $30 billion worth of existing wildfire liabilities that PG&E took into its Chapter 11 case would lose priority. In turn, this would push unsecured bondholders and stockholders even lower in the pecking order. Since share owners are among the last to be paid, there may be little or nothing left for them.

A garage burns at a vineyard near Geyserville, California on Oct. 24.

Photographer: Josh Edelson/AFP via Getty Images

The information in the company’s initial report on what happened with its power line before the start of the Kincade fire is “preliminary,” said James Noonan, a PG&E spokesman. “Both PG&E and Cal Fire are conducting investigations,” Noonan said. “It’s too soon to discuss liability for a fire that does not yet have an official determination of cause.”

Representatives for the shareholders committee, which supports PG&E’s restructuring plan, declined to comment, as did the ad hoc committee of unsecured creditors sponsoring the alternative plan.

“Nobody factored in the value of new claims” in their financing commitments, said Cecily Dumas, a lawyer representing the official committee of tort claimants. While neither group of investors had indicated they will pull out, Dumas sees shareholders as more likely to exit. “If their stock value is wiped out, they have less incentive to put new money in because they aren’t protecting anything anymore,” she said.

At the beginning of the bankruptcy, Judge Dennis Montali called the prospect of new wildfire claims the hidden “elephant” in PG&E’s reorganization. In a March hearing, Montali raised the question of whether lenders funding the company’s bankruptcy could declare the multibillion financing package in default because of new fire claims.

Damage Control

PG&E does have ways to mitigate the financial damage. The company had $430 million in insurance coverage for a fire that occurs between Aug. 1 and July 30, 2020, and said it was pursuing additional coverage, according to an Aug. 9 regulatory filing.

The company can also tap into a new state-backed wildfires insurance fund to cover about 40% of the cost of the blaze if it exits bankruptcy by June 30.

What’s more, legislation passed earlier this year allows PG&E to pass costs along to ratepayers if it can prove its conduct was considered reasonable.

It’s also seeking to have the federal bankruptcy judge in charge of its case void state court rulings that say the utility is akin to a public entity and should pay damages under the concept of “inverse condemnation.” The utility should recover the costs by raising the electric rates, the state courts have said.

But California regulators have plainly said they won’t allow that to happen, according to a motion that PG&E filed on Monday in the bankruptcy court, supported by bondholders and shareholders. This conundrum is fueling “a broad consensus that inverse condemnation law in California is broken,” the company said.

https://www.bloomberg.com//news/articles/2019-10-28/burned-out-building-tally-could-decide-fate-of-pg-e-s-investors?srnd=markets-vp

JPMorgan Mulls Moving Thousands of Workers Out of NYC Ahead of Downturn

270 Park Ave. in New York, which JPMorgan is tearing down to build a new HQ

JPMorgan is planning to whittle down its New York City presence as it weighs moving thousands of employees elsewhere and possibly selling its Madison Avenue skyscraper.

The bank, the city’s largest private office tenant until it was usurped earlier this year by WeWork, is looking at moving thousands of employees to other parts of the country, Bloomberg reports. It is an attempt to cut costs amid a looming economic downturn, according to the publication.

The bank has committed to building a brand-new headquarters at 270 Park Ave., but has been quietly beefing up its operations around the country. Plans are already in place for hundreds of credit-risk jobs to be moved from New York to Texas, and for some senior-level employees to be moved to that state, too. Plus, some staff have already been told that New York will not continue to be a compliance hub.

Meanwhile, executives are reportedly weighing moving staff to places like Plano, Texas, Columbus, Ohio, and Wilmington, Delaware. It has more job openings in Texas than it does in New York, and hundreds of job listings in Wilmington.

Right now, JPMorgan has approximately 37,000 employees in the New York metro area, including New Jersey, according to Bloomberg. The company’s New York City trading hub at 383 Madison Ave. could be sold as part of the cost-saving measures. There is no decision finalized on that yet, but what happens there, and how many people are moved to the new location on Park Avenue, will have an impact on how many people stay in the New York area.

“We are committed to the NYC metro area,” JPMorgan spokesman Joe Evangelisti told Bloomberg, adding that the new headquarters on Park Avenue will fit twice as many employees as the Madison Avenue building. “We expect [New York City] to be our largest location for the foreseeable future.”

There have been concerns about New York City’s business environment, political climate and affordability for some time now, which could result in loss of business and investment in the city.

JPMorgan wouldn’t be the first to begin withdrawing from the city; money manager AllianceBernstein announced earlier this year that it is moving its headquarters from New York City to Nashville as a cost-saving measure. It has been headquartered at 1345 Sixth Ave., but plans to move in 2022.  Back in February, Amazon killed its plans to open a new headquarters in Long Island City in the face of staunch opposition in some circles, raising concerns that New York City has become unappealing to business. (JPMorgan was also said to be hoping to hire from the talent pool that Amazon was expected to generate.)

In real estate, rent reform legislation, which reduced the ways landlords can increase rents on regulated apartments and de-stabilize units, is said to possibly put off investment into the city. Landlords also argue it will reduce the supply of quality housing in the long term, thereby driving costs up further for residents in the city.

Meanwhile, an ongoing housing affordability crisis means more than half of all households in the city are rent-burdened. Nearly 300 New Yorkers move out every day on average, a report found earlier this year, the highest number of any major U.S. metro.

https://www.bisnow.com/new-york/news/commercial-real-estate/jpmorgan-is-shrinking-its-nyc-presence-in-preparation-for-a-downturn-101502

Amazon’s Costly Push For Last-Mile Warehouse RE Sent Profits Down 26%

Amazon is finding out the hard way that last-mile warehouses are among the most complex and costliest elements of industrial real estate. The e-commerce giant suffered a 26% year-over-year decline in profits in the third quarter, breaking a streak of year-over-year profit growth that stretched back to 2017, The Wall Street Journal reports.

Overall incoming revenue increased 24% to $70B over the same time period. In an earnings call, Amazon Chief Financial Officer Brian Olsavsky told analysts that the drop is due to aggressive spending in the company’s drive to make one-day delivery the new standard for Amazon Prime customers, the WSJ reports. Amazon had planned to spend $800M this year on the one-day delivery initiative, but blew past that by spending $750M in Q2 alone, the WSJ reports. The company expects to spend $1.5B in Q4 to further beef up its supply chain to support one-day delivery through the busy holiday season, Olsavsky said.

Last year, Amazon struggled with the logistical load of record activity around the holidays, in some cases being forced to erect massive tents to house temporary fulfillment centers. To make matters worse, shipping giants like FedEx, UPS and the U.S. Postal Service were unable to supply enough trucks to meet demand.

Finding and leasing warehouses close enough to population centers to pull off one-day delivery has proven more expensive than Amazon projected, Olsavsky said on the earnings call. The company remains committed to the one-day model, but does not have a sense of its long-term cost, the WSJ reports.

Adding to the cost of the initiative is the elevated labor requirement of last-mile logistics, which has led to a sharp increase in hires in Q3, Olsavsky told analysts.

The creation of Amazon’s own shipping subsidiary has also been a costly bit of infrastructure, especially as it resulted in FedEx cutting business ties.

Though the huge expenditure has produced sizable growth in online sales — 22% year over year, double the jump from Q3 in 2018 — according to the earnings report, cloud computing arm Amazon Web Services remains the company’s biggest profit driver, the WSJ reports. AWS sales rose 35% year over year last quarter, a drop from 37% in Q2 and below its longtime average of 40%.

While its least customer-facing business slowed growth slightly but remained robust, Amazon’s attempts to reach customers more directly have been less fruitful.

The online merchant’s physical stores, including Whole Foods, saw the biggest drop in sales of any segment of Amazon’s business, the WSJ reports.

https://www.bisnow.com/national/news/industrial/amazon-last-mile-amazon-prime-one-day-delivery-profits-sink-101487

Trump Organization Looks To Sell D.C. Hotel

The president’s real estate company is looking to sell the luxury hotel it operates four blocks from the White House.

The Trump Organization retained JLL to market the Trump International Hotel on Pennsylvania Avenue, Eric Trump, a company executive and the president’s son, told The Wall Street Journal.

The 263-room hotel, a renovation of the historic Old Post Office Building, opened in September 2016, two months before Donald Trump was elected president. The Trump Organization leases the building from the General Services Administration, the federal government’s real estate arm, under a long-term deal.

The company is seeking over $500M for the hotel, the WSJ reported, penciling out to about $2M per room. That would make it one of the priciest-ever hotel sales, and the sale would only include ownership of the hotel business, not the government-owned property.

The hotel has remained under scrutiny since Trump refused to divest himself from the business upon taking office. The company has faced lawsuits and investigations from Congress, state attorneys general and ethics watchdogs over foreign payments to the hotel that could violate the Constitution’s emoluments clause.  Eric Trump told the Wall Street Journal these issues are a factor in the company’s decision to seek buyers for the hotel.

“People are objecting to us making so much money on the hotel, and therefore we may be willing to sell,” he told the WSJ.

https://www.bisnow.com/washington-dc/news/hotel/trump-organization-looks-to-sell-dc-hotel-101486

Apple overhauling smart home efforts

Bloomberg sources say Apple (NASDAQ:AAPL) is ramping up hiring for a new smart home focused team to overhaul the platform to better compete with market leaders Amazon and Google.

Apple reportedly wants to attract more third-party smart home accessory designers to connect products to its platform. The tech giant is also considering expanding its own device line beyond the HomePod.

Apple is hiring engineers to work in Cupertino and San Diego.

https://seekingalpha.com/news/3510049-apple-overhauling-smart-home-efforts-bloomberg

The Next WeWork: SoftBank’s OyO Has ‘Massive Shortfall’ After Labor Revolt

Even as Adam Neumann’s, and WeWork’s, 15 minutes of infamy are almost up, attention on the mastermind that enabled one of the biggest corporate travesties in the post-Lehman world, while blowing an unprecedented “private” valuation bubble by using his own company to singlehandedly create a Ponzi scheme in which he was the first, last and every buyer inbetween, is only now just starting to perk up. We are talking, of course, about Soft Bank and the person behind, Japan’s richest man (who after the dot com bubble burst almost went bankrupt for a good reason), both of which were profiled in our recent post “Is SoftBank The Bubble Era’s “Short Of The Century” (TL/DR: yes).

And while there is much to be discussed about SoftBank’s approach to investing (for those looking to literally laugh out loud, there are few things as entertaining as the Japanese bank/telecom/venture investor/whatever’s annual report), this is not the time to go on a tangent (we did that last week), and instead we will not that after the fiasco that was the Uber IPO, the snafu that was the Slack public offering, and the absolute disaster that was the WeWork non-IPO, another of SoftBank’s formerly marquee portfolio names is suddenly imploding.

As the Nikkei reports, a massive shortfall in the aggressive Japanese expansion plans of Oyo, the SoftBank Group-backed Indian hotel group, has snowballed into a nasty labor revolt.

Oyo Hotels & Homes, which seeks to become the largest hotel chain in the world – naturally, because how can Masa Son want anything except the biggest, fastest, mostest in the world, entered Japan in April. It laid out ambitious plans to become the country’s largest hotel operator with a target of signing up 75,000 rooms under its brand by March 2020, according to sources.

There was just one problem: as of Sept. 30, Oyo had signed up only 4,000 rooms, the Nikkei reports. Labor representatives said Oyo’s failure to meet this “very unrealistic goal” had subsequently led Oyo to renege on some employment contracts (because if there is one thing WeWork taught us is that while SoftBank’s ridiculous valuation marks are to be defended at all costs, even if it means doubling down on a disastrous investment, the employee s are always expendable).

In response to questions by Nikkei, an Oyo spokesperson called the figures “unsubstantiated” but said: “We are not able to disclose internal information on business plans.”

There’s a reason why he did not want to disclose anything: documents seen by the Nikkei showed that some staffers, especially in sales, were also asked to take 40% pay cuts.

Oyo’s growing pains in Japan are another headache for investor SoftBank, which this week agreed to bail out coworking startup WeWork by taking an 80% stake and providing a $9.5 billion support package, making its investment in WeWork over $17 billion for a valuation of less than$8 billion.

Like Oyo, WeWork was highly ambitious, aiming for global domination of the shared-office space. it is hardly a shock, then, that now Oyo is set to be the next WeWork.

Meanwhile, we have already discussed the labor bloodbath at the office sublettor which until a few months ago had an idiotic valuation of $47 billion, endorsed by the likes of JPMorgan and Goldman Sachs no less: WeWork staffers now face the ax as the company massively scales back its expansion plans. As part of a turnaround strategy, it will cut 4,000 jobs, or just under 30% of its workforce, the Financial Times reported Wednesday, even as it paid founder, former CEO and Chairman Adam Neumann $1.2 billion just to leave the company.

That said, the chain of events at Oyo appears to have short-circuited that observed at WeWork,: Oyo’s employees say they are suffering because of the missed expansion targets: “The number of hotel rooms is very far from reaching the target,” one company executive said.

“Oyo has put an emphasis on increasing the number of salespeople in Japan, believing that as long as they can secure a face-to-face meeting [with potential partners] they will be able to sign contracts,” the official said. “But it’s not that simple.”

Oyo, founded in 2013 by Indian entrepreneur Ritesh Agarwal, then 19 years old – just the age group that Masa Son appears be utterly fascinated with – operates a franchise model by providing technology, brand and operational know-how to hotel owners. The company claimed earlier this month to be the world’s second-largest hotel operator, with a portfolio of 1.2 million rooms, including homes, in more than 80 countries.

However, its Japan plans have stumbled. At the same time, investors have begun to question its soaring valuation and lack of profits, just like WeWork… and soon SoftBank.

What happened?

With SoftBank’s mobile phone unit and SoftBank Vision Fund as its joint-venture partners in Japan, Oyo originally aimed to surpass local hotel chain Toyoko Inn, which has around 62,000 rooms, within a year. However, as Japan has enjoyed a surge in room bookings ahead of the 2020 Olympics, Oyo has been unable to attract many hotels to its platform, as they already have high occupancy levels. Oyo has also struggled to convey the benefits of its technology-driven operation to hotel owners in regional areas outside major city centers.

In emailed comments, an Oyo spokesperson said: “In Japan, we have in a short span of 6 months already opened over 100 hotels across 50+ cities, a testament to how our business is growing in the country.”

Oyo went on a hiring spree that saw 500 employees join the venture in just six months. Many of these employees, who signed up for full-time employment with Oyo, actually began under contract to a headhunting company, with the understanding they would be permanently employed by Oyo afterward, representatives of a labor union formed to address staff grievances told Nikkei. But Oyo later told some of those workers they might not be hired on a permanent basis after all, while others were offered direct employment only if they agreed to have their pay reduced by 30% to 40%.

Ironically, the avalanche at Oyo was also started by Adam Neumann: the cutbacks came as senior management was asked to keep a sharper focus on Oyo’s bottom line, given WeWork’s floundering plans to go public and growing investor unease about tech startup profitability generally.

“Oyo was told repeatedly by the director of human resources and by the headhunting company that sudden changes of contracts are illegitimate,” and the company finally relented after SoftBank stepped in and warned against the pay cuts, one labor representative said.

As of Thursday, Oyo had made 200 of the 500 workers direct employees.

Asked for comment, Oyo said: “There have been no salary deductions. In fact, we have made several merit-based salary increases.” Oyo added that “while there were early cases where the intention of certain agreements were misinterpreted, any outstanding ambiguities have now been resolved.”

* * *

The development is the latest in a string of bad news that has clouded Oyo’s prospects as it continues to follow an aggressive global expansion strategy, fueled by capital from SoftBank and its $100 billion Vision Fund.

Incidentally, if these disastrous, foundering “ventures” didn’t have virtually infinite capital to persist as zombies just so billionaire Son could feel good about his investing genius, the world would be a far more efficient place, and would certainly not be going through the bursting of the venture capital-to-public equity bubble.

Like in Japan, so in China, where Oyo claims to be the second-largest hotel chain after launching just two years ago, local media have reported that the company is planning large-scale layoffs. Oyo has said the reports are inconsistent, and that it has hired over 10,000 employees in China.

Some hotel owners in India, its home market, have meanwhile complained of hidden fees that were only discovered when they received their monthly income statements. A group representing hotel operators in Bengaluru has called for a criminal probe into Oyo, Reuters reported this month. Oyo has denied the allegations.

Of course, this being a SoftBank company which can only exist if its valuation keeps rising no matter the circumstances, despite these problems, Agarwal and SoftBank have continued to double down on their expansion plans.

Which of course means more good money after bad: earlier this month, Oyo said it was raising $1.5 billion in a financing round, with $700 million coming from Agarwal  – reportedly supported by a consortium of Japanese banks and financial partners. The remainder will be provided by existing investors, including SoftBank.

By now the endgame should be clear: once the current liquidity bubble – the biggest of all time – pops, all of WeWork’s portfolio companies will follow in the footsteps of WeWork, and now Oyo, into the abyss of forgotten, overvalued unicorns, leaving countless workers unemployed. And since the ultimate casualties here are millions of Japanese pensioners and retirees whose money funded the biggest bubble of all – that of Masa Son’s hubris – the only thing that is not clear is when will the BOJ step in to bailout SoftBank.

https://www.zerohedge.com/markets/meet-next-wework-softbanks-oyo-suffers-massive-shortfall-after-labor-revolt

NYC secretly exports homeless to other states, PR without telling receiving pols

New York City generously shares its homeless crisis with every corner of America.

From the tropical shores of Honolulu and Puerto Rico, to the badlands of Utah and backwaters of Louisiana, the Big Apple has sent local homeless families to 373 cities across the country with a full year of rent in their pockets as part of Mayor Bill de Blasio’s “Special One-Time Assistance Program.”  Usually, the receiving city knows nothing about it.

City taxpayers have spent $89 million on rent alone since the program’s August 2017 inception to export 5,074 homeless families — 12,482 individuals — to places as close as Newark and as far as the South Pacific, according to Department of Homeless Services data obtained by The Post. Families, who once lived in city shelters, decamped to 32 states and Puerto Rico.

The city also paid travel expenses, through a separate taxpayer-funded program called Project Reconnect, but would not divulge how much it spent. A Friday flight to Honolulu for four people would cost about $1,400. A bus ticket to Salt Lake City, Utah, for the same family would cost $800.

Add to the tab the cost of furnishings, which the city also did not disclose. One SOTA recipient said she received $1,000 for them.

DHS defends the stratospheric costs, saying it actually saves the city on shelter funding — which amounts to about $41,000 annually per family, as compared to the average yearly rent of $17,563 to house families elsewhere.

But critics says the “stop-gap solution” has been wrought with problems, and ultimately has failed to help curb the city’s homelessness.

Not only are officials in towns where the city’s homeless land up in arms, but hundreds of the homeless families are returning to the five boroughs — and some are even suing NYC over being abandoned in barely livable conditions. Multiple outside agencies and organizations have opened investigations into SOTA.

“We were initially seeing a lot of complaints about conditions. Now that the program has been in operation long enough that the SOTA subsidy is expiring, one of our main concerns is it might not be realistic for people to be entirely self-sufficient after that first year,” said Jacquelyn Simone, policy analyst at Coalition for the Homeless.

DHS said 224 SOTA families have ended up back in New York City shelters. The agency did not answer The Post’s repeated requests for the number of families who wind up in out-of-town shelters.

“We suggested that DHS reach out to people as their subsidy runs out to confirm they will be secure and not have to re-enter shelter, but the agency told us they have no plans to do that,” said Legal Aid lawyer Joshua Goldfein, whose firm represents SOTA families who say the city pressured them to move into New Jersey slums, then ignored calls for help.

About 56% of the families move out-of-state, costing the city an average of $15,600 in annual rent. Thirty-five percent move within city limits with an average rent of $20,500, and 9% move elsewhere in New York state, costing approximately $17,900.

Homeless individuals and families are eligible for SOTA if they can prove that they have been in a New York City shelter for at least 90 days and that their household income is no more than twice what it owes in rent. DHS would not expand on eligibility rules.

The agency’s website provides vague descriptions of the income and shelter-stay requirements.

DHS said its reps work with landlords in cities where families want to move to find housing. At least two SOTA families told The Post DHS pre-selected New Jersey apartments for them to view during a “van run,” then insisted they quickly sign leases.

Some pols in towns taking in NYC refugees were shocked by the news.

“So in other words if someone is in a shelter y’all will give them money to go somewhere else if they have been there for 90 days? And some of those people have been sent to Metairie?” said Michael Yenni, president of Jefferson Parish, Louisiana, when The Post told him the community is among the SOTA destinations.

“I’m not in Mayor Bill de Blasio’s shoes. I don’t sit behind his desk, and I never will, but it’s certainly interesting. You have shocked me down here in beautiful Southeast Louisiana.”

The mayor of Willacoochee, Georgia, was similarly stunned. “I’m not familiar with none of that,” Samuel Newson said.

The mayor of Harrisville, Utah — who was so baffled to receive a call from The Post that she questioned if the reporter had the wrong number — asked if SOTA recipients are connected to social services in the towns where they move.

“Are they just cutting them loose and saying, ‘Here you go?’ Or are they making sure they don’t find themselves in the same situation a year later?” Michelle Tait asked.

Pols in New Jersey, where 2,226 SOTA families have moved, say the answer to Tait’s latter question is “No.”

Mayor Tony Vauss of Irvington, the destination for 278 SOTA families, said he is “highly disturbed by the lack of communication from New York City and the lack of oversight of this program by the city.

“SOTA recipients are the population of citizens who require ongoing social services and resources … Therefore, once SOTA ceases funding, program recipients end up using our state and local resources to maintain themselves.”

Some SOTA recipients have also attacked the program.

Sade Collington, her husband and two children, moved back into a Bronx shelter after relocating to an East Orange, New Jersey,  apartment that had no water, heat or electricity.

“It was completely unlivable. We could not stay there any longer. We went to a shelter for another six months,” she said.

Collington has filed a notice of claim against the city indicating she plans to sue over the ordeal.

Her story was featured among several other SOTA families’ in a CBS 2 special highlighting the decrepit conditions they were housed in — and how their concerns fell on deaf ears at DHS.

In Newark, home to 1,198 SOTA families, the city is “in the process of passing an ordinance to ban New York from sending us SOTA clients,” said city spokesman Mark Di Ionno.

New York City’s Department of Investigation also opened a probe and found “several vulnerabilities in the program,” including “an inability to hold participating landlords and real estate brokers accountable,” DOI spokeswoman Diane Struzzi said.

The State Senate has an ongoing, separate SOTA investigation.

DHS spokesman Isaac McGinn said the city “remains committed to using every tool at our disposal to help these families and individuals find stability in the ways that work for them.

“Any American, including any New Yorker experiencing homelessness, has the right to seek housing where they can afford it and employment where they can find it.”

https://nypost.com/2019/10/26/nyc-homeless-initiative-sends-people-across-us-without-telling-receiving-cities/

Nashville Rethinks the Corporate Handout

This city has been a poster child for economic development, the good and the bad.

Tax breaks and cash incentives have flowed. Tourists, sports teams and conventioneers have come. Hotels and restaurants have bloomed. And now Amazon.com Inc., among the most-sought-after employers, is erecting a pair of towers downtown to house 5,000 new employees, a move the company promises will “further the resilience, the vibrancy and just the overall coolness” of a place once known only for music.

With coolness comes clutter. I’ve been traveling here since my brother moved to Tennessee in 2004. Over 15 years, the population has grown by 19 people a day on average — from 588,512 residents in 2003 to 692,587 in 2018 — as folks stream in to take jobs in health care, autos, banking and more.

Home prices rose; public services sputtered; traffic clogged. Growing pains are now as plentiful as the honky-tonks lining the city’s Broadway.

Big business, once the object of Nashville’s desire, is increasingly seen as a source of ills. An annual Vanderbilt University survey shows growing discontent with the rate of expansion: three-quarters of those polled say the population has grown too quickly and that corporate-subsidy spending in the Music City is overboard.

Corporations should be keeping a close eye on whether a new mayor with a big mandate can figure out how to soothe the bad feelings. Nashville isn’t the only place, after all, wrestling with this problem.

New York’s breakup with Amazon this spring, bipartisan criticism of handouts for companies and the emergence of big-business skeptic Sen. Elizabeth Warren in the 2020 presidential race indicate a broad appetite for a new formula for economic development.

John Cooper, a 63-year-old real-estate developer, won Nashville’s recent mayoral race by nearly 40 percentage points, promising to curb the subsidies that lure big business. Skyscrapers and luxury housing developments are everywhere, yet city leaders can’t balance a budget. A surprising deficit, reported in 2018, has given Nashville a cold shower. “People are saying, ‘We were told one story, and now we’re dealt this slap in the face,'” said John Geer, a Vanderbilt political science professor who co-wrote the study.

Justin Owen, chief executive of the Beacon Center of Tennessee, a right-leaning think tank, asked: “Why do we have to talk about the inability to pay our teachers, police and firefighters, yet we’re still announcing megadeals with Amazon and other companies?”

The city has committed big dollars to international businesses — including $56 million in long-term incentives to tire maker Bridgestone Corp., $62 million to Omni Hotels & Resorts and $17.5 million for the Amazon towers. But local and state tax structures, including no income tax and property-tax equalization policies that encourage commercial and residential property owners to appeal assessment hikes, make it hard to profit on growth.

Between 2010 and early 2017 the city awarded businesses-property tax breaks and other incentives worth more than $167 million, according to The Tennessean’s analysis of data from the Mayor’s Office of Economic & Community Development. Those companies then promised to add about 13,000 jobs and $1.2 billion in capital investments, the newspaper said.

“People say, ‘With all these cranes in the sky, how did we run out of money?'” Mr. Cooper, a Democrat, told me during a long chat on a rainy afternoon.

A month into his tenure, he signed a deal with the Music City Center, a city-owned convention hall, to transfer millions of dollars to city coffers to address immediate shortfalls. The longer-term goal is to design incentives that focus on developing Nashville’s existing talent base instead of just importing more people.

“We are an ambitious town, and we want to make the most of our moment,” Mr. Cooper, a Nashville native, said. “We’ve got a generation of economic development narrative here that we are a welcoming, affirming place to move. But you’ve got to be super careful what you give away, because you’re already giving [companies] a major deal in our low tax rate.”

Mr. Cooper supports low taxes and his real-estate business has undoubtedly profited from the region’s corporate development.

The mayor said corporate subsidies aren’t always designed with the existing population in mind. Amazon, for instance, is bringing jobs with an average salary of $150,000 — jobs that will create more economic activity but won’t necessarily go to Nashville locals.

Mr. Cooper has told Amazon “it is important that you be a famous success here. We are not New York.” But he’s also started dreaming up a better mousetrap for future business attraction.

His ideal incentive “looks like a human-capital investment where you would say what skill set do you need to come from our workforce and I’ll go get certifications for these people,” Mr. Cooper said.

Cities, counties, states and the federal government all offer various subsidies to companies looking to move or expand. Nashville offers to waive property taxes for various periods and hand a business $500 for every job created. Those deals are bundled with state incentives that sweeten the pot.

The Upjohn Institute, a nonprofit research center, estimated that business incentives cost all levels of U.S. government $45 billion in 2015, more than triple the 1990 level. Still, the growth of incentives has slowed since the early 2000s as cutbacks are happening in certain parts of the country.

That’s because skepticism has been rising about the need for the inducements. Amazon, for instance, earns more profit in a single day than Nashville will pay it over seven years. The Beacon Center’s Mr. Owen said these incentives can be “press-release economics” — pleasing to shareholders and beneficial to politicians, but hard to justify to workaday citizens.

Look no further than Nashville’s “cherry-tree moment,” as Mr. Cooper called it, to see how the calculus is changing in Nashville.

Last spring, city officials planned to cut down 21 historic cherry trees along the Cumberland River to make room for a stage for the National Football League to hold its draft. The trees would be turned into mulch for a trailhead.

Jim Gregory, a Nashville-based data scientist and tree conservationist, cried foul. He set up a Change.org petition to protest the plan.

“The zeitgeist of the city was that we have had so many outside forces encroaching on us that the trees represented a final straw,” Mr. Gregory said. He estimated that 5% of the city’s residents supported the petition, based on data provided by Change.org.

Officials reversed course, with the NFL vowing to keep 11 of the trees intact, pay for the relocation of the other 10 and fund the planting of hundreds more.

The cherry trees may have gone unchopped, but I cannot tell a lie: The incentive game remains vibrant. Many companies still demand tax breaks to seriously consider a region or city.

Waste Management Inc. recently searched for a new headquarters. It considered several locations, including Nashville, before settling on property in its current home city, Houston. CEO Jim Fish told Chief Executive magazine that Nashville was crossed off Waste Management’s list — in part because it didn’t offer incentives.

https://www.marketscreener.com/AMAZON-COM-12864605/news/Nashville-Rethinks-the-Corporate-Handout-WSJ-29463774/