Rents Soar for Millions of Americans as Threat of Eviction Looms

Rents are soaring in many U.S. cities as the economy rebounds, squeezing the budgets of tenants who also face increased risk of eviction after courts overturned a pandemic-era ban.

There’s no single indicator that captures a complex national picture, as Covid-19 drove major shifts in where people live and work. Still, data point to tight markets in much of the country.

The median monthly charge on a vacant rental jumped by $185 in March from a year earlier, according to the U.S. Census Bureau. A national index compiled by Apartmentlist.com shows that rents rose 1.9% in April alone, the most in data going back to 2017.

The rising costs will pile pressure on poorer families who are more likely to rent -– and less likely to be earning money right now, in a recovery that’s seen better-paid jobs bounce back faster. For low-income Americans, shelter accounts for 40% of spending.

Adding another risk, a federal judge in Washington ruled on Wednesday that the Centers for Disease Control and Prevention had exceeded its authority by ordering a nationwide moratorium on tenant evictions last year.

The ban, due to last through June, had loopholes that allowed some evictions to proceed -– but it still offered protection for those who’d lost their jobs. About 24% of renters, roughly 8 million people, missed at least one housing payment since March 2020 according to the Mortgage Bankers Association.

Rapid Rebound

The early months of the pandemic saw a headline-grabbing decline in prices for some expensive urban markets, like Manhattan and San Francisco. Higher-income workers were able to move out of city-center apartments to work remotely from somewhere else.

One result was a lot of unoccupied high-end properties in such places. That may have exaggerated the jump in median costs for vacant rentals as measured by the Census Bureau, creating what’s called a “compositional effect” that skews the data, according to Chris Salvati, a housing economist at Apartmentlist.com.

The declines in some regions offset gains elsewhere and kept national measures fairly steady last year, Salvati said. But he now sees prices rising in all the places where they fell last year -– and pretty much everywhere else too.

“I’ve been surprised at how quickly things have rebounded over these past couple of months,” he said.

The latest monthly survey by Fannie Mae suggests Americans expect the median increase in rent to be 5.3% this year, close to the highest in the past decade.

Even in the exodus cities, rents in less central districts typically didn’t plunge last year. In many mid-sized markets, there was a steady increase. Cities like Richmond, Virginia; Fresno, California; and Dayton, Ohio, saw a plunge in rental vacancies, limiting supply and pushing prices up.

“Outside of the gateways and a select few other top 30 markets, most other metros had positive year-over-year rent growth,” research firm Yardi Matrix said in its latest monthly National Multifamily Report.

Areas where rents have risen more than 10% year-on-year include Boise City, Idaho, and Riverside, California, according to Zillow data.

Some of the pandemic rental trends are extensions of older ones. For example, rents rose about 5% in the past year in Tampa, Florida, and Atlanta, where there’s been strong migration and limited rental supply. Both cities have seen increases of around 30% over five years, according to Zillow data.

Over that period, only New York City among the 100 largest national markets has posted a drop in rental prices. But that could be a temporary effect of the pandemic, which may get wiped out as vaccines drive the city’s recovery.

Manhattan leases surged an annual 89% in March, the fastest pace on record, according to Miller Samuel Real Estate Appraisers & Consultants. It found that the net effective median rent has risen for four straight months — at “the highest rate in a decade.”

What Happened in California Is a Cautionary Tale for Us All

A voter-approved measure strips gig workers of basic protections enjoyed by employees in other businesses.

What happened in California? Despite the state’s liberal reputation, voters there last week approved Proposition 22, a ballot initiative exempting many gig companies from state workplace laws and stripping their workers of basic, essential protections.

Uber, Instacart, Lyft, DoorDash and other on-demand providers of ride-shares and food and grocery deliveries spent $200 million pushing the proposal, an astounding sum that workers and their allies couldn’t remotely hope to match. Not surprisingly, Californians were misled by an avalanche of claims about the proposal’s impact on workers. The measure, which takes effect next month, was approved with 58 percent of the vote.

Emboldened by the results in California, Uber and friends are apparently planning to take the show on the road. Potential targets could include Massachusetts or New Jersey, where state regulators have pursued them, or New York or Pennsylvania, where courts have rejected the argument by gig companies that workers run their own independent businesses. The rest of us need to understand what happened in California.

What was at stake with Proposition 22 was whether workers for app-based driver and delivery companies would be considered employees under California statutes, which like workplace laws nationwide, cover only employees, or whether they should be classified as independent contractors. Proponents argued that requiring gig companies to follow current laws would badly damage their on-demand business model and result in longer wait times, higher prices and the loss of countless jobs. These were the same bleak prognostications gig companies made about the minimum wage for drivers that New York City enacted two years ago — predictions that did not come to pass.

What they didn’t say was that it was a terrible deal for workers. Allowing companies to write their own exemption from California law is also a cautionary tale for our fragile democracy.

Now, workers for these gig companies in California will not have a right, as employees do under state law, to paid sick days, overtime pay, unemployment insurance or a workplace covered by occupational safety and health laws.

How did these companies persuade California voters to approve this snatching of rights from thousands of vulnerable people? They used a deluge of money to convince voters that the proposal served workers’ interests by preserving their flexibility, ensuring a guaranteed level of pay and providing them with “portable” benefits.

Their claims were deceptive.

There’s no law prohibiting flexible or part-time hours for employees. Millions of employees already work part-time or flexible hours. Indeed, these particular industries (ride-share and food delivery) would be unlikely to hire only full-time employees because of the ebb and flow of customer demand.

Under Proposition 22, gig companies will have to pay their contractors 120 percent of the state or local minimum wage. In addition, companies must pay 30 cents per mile for gas and other vehicle-related expenses, adjusted annually for inflation.

But here’s the catch: Workers will be paid only for “engaged time,” defined as the time between receiving a request and dropping off the passenger. This is far less than what’s required under laws for employees, who must be compensated for all work time. About a third of drivers’ work time wouldn’t fall within this definition of “engaged time,” according to a study funded by the companies themselves. Workers will not be paid for time spent getting gas, waiting for a ride request or cleaning and sanitizing their cars.

Plus, 30 cents per mile doesn’t cover all vehicle-related expenses; by comparison, the Internal Revenue Service’s optional standard deductible rate for the costs of operating a car for business is 57.5 cents per mile. And as independent contractors, drivers won’t have a right to overtime pay for long workweeks, as is required for employees. In light of all this, a study by three research groups at the University of California, Berkeley, found that Uber and Lyft drivers would be guaranteed only an estimated $5.64 per hour. This no doubt would have surprised 40 percent of those in a survey of early voters who said they had supported Proposition 22 to ensure workers earned livable wages.

Finally there is the issue of benefits. Gig companies have used snazzy “portable” benefits language, but Proposition 22 gives workers crumbs compared to what it takes away. Companies must provide a “health care subsidy” to people working at least 15 hours of “engaged time.” At 30 weekly hours, the subsidy would average about $1.22 per hour, or just over $36.00 a week, according to one analysis, a paltry sum compared with what workers would receive as employees who are paid for all of their work time — not just two-thirds of it.

And of course, rights are meaningful only if they are enforceable. If a company pays less than what’s required, shaves hours or doesn’t pay the health care subsidy, Proposition 22 is silent about what mechanism workers can use to enforce those pay and subsidy rights.

The kicker? Unlike most laws, which require only a majority vote of the State Legislature to revise, Proposition 22 requires the vote of seven-eighths of the Legislature to make any changes.

These are the truths that can be buried by well-funded advertising campaigns of large corporations collaborating to write their own rules. And this, in the end, is what’s most dangerous about Proposition 22. Companies shouldn’t be able to do this. Surely, lots of other industries would like to avoid paying unemployment insurance taxes, sick days or overtime. Surely, food manufacturers would like an exemption from safety requirements and inspections, and chemical companies would save a bundle if they got an exemption from environmental laws.

But that’s not how our system is supposed to work.

California has always been a bellwether. This time, let’s not follow its lead.

More Than 1,000 Companies Boycotted Facebook. Did It Work?

Facebook said that the top 100 spenders contributed 16 percent of its $18.7 billion in revenue in the second quarter, which ended on June 30. During the first three weeks of July, Facebook said, overall ad revenue grew 10 percent over last year, a rate the company expects to continue for the full quarter.

The boycott complicated planning for advertisers. The Kansas-based digital agency DEG had “a whirlwind of a month” as its small to midsize clients grappled with whether they could reach enough customers without Facebook, said Quinn Sheek, its director of media and search. Facebook and its subsidiary Instagram make up more than a third of digital spending for DEG clients.

Of the 60 percent of DEG clients that joined the July boycott, four out of five are planning to return to Facebook in August, with many having “decided it’s too much for them during a difficult economic time to remain off,” Ms. Sheek said. Still, the boycott helped amplify discussion of toxic content on Facebook. The issue was raised in a congressional hearing this past week and in repeated meetings between ad industry representatives and Facebook leaders. In the face of the pressure, Facebook released the results of a civil rights audit last month and agreed to hire a civil rights executive.

“What could really hurt Facebook is the long-term effect of its perceived reputation and the association with being viewed as a publisher of ‘hate speech’ and other inappropriate content,” Stephen Hahn-Griffiths, the executive vice president of the public opinion analysis company RepTrak, wrote in a post last month.

In addition to the prevalence of hate speech on the platform, its critics have also focused on the company’s treatment of user privacy and foreign election interference.

Sheryl Sandberg, Facebook’s chief operating officer, said during the company’s earnings call that, like the boycott’s organizers, “we don’t want hate on our platforms, and we stand firmly against it.”

The ad industry was already in upheaval when the boycott began, as businesses closed, layoffs swept through the economy and homebound consumers slowed their shopping. Before they reduced spending on Facebook in July, advertisers like Microsoft, Starbucks, Unilever and Target took a temporary break from the platform in June, as many companies were reacting to pandemic-related marketing budget cuts and widespread protests over racism and police brutality. Disney’s spending on Facebook has mostly trended downward since late March, according to Pathmatics.

Last month, large advertisers like Procter & Gamble, Samsung, Walmart and Geico sharply curtailed paid advertising on Facebook without joining the official boycott, according to Pathmatics. Others, like Hershey and Hulu, beefed up their spending on alternate platforms like Twitter and YouTube.

Companies like Beam Suntory and Coca-Cola have vowed to continue pressuring Facebook, especially as the presidential race heats up. On Thursday, the ice cream company Ben & Jerry’s said it planned to keep withholding spending on product promotions through the end of the year “to send a message.”

The advertiser boycott “was a warning shot, an opening salvo,” said Jonathan Greenblatt, the chief executive of the civil rights group the Anti-Defamation League, which helped set up the ad boycott. Organizers and other groups now plan to expand the boycott into Europe, to include Facebook users, and to address other concerns, like the presence of child sexual abuse on the platform.

Half of the companies that work with the agency Allen & Gerritsen in Boston and Philadelphia participated in the boycott, said Derek Welch, its vice president of media. Many felt it was important to “do something that is meaningful and tangible in a sea of brands putting out very well-meaning statements,” he said.

Mr. Welch said the agency’s clients typically spend $150,000 to $200,000 a month total on Facebook. Several plan to continue boycotting.

“The big companies that have signed on have been great for visibility and getting the word out,” he said. “But this is really all about these small businesses in aggregate who are spending $30,000 here or $50,000 there, whose decisions wouldn’t normally make too much of a difference.”

Daily Brief: Important Facts

Thousands of people in cities across the U.S. took to the streets over the weekend to protest violent tactics used by federal agents against protesters in Portland, Oregon. In Seattle, police declared a Black Lives Matter protest to be a riot and pepper-sprayed 2,000 people. In Austin, a motorist shot protester Garrett Foster dead while he was pushing his wife’s wheelchair. Meanwhile, some protesters took it right to the top, with dozens demonstrating outside the Virginia home of acting Homeland Security Secretary Chad Wolf.

Police Declare Riots as More Protest Federal Tactics

Sources: NYT, Washington Post, The Hill

In Four Days, Virus Cases Rise by 1 Million

It’s gotten so bad, even North Korea has acknowledged having one suspected case. Last Wednesday, global coronavirus cases topped 15 million. By Sunday it was 16 million, with 646,000 deaths. Where are the outbreaks? Nearly everywhere, the worst being America’s 4.2 million cases and nearly 147,000 deaths. It’s even surging in places where the virus seemed in check, like Hong Kong and Vietnam, which is ejecting 80,000 tourists. Elsewhere, the U.K.’s health minister has urged Britons to eat less — a quixotic attempt to cut COVID-19 risks associated with obesity.

Sources: CNN, ABC, Al Jazeera

New Low in China Relations as US Consulate Closes

This morning Old Glory was lowered and a container was hoisted onto a truck at the U.S. Consulate in Chengdu, China. Chinese authorities had given the Americans 72 hours to clear out — the same deadline imposed on Chinese diplomats in Houston, who shuttered their mission last week amid Washington’s espionage claims. While there are plenty of reasons for the world’s top economic powers to sink to their worst relationship in decades, some experts fear this could be the end of a policy of engagement that has kept the peace for a half-century.

Sources: Reuters, LA Times

Congress Haggles Over Helping Hard-Hit Americans

The extra $600-per-week unemployment benefit Americans have depended upon during the pandemic downturn has effectively already expired for many due to the way states process such aid. But Congress is locked in a battle over whether to extend it, with Republicans saying it discourages people from returning to work — and instead proposing a $1 trillion relief bill that would include a new round of $1,200 checks. Negotiations are expected to take weeks, which could leave many Americans in the lurch — right as a federal moratorium on evictions also runs out.

Sources: WSJ (sub), FT (sub)

Also Important …

The Sudanese government says it’s deploying troops to Darfur to prevent attacks like those on Friday and Saturday that killed 80 people. A new CNN/SSRS poll finds that challenger Joe Biden leads President Trump 51 percent to 46 percent in Florida — and no Republican has won without Florida in nearly a century. And Hurricane Hanna has been downgraded to a tropical depression after causing flooding Sunday in the Texas-Mexico border area, hard-hit by the pandemic.

Coronavirus update: With nearly 424,000 cases, Florida has passed New York as the most infected U.S. state.

F.A.Q. on Stimulus Checks, Unemployment and the Coronavirus Bill

The Senate relief bill would send money to Americans and greatly expand unemployment coverage.

The Senate unanimously passed a $2 trillion economic rescue plan on Wednesday that will offer assistance to tens of millions of American households affected by the coronavirus. Its components include stimulus payments to individuals, expanded unemployment coverage, student loan changes, different retirement account rules and more.

The House of Representatives was expected to quickly take up the bill and pass it, sending it to President Trump for his signature.

Here are the answers to common questions about what’s in the bill. We’ll update this article as we have more answers or if the plan changes as it moves through the legislative process. More information on getting assistance can be found at our Hub for Help.

Stimulus Payments

How large would the payments be?

Most adults would get $1,200, although some would get less. For every qualifying child age 16 or under, the payment would be an additional $500.

How many payments would there be?

Just one. Future bills could order up additional payments, though.

How do I know if I will get the full amount?

It depends on your income. Single adults with Social Security numbers who are United States residents and have an adjusted gross income of $75,000 or less would get the full amount. Married couples with no children earning $150,000 or less would receive a total of $2,400. And taxpayers filing as head of household would get the full payment if they earned $112,500 or less.

Above those income figures, the payment decreases until it stops altogether for single people earning $99,000 or married people who have no children and earn $198,000. According to the Senate Finance Committee, a family with two children would no longer be eligible for any payments if its income surpassed $218,000.

You can’t get a payment if someone claims you as a dependent, even if you’re an adult. In any given family and in most instances, everyone must have a valid Social Security number in order to be eligible. There is an exception for members of the military.

You can find your adjusted gross income on Line 8b of the 2019 1040 federal tax return.

Do college students get anything?

Not if anyone claims them as a dependent on a tax return. Usually, students under age 24 are dependents in the eyes of the taxing authorities if a parent pays for at least half of their expenses.

What year’s income should I be looking at?

2019. If you haven’t prepared a tax return yet, you can use your 2018 return. If you haven’t filed that yet, you can use a 2019 Social Security statement showing your income to see what an employer reported to the I.R.S.

What if my recent income made me ineligible, but I anticipate being eligible because of a loss of income in 2020? Do I get a payment?

The bill does not help people in that circumstance now, but you may benefit once you file your 2020 taxes. That’s because the payment is technically an advance on a tax credit that is available for the entire year. So it will depend on how much you earn.

Meanwhile, there are many other provisions in the legislation. You may be able to file for unemployment or for one of the new loans for small-business owners or sole proprietors.

Would I have to apply to receive a payment?

No. If the Internal Revenue Service already has your bank account information, it would transfer the money to you via direct deposit based on the recent income-tax figures it already has.

When would the payment arrive?

Treasury Secretary Steven Mnuchin said he expected most people to get their payments within three weeks.

If my payment doesn’t come soon, how can I be sure that it wasn’t misdirected?

According to the bill, you would get a paper notice in the mail no later than a few weeks after your payment had been disbursed. That notice would contain information about where the payment ended up and in what form it was made. If you couldn’t locate the payment at that point, it would be time to contact the I.R.S. using the information on the notice.

What if I haven’t filed tax returns recently? Would that affect my ability to receive a payment?

It could. File a return immediately, at least for 2018, according to the I.R.S. website. “Those without 2018 tax filings on record could potentially affect mailings of stimulus checks,” the site says.

If you’re worried about money that you owe that you cannot pay, the I.R.S. recommends consulting a tax professional who can help you request an alternative payment plan or some other resolution.

Would most people who are receiving Social Security retirement and disability payments each month also get a stimulus payment?

Yes.

Would eligible unemployed people get these stimulus payments? Veterans?

Yes and yes.

Do I have to pay income taxes on the amount of my payment?

No.

If my income tax refunds are currently being garnished because of a student loan default, would this payment be garnished as well?

No. In fact, the bill temporarily suspends nearly all efforts to garnish tax refunds to repay debts, including those to the I.R.S. itself. But this waiver may not apply to people who are behind on child support.

Unemployment Benefits

Who would be covered by the expanded program?

The new bill would wrap in far more workers than are usually eligible for unemployment benefits, including self-employed people and part-time workers. The bottom-line: Those who are unemployed, are partly unemployed or cannot work for a wide variety of coronavirus-related reasons would be more likely to receive benefits.

How much would I receive?

It depends on your state.

Benefits would be expanded in a bid to replace the average worker’s paycheck, explained Andrew Stettner, a senior fellow at the Century Foundation, a public policy research group. The average worker earns about $1,000 a week, and unemployment benefits often replace roughly 40 to 45 percent of that. The expansion would pay an extra amount to fill the gap.

Under the plan, eligible workers would get an extra $600 per week on top of their state benefit. But some states are more generous than others. According to the Century Foundation, the maximum weekly benefit in Alabama is $275, but it’s $450 in California and $713 in New Jersey.

So let’s say a worker was making $1,100 per week in New York; she’d be eligible for the maximum state unemployment benefit of $504 per week. Under the new program, she gets an additional $600 of federal pandemic unemployment compensation, for a total of $1,104, essentially replacing her original paycheck.

States have the option of providing the entire amount in one payment, or sending the extra portion separately. But it must all be done on the same weekly basis.

Are gig workers, freelancers and independent contractors covered in the bill?

Yes, self-employed people would be newly eligible for unemployment benefits.

Benefit amounts would be calculated based on previous income, using a formula from the Disaster Unemployment Assistance program, according to a congressional aide.

Self-employed workers would also be eligible for the additional $600 weekly benefit provided by the federal government.

What if I’m a part-time worker who lost my job because of a coronavirus reason, but my state doesn’t cover part-time workers? Would I still be eligible?

Yes. Part-time workers would be eligible for benefits, but the benefit amount and how long benefits would last depend on your state. They would also be eligible for the additional $600 weekly benefit.

What if I have Covid-19 or need to care for a family member who has it?

If you’ve received a diagnosis, are experiencing symptoms or are seeking a diagnosis — and you’re unemployed, are partly unemployed or cannot work as a result — you would be covered. The same goes if you must care for a member of your family or household who has received a diagnosis.

What if my child’s school or day care shut down?

If you rely on a school, a day care or another facility to care for a child, elderly parent or another household member so that you can work — and that facility has been shut down because of coronavirus — you would be eligible.

What if I’ve been advised by a health care provider to quarantine myself because of exposure to coronavirus? And what about broader orders to stay home?

Morehouse Graduates’ Student Loans to Be Paid Off by Billionaire

Not even Morehouse College administrators knew the announcement was coming.

Addressing the college’s class of 2019, Robert F. Smith, a man who is richer than Oprah Winfrey, made a grand gesture straight out of the television mogul’s playbook.

“My family is going to create a grant to eliminate your student loans,” he said on Sunday morning, bringing the approximately 400 students in caps and gowns to their feet.

“This is my class,” he said.

In January, Mr. Smith, a billionaire, donated $1.5 million to the college to fund student scholarships and a new park on campus. He received an honorary degree at the graduation on Sunday.

[Who is Robert F. Smith? Read more.]

The value of the new gift is unclear because of the varying amounts the students owe, but the money will be disbursed through Morehouse College and will apply to “loans students directly have for their college education,” a representative for Mr. Smith said.

Because Morehouse was not informed of Mr. Smith’s plans before the ceremony, details about how the money would be distributed were not immediately available.

A private equity titan, Mr. Smith founded Vista Equity Partners in 2000.

After making a fortune in software, he was named the nation’s richest African-American by Forbes. According to that financial magazine, Mr. Smith’s estimated net worth is $5 billion, making him richer than Ms. Winfrey, who previously held the title of the wealthiest black person.

Mr. Smith studied chemical engineering at Cornell University and finance and marketing at Columbia Business School. Although he shunned the spotlight for many years, Mr. Smith has recently embraced a more public role, speaking at the World Economic Forum in Davos, Switzerland, and making major charitable contributions. Cornell named its chemical and biomolecular engineering school for him after he announced a $50 million gift, and he has made major donations to the National Museum of African American History and Culture. He started the Fund II Foundation, which is focused in part on preserving African-American history and culture, and signed the Giving Pledge, a campaign through which wealthy individuals and families commit more than half their wealth to charitable causes, either during their lifetimes or in their wills.

Anand Giridharadas, the author of “Winners Take All” and a frequent critic of big philanthropy, said Mr. Smith’s offer was “generous.” But, he added, “a gift like this can make people believe that billionaires are taking care of our problems, and distract us from the ways in which others in finance are working to cause problems like student debt or the subprime crisis on an epically greater scale.”

Sunday’s announcement came amid growing calls to address the crushing burden of student loan debt in the United States, which has more than doubled in the past decade.

Over the past 20 years, average tuition and fees at private four-year colleges rose 58 percent, after accounting for inflation, while tuition at four-year public colleges increased even more, by over 100 percent, according to research from the College Board.

According to federal data, the average federal student loan debt is $32,000. The standard repayment plan for federal student loans is up to 10 years, but most students, according to research, take far longer than that to pay off their balances.

For the students at Morehouse, an all-male, historically black college in Atlanta that costs about $48,500 per year to attend, the gift could be transformative, especially in the unsettled years after graduation.

In an interview with the The Atlanta Journal-Constitution, Elijah Dormeus, a 22-year-old business administration major carrying $90,000 in student debt, said: “If I could do a backflip, I would. I am deeply ecstatic.”

Mr. Smith’s prepared speech did not include his plan to pay off the students’ debts.

“Now, I know my class, who will make sure they pay this forward,” Mr. Smith said on Sunday morning. “And I want my class to look at these alumni, these beautiful Morehouse brothers — and let’s make sure every class has the same opportunity moving forward — because we are enough to take care of our own community.”

Lyft’s I.P.O. Was a Huge Success, Just Not for Investors Who Bought on Friday

Lyft’s stock market debut has set up its founders, employees, early backers and even those who scored shares in the initial public offering Thursday night for quite a windfall.

But not everyone who invested in the company is reaping the spoils.

Shares of the ride-hailing company rose nearly 9 percent on Friday. At over $26 billion, Lyft’s market value is almost double what private investors valued it at less than a year ago.

But Lyft’s first-day gain is measured off the I.P.O. price (which was set on Thursday, when shares were divided up mostly among large funds). Ordinary investors who wanted in had to wait to buy the stock until it was available on public markets on Friday, and at a much higher price than the big funds paid.

And those who bought as soon as trading began are already sitting on losses of a little more than 11 percent.

It serves as an important reminder that amid all the hoopla around trading debuts, small investors wind up taking a lot of the risk. Most of the gains on the first day of trading for a stock are realized with the first trade.

Over the past decade, companies listing shares on American stock exchanges have increased 14 percent from their I.P.O. price, according to Dealogic. But nearly all of the rise has come at the opening trade.

That dynamic has played out in many of the prominent I.P.O.s in recent years. Facebook shares opened 10 percent higher on their first day of trading and then proceeded to give back almost all those gains to finish essentially unchanged for the day.

Etsy was an extreme example of this. Its stock soared 94 percent on its first day of trading, but investors who bought at the open actually lost 3 percent by the close of trading.

And it’s not just tech companies. Levi Strauss recently made its return to the public markets, selling shares to investors at $17 a piece on March 20. The stock opened the next day at $22.22, a 31 percent jump. For the rest of trading that day, though, it climbed less than 1 percent.

Of course, if Lyft keeps growing as fast as Wall Street hopes it will, or works out how to turn a profit, then even the latecomers could wind up with respectable returns. Facebook shares are up more than 300 percent since their first day of trading, and after Etsy struggled for its first three years as a public company, its shares have more than doubled since they started trading.

Still, not being able to buy at the I.P.O. price also greatly affects returns over the next year. Investors who bought shares at the offering price have averaged a 22 percent increase over the past decade. Returns for those that bought at the open? Sixty percent less.

“She Lied to My Face”: Inside the Hectic Last Days of Gymboree’s Retail Bankruptcy

Mera Chung had known for weeks that her 30-year career in retail was coming to an end. But Chung, a vice president of design for Crazy 8, a division of Gymboree Group Inc., wasn’t prepared for what CEO Shaz Kahng and human resources chief Bridget Schickedanz would tell her late on a Wednesday afternoon in mid-January.

They had called Chung in to inform her of an imminent bankruptcy filing, Gymboree’s second in two years, which would accompany the liquidation of two of the company’s three brands, including Crazy 8, which caters to lower-income parents. Chung was ready for that; the closure of Crazy 8 was announced in December, and the bankruptcy was long rumored. But then Schickedanz dropped the bomb.

“She said, ‘We had to make some other decisions and you’ve been impacted,’” Chung explains. “‘We had to terminate the severance plan.’”

The severance plan, according to Chung and two of her close friends, was a key reason why she decided to move to Gymboree from Old Navy five years earlier. The retail sector’s volatility has boiled over recently, with rapid-fire bankruptcies and store closures emptying malls across the country, much of it driven by private-equity firms busting out otherwise profitable companies. But Chung, a single parent caring for an elderly father, came to Gymboree because she knew she’d be due a year’s worth of salary if the company ever went belly-up.

Instead, on the same day as the bankruptcy filing, Gymboree’s board triggered Article VII of the severance plan, a self-destruct button that enabled the company to terminate the plan “at any time in any respect” via a majority vote from the board of directors. As a result, none of the roughly 400 staff members at Gymboree headquarters in San Francisco would receive severance, to say nothing of the nearly 10,000 clerks at 800 Gymboree and Crazy 8 locations, who would now be managing going-out-of-business sales without the promise of assistance in the aftermath.

Kahng told Chung that there just wasn’t enough cash available to pay severance. But Chung said she had information, which she would later share with the U.S. bankruptcy trustee overseeing the case, that at least a few executives would leave Gymboree with golden parachutes.

A few weeks earlier, she had learned about a confidential deal between the board and eight members of Gymboree’s executive leadership team. According to Chung, those executives received paper checks with a “retention bonus” equal in value to their severance payouts. The board, which includes representatives from hedge funds and private equity firms, told the executives to deposit the checks immediately. Bankruptcy experts often call this type of payment a “disguised severance.”

Chung heard this firsthand from one of the bonus recipients. Chung had an equivalent title to most of the members who she was told received the bonuses, but she was left out. She would later tell the bankruptcy trustee in a letter that she watched as four of those bonus recipients jetted off to the Sundance Film Festival, just days after Gymboree declared bankruptcy.

In the meeting, Chung had asked, “What about the retention bonuses the others have, including you?” referring to Schickedanz, a member of the executive leadership team. Kahng would only reply, “That is not an appropriate question and I will not comment on it.”

Chung said she had replied, “The answer is what’s not appropriate.”

Gymboree, founded in 1976, is on its way to history. Children’s Place, a rival retailer, paid $76 million for the rights to the Gymboree and Crazy 8 brands, and the Gap is purchasing Gymboree’s 139-store luxury chain, Janie and Jack. But the disguised severance maneuver Chung has alleged reveals how in corporate America, the winners at the top can win even in failure. And nobody else is safe — certainly not the line-level workers, but not even vice presidents like Mera Chung.

The Intercept has reviewed documents confirming the termination of the severance plan on the day of the bankruptcy. Chung made her allegations about the disguised severance to friends, attorneys, and bankruptcy officials in the weeks after Gymboree’s filing, according to interviews and documents. And Julie Thompson, a vice president of product integrity and compliance for Gymboree, also said in a separate interview that bonus payouts were made to the executive leadership team.

Moreover, Chung alleged to the trustee that Gymboree underreported the extent of the retention bonus payments in a filing with the bankruptcy court. In that filing, Gymboree acknowledges “discretionary bonus payments of $270,000 to two employees,” but Chung asserts that eight executives received bonuses totaling an estimated $2.1 million.

Gymboree, its executives, and board members have failed to respond to numerous requests for comment through email, phone, and LinkedIn. Calls to the company’s media relations department have gone directly to voicemail. Three calls to personal cellphones of members of Gymboree’s executive leadership team were answered, but the individuals refused to comment.

The situation at Gymboree echoes other recent retail bankruptcies in which executives got a king’s ransom while everyone else got a firm handshake. Toys “R” Us and Sears were approved for millions in executive bonuses, a fact that has enraged advocates for line-level workers. “These are the same handful of people who couldn’t run our company successfully, and they’re being rewarded while everyone’s severance is taken away?” asked Lily Wang, deputy director for Organization United for Respect’s Rise Up Retail campaign.

You can make a case for retention bonuses for top executives in some bankruptcies. They are usually justified as a way to keep the leadership from decamping to other jobs as soon as the bankruptcy is filed. “The rationale is by giving good people retention bonuses so they will stay, the company will have much greater likelihood of reorganizing and getting back on its feet,” said Brett Weiss, a bankruptcy attorney in Maryland.

But in this case, Gymboree was knowingly liquidating most of its business before the bankruptcy was ever filed, making retention bonuses less urgent. “This was a liquidation chapter 11, the executives are not going to be in these positions a year from now,” Weiss said. “Maybe they said, ‘How can we get more money out without having the trustee claw it back? What’s the greatest number of people we can do this for without raising red flags? How about the executive leadership team?’” Gymboree’s lawyers in the bankruptcy case did not respond to a request for comment.

Moreover, while some executives do need to be in place to wind down operations, the alleged bonuses were not uniformly given to executives who had that role. For example, the VP of marketing allegedly got a bonus, even though marketing operations effectively ceased. Meanwhile, Thompson’s job involved regulatory compliance, which any retailer still selling products (even in a going-out-of-business sale) needs to maintain. Yet she was denied a bonus and fired without severance.

The situation has left Chung devastated. “Me and this other woman were the altar sacrifices for the others to get paid,” she says. “People have to understand how vulnerable they are.”

Chung was recruited to Gymboree five years ago by her former boss at Old Navy, where she was the vice president of kids and baby clothing design. She was told that she would have the run of an entire brand, the low-price Crazy 8. “It was their only brand that was relevant,” Chung says. She took the job.

At the time, Gymboree was under the control of Bain Capital, Mitt Romney’s old private-equity firm. The private-equity business model involves engaging in buyouts with borrowed money and putting that mountain of debt on the company it purchases, all the while extracting profits from the company through management fees. Few companies, particularly in the high-risk retail sector, can deal with such a debt burden — it makes it difficult to invest in stores, personnel, or better products.

Chung says this showed in how Gymboree ran the business. “Instead of investing in creative talent, they promoted design and merchandising from within,” she says. “Merchandisers became complacent with wanting product they knew would sell from the year before. There were years upon years of awful clothes with poodles and trucks on them.” She also complains that Crazy 8 had no marketing budget, and her work to break with standard fare was practically hidden.

By 2017, Gymboree couldn’t hold out any longer and went into bankruptcy. The business was put in control of its largest creditors, who were private equity and investment firms. The seven-member board included then-CEO of Gymboree, Daniel Griesemer; Ron Beegle, CEO of investment consultant Carriage House Capital Advisers; Matt Perkal, a partner at hedge fund Brigade Capital Management; Brian Hickey from mutual fund firm OppenheimerFunds; and Eric Sondag, a partner at private-equity firm Searchlight Capital, who was made board chair. Other members of the board were not disclosed, and since Gymboree is not a public company, they have no requirement to do so. Apollo Global Management, Marblegate, Nomura Securities, and Tricadia Capital Management also had a share of the company.

Though Gymboree emerged from bankruptcy in decent financial shape, Thompson described the new board as uninterested. “There was zero involvement in what was going on day to day,” she says. “They just let the CEO do whatever he wanted.”

Griesemer decided to invest in a complete redesign of Gymboree’s clothing line. It was a high-cost gamble off the bankruptcy, and it failed; when the new clothes hit stores last summer, parents called them “complete garbage.” Says Thompson: “I started paying attention to sales, and I was like, ‘Oh my god, this is so bad.’ It was negative 20 to 30 percent [compared to the previous year] every single day.”

By November, Griesemer was fired, and Kahng, the new CEO, came in. She had started her career as a food scientist at Kraft and was an independent member of the board prior to being named CEO, according to her LinkedIn page.

“She thought they were going to try to rehab the brand, that this was her career-defining moment,” Chung says. She described one meeting in which Kahng pronounced that Gymboree needed to be a “disruptor” like Apple. “She said, ‘What does every parent experience?’” Chung recalls. “‘Every parent in the world feeds their child strained carrots. When my children were babies, there were carrot stains on everything. We could do something so simple, an orange bib.’ She was 100 percent serious. I barely got through the meeting.”

The disruption didn’t take. By early December, the company announced that it would shutter all Crazy 8 stores after the holidays and significantly reduce the Gymboree footprint. Chung says that in the month after the announcement, Kahng never formally addressed Crazy 8 employees, leaving them confused about their roles. If the brand was closing, there was no need to design or purchase product for the next season. “My team of 20 said, what do we do?” Chung recalls. “They said keep showing up until further notice. They didn’t want to let us go because then they would have to pay severance.”

The Gymboree management severance plan was not a package negotiated individually. It was an employee benefits plan, established under the auspices of the Employee Retirement Income Security Act. This has become popular, particularly with large companies, says Jim Keenley, an ERISA attorney in Berkeley, California. The statute provides protections to workers if they aren’t given what’s promised in the severance plan. It offers no protection, however, if the plan is terminated.

“It’s an illusory contract,” says Keenley. “It’s very common for severance plans to have language in them that say, here’s your severance but we can take it away at any time for any reason.” No advance warning is needed for termination, under current law. While retirement benefits under ERISA are better protected, severance plans are considered a welfare benefit, and the funds do not vest.

So employees have no recourse if a termination occurs. And most of them don’t read the fine print allowing companies like Gymboree to pull that trigger. “I didn’t have anyone look at it,” says Thompson. “I was naïve.”

Both Thompson and Chung were told after the 2017 bankruptcy that the severance plan remained active. And both sought further assurances after it was clear that Gymboree would slide into bankruptcy again. Chung says she had asked three colleagues — the general counsel, the VP of human resources, and the general manager of her brand, Crazy 8 — whether her severance would be honored. None gave a straight answer. But Thompson said that when she approached the general counsel, Kimberly MacMillan, in early January, MacMillan reassured her, “Don’t worry, we will file it as a first-day motion.”

In bankruptcy-speak, MacMillan was saying that the severance plan would be one of the payouts that Gymboree would seek to get approved when it filed. Pending court approval, all employees eligible for the severance plan would be compensated. The severance plan was approved in the 2017 bankruptcy, so Thompson trusted MacMillan that the same would happen the second time around. “I had good working relationship with [MacMillan],” Thompson says. “She fucking lied to my face.”

MacMillan, in a short phone call with The Intercept, said that “we [Gymboree employees] follow a strict no-comment policy” with the media, and hung up.

Around the same time, Chris Lu, general manager of Crazy 8, was commuting home with Chung. “She would always disclose things to me, she would blab them to me,” Chung says. In her letter to the trustee, Chung writes that Lu told her that members of the executive leadership team were “paid their severance,” after demanding assurances from the board of directors. The board arranged for a “retention bonus contract” in the amount of the severance pay. “She said I couldn’t tell anyone about it,” Chung recalls. “I said, ‘Why did you tell me that if I cannot say anything?’”

In a brief phone conversation with The Intercept, Lu would only say, “I can’t talk to you. … I’m going to hang up now.”

According to Chung’s trustee letter, members of the executive leadership team who may have received retention bonuses included Lu, MacMillan, Schickedanz, Chief Financial Officer Jon Kimmons, VP of Information Technology David Sondergeld, VP of Logistics Dana Todorovic, VP of Sourcing Patricia Lesser, and VP of Marketing Parnell Eagle. Those in the “next level down” like Chung were left out, even though she had the same VP title as several of the recipients. Chung and Thompson were not formally part of the executive leadership team.

Thompson had also heard about the not-so-secret retention bonuses. “Nobody officially told me, but I heard rumors,” she says. She talked it over with Chung just before the bankruptcy. But when Thompson asked MacMillan about the executive leadership team meeting with the board, MacMillan told her that she couldn’t comment on it.

Both Thompson and Chung were told about the severance termination on the same evening. That day, everyone in the office figured out who was being let go, because human resources had cleared out the layoff victims’ time-off balance from the payroll processing system. “Everyone compared notes, mine’s not cleared out, mine is,” Thompson says. “Everyone zeroed out is going to get let go. Mine was zeroed out at end of Wednesday.”

Thompson was told by phone that she would be terminated without severance. Kahng, who as CEO was also a member of the board, told her that “it wasn’t our decision. Goldman Sachs is running the show now, we couldn’t do anything about it.”

Goldman Sachs was the lead creditor on Gymboree’s remaining loans, which it used for cash flow. The investment bank was the first in line to get paid from the bankruptcy. “It’s like when you get on an airplane — Goldman was group 1,” says Chung.

The next day, staff was packed into a tiny conference room. Chung decided to wear a vintage Sex Pistols T-shirt to the meeting with the words “No Future” scrawled on the front. Schickedanz, the human resources chief, read a prepared statement through tears. Everyone had to turn in their ID badges, laptops, and corporate credit cards, and vacate the building by the end of the day. Employees would get their last paycheck and paid time off, and that was it.

Schickedanz, in a phone call with The Intercept, said, “Oh, I thought you were someone else calling. … I’m going to jump off [the phone],” and hung up.

One employee, Katherine Pocrass, filed a class-action lawsuit against Gymboree, alleging that the company did not provide 60 days’ advance notice of the mass firing, as required under the Worker Adjustment and Retraining Notification Act. Attorneys for that case did not respond to a request for comment.

The WARN Act case is ongoing, and Chung would be eligible to be a member in the class-action, which could yield up to 60 days of back pay. But her severance was for a year.

Chung says she met with 17 different attorneys seeking legal recourse for her full severance. Each of them said that while Gymboree’s actions were unconscionable, they were technically legal; the severance plan entitled the company to terminate at any time. Eugene Pak, a business litigator in the Bay Area, said that the situation struck him as “unethical.” Added Keenley, the ERISA attorney: “I think Mera felt that it was unfair. … I’ve been looking for ways to find that it was not lawful, but I have not found them.”

Ron Tyler, a friend of Chung’s and a law professor at Stanford, provided her with several legal contacts. “I think her devastation comes from the fact that she, after very carefully and persistently creating this extremely successful career, to have it end so dramatically and intentionally by her company,” Tyler says. “And she saw the writing on the wall. Had it not been for that [severance] agreement, she would have left before.” Shortly after the bankruptcy, Chung felt an even deeper sting. One of the lawyers she consulted asked how many employees worked at Gymboree headquarters, and so Chung put the question to Lu. “She was laughing and said, ‘I’ll call you when I land, I’m going to Sundance,’” Chung says. Chung wrote to the trustee that Lu and three other members of the executive leadership team — Tricia Lesser, Shelly Walsh, and Parnell Eagle — had decamped to the Sundance Film Festival, weeks after being given a retention bonus to stay on at Gymboree. Thompson corroborated that Gymboree executives were at Sundance, though she didn’t name names. READ MORE: https://theintercept.com/2019/03/25/gymboree-bankruptcy-severance-scam/

WeWork’s Rise: How a Sublet Start-Up Is Taking Over

Critics have derided WeWork as overvalued and vulnerable to the next downturn. But the company holds so many leases in so many cities, it might hold more power than its landlords.

Real estate titans have long scoffed at WeWork, which in eight short years has managed to attain a $20 billion valuation by selling short-term leases for shared office space with a mixture of stylish design and free-flowing alcohol.

Derided by some as a real estate company masquerading as a technology company, it has been called everything from a “$20 billion house of cards” to a “Ponzi scheme.”

The naysayers argue that WeWork’s business model looks brilliant only in a rising economy that has allowed it to lock in long-term leases and then re-rent that space to other businesses at a premium. The enormous valuation it has obtained is higher than that of Boston Properties and Vornado, two of the country’s biggest office-space landlords — companies that actually own the kind of space that WeWork usually rents.

Now, with interest rates creeping higher, residential real estate prices flattening and fears of an economic slowdown coming, real estate insiders are gleeful at the notion that a downturn could be an existential threat for the company.

But a funny thing happened as WeWork has scaled up all over the globe: It may have become too big to fail.

WeWork has gobbled up leases for so much space in so many cities, there’s a compelling case to be made that its landlords wouldn’t be able to afford for it to go under.

Because of WeWork’s size, “they have more power in a down market,” said Thomas J. Barrack Jr., the longtime real estate investor and founder of Colony Capital.

The company is scheduled to release third-quarter financial results on Tuesday. A WeWork spokesman, citing the coming report, declined to comment.

The conventional wisdom is that when the economy turns south, WeWork’s customers — many of which are start-ups and may be the most vulnerable — will simply walk away. The flexibility of WeWork’s short-term leases is part of its appeal, after all.