The Nation's Financial Condition

[PizzaSnake]

Exec buddy at a Dallas based bank that has a massive and highly profitable trucking payment subsidiary sent me this tonight which I thought was interesting.

https://www.freightwaves.com/news/freig ... ong-winter

Freight brokerage bubble bursting as freight markets face long winter

Craig Fuller, CEO at FreightWaves · Wednesday, October 18, 2023

Industry could see more freight brokerage closures amid a changing financial climate. (Photo: Jim Allen/FreightWaves)
Player Image
FreightWaves

Freight brokerage bubble bursting as freight markets face long winter

On Wednesday, FreightWaves reported that Convoy was winding down operations. Earlier in the morning, I had started writing an article about liquidity issues that some freight brokerages are having or will have. Then the news broke that one of the most iconic freight brokers to come out of the venture era of freight tech funding would fail on the same morning.

Convoy was a victim of a violent commoditized industry that is facing one of its deepest recessions in decades and a sudden change in investor appetite from risk to unit economics.

While many articles will be written in the coming weeks about Convoy, unfortunately, it won’t be the only significant broker to suddenly shut down.

This is unusual.

After all, anyone who has been in trucking knows that asset-based carriers face imminent failure frequently. However, it has been rare for freight brokers to suddenly shutter. Compared to trucking fleets, freight brokers have a lot more flexibility in their business model to adjust to changing market conditions

But we will see many more sizable freight brokers shut down suddenly. And the reason is a significant change in the financing climate.

In an article earlier this week, I wrote about the growth and proliferation of the freight brokerage industry over the past decade. Freight brokers have moved from a small cottage industry to one of the most important forces in freight. A large part of FreightWaves’ success has been driven by the increasing importance that freight brokers play in the industry.

After all, freight brokers are the day traders of the freight market, and as such need up-to-date information about the freight market.

FreightWaves was created at a time when freight brokerages morphed from a small part of the industry to a dominant force. FreightWaves owes a lot of our success to this reality.

But much of the brokerage industry’s growth has been fueled by financing structures, such as venture capital (VC) and asset-based lines of credit. The appetite for venture funding of freight brokerages has been dead for over a year and is partially responsible for the reason Convoy has failed. VC investors have woken to the reality that freight brokerage is not venture-investible.

For those brokers that didn’t use VC funding but financed growth through alternative lenders, the story is different, but the results are the same. These alternative lenders are common across the freight market. Trucking companies use factoring companies to finance their receivables on a transactional basis. Brokers do the same; however, it is often not on a per-transaction basis, but rather on a portfolio of receivables.


(Photo: Jim Allen/FreightWaves)
Receivables are pledged as collateral against lines of credit, described as an “asset-based line of credit,” or ABL, and this enables a brokerage to grow quickly without having to wait for shippers to pay.

If the market and unit economics are expanding, it’s a very efficient way to grow. For traders in the stock market, it can be compared to using margin to purchase stocks.

If a stock position is increasing in value, you gain a bigger line of credit. The danger, of course, is if you use the line of credit to buy more of the same stock. If that stock collapses, you are in real trouble because your losses will only accelerate on the downside.

The same thing is happening in the brokerage sector. Freight brokers went out and borrowed against their AR portfolios to fuel growth, racking up debt at cheap rates. When the Fed changed the cost of capital, that debt became more expensive. That in and of itself isn’t the problem.

But something else happened to the trucking market.

The average transaction size of loads also collapsed. Loads that generated $3,000 in revenue two years ago now ship for only $1,500 in revenue. Do enough of those transactions and the size of the credit facility starts to collapse.

That isn’t necessarily a problem if brokers had held onto the capital when times were good. But it does become a problem when that capital is used for more growth or to make other purchases. For Convoy, it was to fuel growth. For other brokers, it could be for personal uses like homes, cars, airplanes, yachts, etc.

The capital is now spent, but the debt is still there. And finance companies, aware of the risks of freight volatility, tried to protect themselves by placing covenants into these lines of credit, often benchmarked against margins.

As margins compressed, the covenants were violated, and the financiers became nervous. Now some of them are facing a dilemma: continue to fund the line of credit or call it in. In Convoy’s case, it appears the line of credit was called in.

In recent weeks, FreightWaves has been hearing from sources that a number of midsize freight brokers are in financial trouble. One CEO of a large broker that had discussed potential transactions told me the risk was most pronounced in brokerages that generate $50 million to $250 million in revenues.

A CEO of a major bank with exposure to trucking told me he had three large brokers that are in dire financial shape in their portfolio and he expects them to shutter in the coming months.

These firms have used receivables funding to fuel growth. However, due to collapsing market fundamentals, they have breached their covenants.

The banks that financed these asset-based loans have been trying to play matchmaker for some of these brokers, but their patience is starting to wear thin.

Unfortunately, it will get worse.

The most brutal part of the cycle for a freight broker isn’t a soft market.

It’s when the freight market starts to turn up and spot rates improve, while contract rates remain pressured. This squeezes brokerage margins.

In other words, the spread between spot and contract narrows. When that happens, it hurts the take rate for freight brokers.

A large percentage of contract rates get established during bid season. If conditions are soft at the time of bids, contract rates will fall.

Bid season traditionally starts in mid-October and ends in February. Freight rates have been very soft all year, and there has been no improvement as bid season gets underway.

The overcapacity in the market has kept both spot and contract rates low — on some lanes, as low or lower than in 2019. These conditions will be a significant drag on contract rates during the 2023-2024 bid season. We foresee contract rates dropping further as carriers realize “it’s lower for longer.”

Spot rates, currently at levels where carriers lose money on many of the miles they run, are unlikely to fall much further.

This will compress brokerage margins, exacerbating any financial struggles that brokerages may have.

Therefore, I expect we will see some frantic deals in freight brokerage happen over the next few months as healthier players take out the weaker ones.

I also expect bankruptcies for those firms that are under significant financial stress. Bankruptcies are common in trucking, but it’s usually asset-based carriers that go under.

This cycle could be the first time we see a number of bankruptcies impact the brokerage market.

F3: Future of Freight Festival

NOVEMBER 7-9, 2023 • CHATTANOOGA, TN • IN-PERSON EVENT

The second annual F3: Future of Freight Festival will be held in Chattanooga, “The Scenic City,” this November. F3 combines innovation and entertainment — featuring live demos, industry experts discussing freight market trends for 2024, afternoon networking events, and Grammy Award-winning musicians performing in the evenings amidst the cool Appalachian fall weather.

Looks like Jerome's "soft landing" is gonna be a fcuking 100 semi pile-up on the financial highway. So, how soon before they realize they've totally screwed the pooch and try and reverse course on the rates?

Or is this the plan -- a bloody crash? Just what we need to kick off some real crazy next year.

[Farfromgeneva]

Exec buddy at a Dallas based bank that has a massive and highly profitable trucking payment subsidiary sent me this tonight which I thought was interesting.

https://www.freightwaves.com/news/freig ... ong-winter

Freight brokerage bubble bursting as freight markets face long winter

Craig Fuller, CEO at FreightWaves · Wednesday, October 18, 2023

Industry could see more freight brokerage closures amid a changing financial climate. (Photo: Jim Allen/FreightWaves)
Player Image
FreightWaves

Freight brokerage bubble bursting as freight markets face long winter

On Wednesday, FreightWaves reported that Convoy was winding down operations. Earlier in the morning, I had started writing an article about liquidity issues that some freight brokerages are having or will have. Then the news broke that one of the most iconic freight brokers to come out of the venture era of freight tech funding would fail on the same morning.

Convoy was a victim of a violent commoditized industry that is facing one of its deepest recessions in decades and a sudden change in investor appetite from risk to unit economics.

While many articles will be written in the coming weeks about Convoy, unfortunately, it won’t be the only significant broker to suddenly shut down.

This is unusual.

After all, anyone who has been in trucking knows that asset-based carriers face imminent failure frequently. However, it has been rare for freight brokers to suddenly shutter. Compared to trucking fleets, freight brokers have a lot more flexibility in their business model to adjust to changing market conditions

But we will see many more sizable freight brokers shut down suddenly. And the reason is a significant change in the financing climate.

In an article earlier this week, I wrote about the growth and proliferation of the freight brokerage industry over the past decade. Freight brokers have moved from a small cottage industry to one of the most important forces in freight. A large part of FreightWaves’ success has been driven by the increasing importance that freight brokers play in the industry.

After all, freight brokers are the day traders of the freight market, and as such need up-to-date information about the freight market.

FreightWaves was created at a time when freight brokerages morphed from a small part of the industry to a dominant force. FreightWaves owes a lot of our success to this reality.

But much of the brokerage industry’s growth has been fueled by financing structures, such as venture capital (VC) and asset-based lines of credit. The appetite for venture funding of freight brokerages has been dead for over a year and is partially responsible for the reason Convoy has failed. VC investors have woken to the reality that freight brokerage is not venture-investible.

For those brokers that didn’t use VC funding but financed growth through alternative lenders, the story is different, but the results are the same. These alternative lenders are common across the freight market. Trucking companies use factoring companies to finance their receivables on a transactional basis. Brokers do the same; however, it is often not on a per-transaction basis, but rather on a portfolio of receivables.


(Photo: Jim Allen/FreightWaves)
Receivables are pledged as collateral against lines of credit, described as an “asset-based line of credit,” or ABL, and this enables a brokerage to grow quickly without having to wait for shippers to pay.

If the market and unit economics are expanding, it’s a very efficient way to grow. For traders in the stock market, it can be compared to using margin to purchase stocks.

If a stock position is increasing in value, you gain a bigger line of credit. The danger, of course, is if you use the line of credit to buy more of the same stock. If that stock collapses, you are in real trouble because your losses will only accelerate on the downside.

The same thing is happening in the brokerage sector. Freight brokers went out and borrowed against their AR portfolios to fuel growth, racking up debt at cheap rates. When the Fed changed the cost of capital, that debt became more expensive. That in and of itself isn’t the problem.

But something else happened to the trucking market.

The average transaction size of loads also collapsed. Loads that generated $3,000 in revenue two years ago now ship for only $1,500 in revenue. Do enough of those transactions and the size of the credit facility starts to collapse.

That isn’t necessarily a problem if brokers had held onto the capital when times were good. But it does become a problem when that capital is used for more growth or to make other purchases. For Convoy, it was to fuel growth. For other brokers, it could be for personal uses like homes, cars, airplanes, yachts, etc.

The capital is now spent, but the debt is still there. And finance companies, aware of the risks of freight volatility, tried to protect themselves by placing covenants into these lines of credit, often benchmarked against margins.

As margins compressed, the covenants were violated, and the financiers became nervous. Now some of them are facing a dilemma: continue to fund the line of credit or call it in. In Convoy’s case, it appears the line of credit was called in.

In recent weeks, FreightWaves has been hearing from sources that a number of midsize freight brokers are in financial trouble. One CEO of a large broker that had discussed potential transactions told me the risk was most pronounced in brokerages that generate $50 million to $250 million in revenues.

A CEO of a major bank with exposure to trucking told me he had three large brokers that are in dire financial shape in their portfolio and he expects them to shutter in the coming months.

These firms have used receivables funding to fuel growth. However, due to collapsing market fundamentals, they have breached their covenants.

The banks that financed these asset-based loans have been trying to play matchmaker for some of these brokers, but their patience is starting to wear thin.

Unfortunately, it will get worse.

The most brutal part of the cycle for a freight broker isn’t a soft market.

It’s when the freight market starts to turn up and spot rates improve, while contract rates remain pressured. This squeezes brokerage margins.

In other words, the spread between spot and contract narrows. When that happens, it hurts the take rate for freight brokers.

A large percentage of contract rates get established during bid season. If conditions are soft at the time of bids, contract rates will fall.

Bid season traditionally starts in mid-October and ends in February. Freight rates have been very soft all year, and there has been no improvement as bid season gets underway.

The overcapacity in the market has kept both spot and contract rates low — on some lanes, as low or lower than in 2019. These conditions will be a significant drag on contract rates during the 2023-2024 bid season. We foresee contract rates dropping further as carriers realize “it’s lower for longer.”

Spot rates, currently at levels where carriers lose money on many of the miles they run, are unlikely to fall much further.

This will compress brokerage margins, exacerbating any financial struggles that brokerages may have.

Therefore, I expect we will see some frantic deals in freight brokerage happen over the next few months as healthier players take out the weaker ones.

I also expect bankruptcies for those firms that are under significant financial stress. Bankruptcies are common in trucking, but it’s usually asset-based carriers that go under.

This cycle could be the first time we see a number of bankruptcies impact the brokerage market.

F3: Future of Freight Festival

NOVEMBER 7-9, 2023 • CHATTANOOGA, TN • IN-PERSON EVENT

The second annual F3: Future of Freight Festival will be held in Chattanooga, “The Scenic City,” this November. F3 combines innovation and entertainment — featuring live demos, industry experts discussing freight market trends for 2024, afternoon networking events, and Grammy Award-winning musicians performing in the evenings amidst the cool Appalachian fall weather.

Looks like Jerome's "soft landing" is gonna be a fcuking 100 semi pile-up on the financial highway. So, how soon before they realize they've totally screwed the pooch and try and reverse course on the rates?

Or is this the plan -- a bloody crash? Just what we need to kick off some real crazy next year.

I mean I wanted rates higher in 2013 and Yellen give up the ghost that summer and it was all over. Then Powell let that fat moron who knows nothing about finance at all talk him into cutting rates in 18-19 BEFORE Covid.

Keep in mind fiscal policy has been largely restrictive for most of the past decade (tax law change one exception but from 10-17/18 this is the case) while the Fed had been spraying money around like a dictator would with a water cannon on protestors. Now fiscal policy with all the stimulus and Biden’s packages passed by congress are highly accommodative at the same time the Fed is reducing money supply and velocity.

They should’ve be coordinated but they shouldn’t be fighting each other and as dismayed as I am with most of Greenspan-Today I trust the Fed more still than politicians when it comes to economic policy.

And not feeling it personally as a young kid I’m still very aware of deflation being the more pernicious risk than inflation. The worst being stagflation. I think coming out of the Covid period where fiscal and monetary were fairly coordinated (“long only” in portfolio terms) we had very real risk of stagflation. Most of the smartest guys I know were worried in Q4 of 19 before Covid really hit about the cycle turning. With our intervention since I see stagflation as a real risk and so I’m ok with higher for longer here. The Fed may have set the stage for this the prior 25yrs to a degree (can’t ignore fiscal sh**show) but doesn’t mean a painful move now is wrong. We need to break a mentality because we have 35yr olds running industries and major money who have no sense of anything before 2011. They all believe “buy the dip” and even in the last year were positions money and lives for rates to come down in 24 causing very real risk. Economists are as much philosophers and less hard science notwithstanding Friedman’s work on it. They need to break a flawed psychology in the next generations here.

*Related-I’ve mentioned this before but think about this:

- mid 80s to 2009, secular decline in interest rates (modest bump in 04-06, the Fed Liberty st economics just surveyed the impact today vs then and is surprised this is worse, very disappointing conclusion by them..)

- financial crisis, bail out everyone including Ford and banks who didn’t want the money. Still pretending the GSEs are implicit guarantees as codified because a bank holding USAs treasuries counts it for regulators as not an asset in leverage calculations (0% risk weight njmtiokied HY the numerator and equity capitala as denominator) and Fannie and Freddie mortgage bonds are 1/5 of an asset (20% multiplied by the asset value) hence driving investment to federal coffers and SBA & HUD. Doesn’t matter because mortgage market is between 95-99% GSE now vs before 2009.

-rates go to zero and stay there at a time when the largest demographic cohort is hitting 50s and 60s and need to be thinking fixed income payouts over riskier, higher beta equity investments.

- homeowners lost many houses and govt creates programs that make it easier for single family rental industry to blossom for guys like Tom Barrack…but they buy the assets in ten year life investment vehicles (GP/LP) and have subsidized govt funding with 2-5ye terms.
-How the heck do you exit those great trades without dumping all the homes and depressing the market value in suburbs of every sunbelt state that’s already high volatile/velocity areas/markets? Well, old people cohort is growing so use REIT tax rules to dump it into retail public retail investors via REIT IPOs (REITs and RICs like Business Development companies which make commercial middle market loans are not taxed at the corporate level but at investor level and have to pass through 90% of accounting income as dividends so they can’t grow their book value over time, like a highly illiquid bond investment with principal risk of generally 10-30%). Many of those IRA/491k investments of former homeowners who are now renters…eventually those stock dividend lying investments need to be sold but they have terrible bid/ask spreads, borderline Hotel California investments.
-now rates go up and the 60/40 idiocy that retail financial advisors pimped for a decade are going to crush retirees when’re they’re now really drawing on those regiment accounts and need to hit the market to sell those positions down.

Hope this path is illuminating how we pulled everything forward for the boomer generation economically and yet I see it coming when they need the cash the most in the next decade and guess who’ll be burying their parents in pine boxes because that’s all they afford???

[Farfromgeneva]

Exec buddy at a Dallas based bank that has a massive and highly profitable trucking payment subsidiary sent me this tonight which I thought was interesting.

https://www.freightwaves.com/news/freig ... ong-winter

Freight brokerage bubble bursting as freight markets face long winter

Craig Fuller, CEO at FreightWaves · Wednesday, October 18, 2023

Industry could see more freight brokerage closures amid a changing financial climate. (Photo: Jim Allen/FreightWaves)
Player Image
FreightWaves

Freight brokerage bubble bursting as freight markets face long winter

On Wednesday, FreightWaves reported that Convoy was winding down operations. Earlier in the morning, I had started writing an article about liquidity issues that some freight brokerages are having or will have. Then the news broke that one of the most iconic freight brokers to come out of the venture era of freight tech funding would fail on the same morning.

Convoy was a victim of a violent commoditized industry that is facing one of its deepest recessions in decades and a sudden change in investor appetite from risk to unit economics.

While many articles will be written in the coming weeks about Convoy, unfortunately, it won’t be the only significant broker to suddenly shut down.

This is unusual.

After all, anyone who has been in trucking knows that asset-based carriers face imminent failure frequently. However, it has been rare for freight brokers to suddenly shutter. Compared to trucking fleets, freight brokers have a lot more flexibility in their business model to adjust to changing market conditions

But we will see many more sizable freight brokers shut down suddenly. And the reason is a significant change in the financing climate.

In an article earlier this week, I wrote about the growth and proliferation of the freight brokerage industry over the past decade. Freight brokers have moved from a small cottage industry to one of the most important forces in freight. A large part of FreightWaves’ success has been driven by the increasing importance that freight brokers play in the industry.

After all, freight brokers are the day traders of the freight market, and as such need up-to-date information about the freight market.

FreightWaves was created at a time when freight brokerages morphed from a small part of the industry to a dominant force. FreightWaves owes a lot of our success to this reality.

But much of the brokerage industry’s growth has been fueled by financing structures, such as venture capital (VC) and asset-based lines of credit. The appetite for venture funding of freight brokerages has been dead for over a year and is partially responsible for the reason Convoy has failed. VC investors have woken to the reality that freight brokerage is not venture-investible.

For those brokers that didn’t use VC funding but financed growth through alternative lenders, the story is different, but the results are the same. These alternative lenders are common across the freight market. Trucking companies use factoring companies to finance their receivables on a transactional basis. Brokers do the same; however, it is often not on a per-transaction basis, but rather on a portfolio of receivables.


(Photo: Jim Allen/FreightWaves)
Receivables are pledged as collateral against lines of credit, described as an “asset-based line of credit,” or ABL, and this enables a brokerage to grow quickly without having to wait for shippers to pay.

If the market and unit economics are expanding, it’s a very efficient way to grow. For traders in the stock market, it can be compared to using margin to purchase stocks.

If a stock position is increasing in value, you gain a bigger line of credit. The danger, of course, is if you use the line of credit to buy more of the same stock. If that stock collapses, you are in real trouble because your losses will only accelerate on the downside.

The same thing is happening in the brokerage sector. Freight brokers went out and borrowed against their AR portfolios to fuel growth, racking up debt at cheap rates. When the Fed changed the cost of capital, that debt became more expensive. That in and of itself isn’t the problem.

But something else happened to the trucking market.

The average transaction size of loads also collapsed. Loads that generated $3,000 in revenue two years ago now ship for only $1,500 in revenue. Do enough of those transactions and the size of the credit facility starts to collapse.

That isn’t necessarily a problem if brokers had held onto the capital when times were good. But it does become a problem when that capital is used for more growth or to make other purchases. For Convoy, it was to fuel growth. For other brokers, it could be for personal uses like homes, cars, airplanes, yachts, etc.

The capital is now spent, but the debt is still there. And finance companies, aware of the risks of freight volatility, tried to protect themselves by placing covenants into these lines of credit, often benchmarked against margins.

As margins compressed, the covenants were violated, and the financiers became nervous. Now some of them are facing a dilemma: continue to fund the line of credit or call it in. In Convoy’s case, it appears the line of credit was called in.

In recent weeks, FreightWaves has been hearing from sources that a number of midsize freight brokers are in financial trouble. One CEO of a large broker that had discussed potential transactions told me the risk was most pronounced in brokerages that generate $50 million to $250 million in revenues.

A CEO of a major bank with exposure to trucking told me he had three large brokers that are in dire financial shape in their portfolio and he expects them to shutter in the coming months.

These firms have used receivables funding to fuel growth. However, due to collapsing market fundamentals, they have breached their covenants.

The banks that financed these asset-based loans have been trying to play matchmaker for some of these brokers, but their patience is starting to wear thin.

Unfortunately, it will get worse.

The most brutal part of the cycle for a freight broker isn’t a soft market.

It’s when the freight market starts to turn up and spot rates improve, while contract rates remain pressured. This squeezes brokerage margins.

In other words, the spread between spot and contract narrows. When that happens, it hurts the take rate for freight brokers.

A large percentage of contract rates get established during bid season. If conditions are soft at the time of bids, contract rates will fall.

Bid season traditionally starts in mid-October and ends in February. Freight rates have been very soft all year, and there has been no improvement as bid season gets underway.

The overcapacity in the market has kept both spot and contract rates low — on some lanes, as low or lower than in 2019. These conditions will be a significant drag on contract rates during the 2023-2024 bid season. We foresee contract rates dropping further as carriers realize “it’s lower for longer.”

Spot rates, currently at levels where carriers lose money on many of the miles they run, are unlikely to fall much further.

This will compress brokerage margins, exacerbating any financial struggles that brokerages may have.

Therefore, I expect we will see some frantic deals in freight brokerage happen over the next few months as healthier players take out the weaker ones.

I also expect bankruptcies for those firms that are under significant financial stress. Bankruptcies are common in trucking, but it’s usually asset-based carriers that go under.

This cycle could be the first time we see a number of bankruptcies impact the brokerage market.

F3: Future of Freight Festival

NOVEMBER 7-9, 2023 • CHATTANOOGA, TN • IN-PERSON EVENT

The second annual F3: Future of Freight Festival will be held in Chattanooga, “The Scenic City,” this November. F3 combines innovation and entertainment — featuring live demos, industry experts discussing freight market trends for 2024, afternoon networking events, and Grammy Award-winning musicians performing in the evenings amidst the cool Appalachian fall weather.

Looks like Jerome's "soft landing" is gonna be a fcuking 100 semi pile-up on the financial highway. So, how soon before they realize they've totally screwed the pooch and try and reverse course on the rates?

Or is this the plan -- a bloody crash? Just what we need to kick off some real crazy next year.

In other words we can no longer kick the can anymore and whatever shakes out of this it’s long overdue medicine and I’d rather buy a digit or two off than die out.

[Farfromgeneva]

Exec buddy at a Dallas based bank that has a massive and highly profitable trucking payment subsidiary sent me this tonight which I thought was interesting.

https://www.freightwaves.com/news/freig ... ong-winter

Freight brokerage bubble bursting as freight markets face long winter

Craig Fuller, CEO at FreightWaves · Wednesday, October 18, 2023

Industry could see more freight brokerage closures amid a changing financial climate. (Photo: Jim Allen/FreightWaves)
Player Image
FreightWaves

Freight brokerage bubble bursting as freight markets face long winter

On Wednesday, FreightWaves reported that Convoy was winding down operations. Earlier in the morning, I had started writing an article about liquidity issues that some freight brokerages are having or will have. Then the news broke that one of the most iconic freight brokers to come out of the venture era of freight tech funding would fail on the same morning.

Convoy was a victim of a violent commoditized industry that is facing one of its deepest recessions in decades and a sudden change in investor appetite from risk to unit economics.

While many articles will be written in the coming weeks about Convoy, unfortunately, it won’t be the only significant broker to suddenly shut down.

This is unusual.

After all, anyone who has been in trucking knows that asset-based carriers face imminent failure frequently. However, it has been rare for freight brokers to suddenly shutter. Compared to trucking fleets, freight brokers have a lot more flexibility in their business model to adjust to changing market conditions

But we will see many more sizable freight brokers shut down suddenly. And the reason is a significant change in the financing climate.

In an article earlier this week, I wrote about the growth and proliferation of the freight brokerage industry over the past decade. Freight brokers have moved from a small cottage industry to one of the most important forces in freight. A large part of FreightWaves’ success has been driven by the increasing importance that freight brokers play in the industry.

After all, freight brokers are the day traders of the freight market, and as such need up-to-date information about the freight market.

FreightWaves was created at a time when freight brokerages morphed from a small part of the industry to a dominant force. FreightWaves owes a lot of our success to this reality.

But much of the brokerage industry’s growth has been fueled by financing structures, such as venture capital (VC) and asset-based lines of credit. The appetite for venture funding of freight brokerages has been dead for over a year and is partially responsible for the reason Convoy has failed. VC investors have woken to the reality that freight brokerage is not venture-investible.

For those brokers that didn’t use VC funding but financed growth through alternative lenders, the story is different, but the results are the same. These alternative lenders are common across the freight market. Trucking companies use factoring companies to finance their receivables on a transactional basis. Brokers do the same; however, it is often not on a per-transaction basis, but rather on a portfolio of receivables.


(Photo: Jim Allen/FreightWaves)
Receivables are pledged as collateral against lines of credit, described as an “asset-based line of credit,” or ABL, and this enables a brokerage to grow quickly without having to wait for shippers to pay.

If the market and unit economics are expanding, it’s a very efficient way to grow. For traders in the stock market, it can be compared to using margin to purchase stocks.

If a stock position is increasing in value, you gain a bigger line of credit. The danger, of course, is if you use the line of credit to buy more of the same stock. If that stock collapses, you are in real trouble because your losses will only accelerate on the downside.

The same thing is happening in the brokerage sector. Freight brokers went out and borrowed against their AR portfolios to fuel growth, racking up debt at cheap rates. When the Fed changed the cost of capital, that debt became more expensive. That in and of itself isn’t the problem.

But something else happened to the trucking market.

The average transaction size of loads also collapsed. Loads that generated $3,000 in revenue two years ago now ship for only $1,500 in revenue. Do enough of those transactions and the size of the credit facility starts to collapse.

That isn’t necessarily a problem if brokers had held onto the capital when times were good. But it does become a problem when that capital is used for more growth or to make other purchases. For Convoy, it was to fuel growth. For other brokers, it could be for personal uses like homes, cars, airplanes, yachts, etc.

The capital is now spent, but the debt is still there. And finance companies, aware of the risks of freight volatility, tried to protect themselves by placing covenants into these lines of credit, often benchmarked against margins.

As margins compressed, the covenants were violated, and the financiers became nervous. Now some of them are facing a dilemma: continue to fund the line of credit or call it in. In Convoy’s case, it appears the line of credit was called in.

In recent weeks, FreightWaves has been hearing from sources that a number of midsize freight brokers are in financial trouble. One CEO of a large broker that had discussed potential transactions told me the risk was most pronounced in brokerages that generate $50 million to $250 million in revenues.

A CEO of a major bank with exposure to trucking told me he had three large brokers that are in dire financial shape in their portfolio and he expects them to shutter in the coming months.

These firms have used receivables funding to fuel growth. However, due to collapsing market fundamentals, they have breached their covenants.

The banks that financed these asset-based loans have been trying to play matchmaker for some of these brokers, but their patience is starting to wear thin.

Unfortunately, it will get worse.

The most brutal part of the cycle for a freight broker isn’t a soft market.

It’s when the freight market starts to turn up and spot rates improve, while contract rates remain pressured. This squeezes brokerage margins.

In other words, the spread between spot and contract narrows. When that happens, it hurts the take rate for freight brokers.

A large percentage of contract rates get established during bid season. If conditions are soft at the time of bids, contract rates will fall.

Bid season traditionally starts in mid-October and ends in February. Freight rates have been very soft all year, and there has been no improvement as bid season gets underway.

The overcapacity in the market has kept both spot and contract rates low — on some lanes, as low or lower than in 2019. These conditions will be a significant drag on contract rates during the 2023-2024 bid season. We foresee contract rates dropping further as carriers realize “it’s lower for longer.”

Spot rates, currently at levels where carriers lose money on many of the miles they run, are unlikely to fall much further.

This will compress brokerage margins, exacerbating any financial struggles that brokerages may have.

Therefore, I expect we will see some frantic deals in freight brokerage happen over the next few months as healthier players take out the weaker ones.

I also expect bankruptcies for those firms that are under significant financial stress. Bankruptcies are common in trucking, but it’s usually asset-based carriers that go under.

This cycle could be the first time we see a number of bankruptcies impact the brokerage market.

F3: Future of Freight Festival

NOVEMBER 7-9, 2023 • CHATTANOOGA, TN • IN-PERSON EVENT

The second annual F3: Future of Freight Festival will be held in Chattanooga, “The Scenic City,” this November. F3 combines innovation and entertainment — featuring live demos, industry experts discussing freight market trends for 2024, afternoon networking events, and Grammy Award-winning musicians performing in the evenings amidst the cool Appalachian fall weather.

Looks like Jerome's "soft landing" is gonna be a fcuking 100 semi pile-up on the financial highway. So, how soon before they realize they've totally screwed the pooch and try and reverse course on the rates?

Or is this the plan -- a bloody crash? Just what we need to kick off some real crazy next year.

Last item on this for you. Having coffee in 15 with the guy I was having a text exchange with last night that led me to reach out to bank exec in TX with similar larger business. Illuminating to me without sharing anything proprietary (other than I’m leaving the JPM in and scrubbing the smaller bank name). This guy is one of the more put together and talented early 30s finance guy I’ve met down here lately, known him maybe two years now as he moved into my hood. Just need to get the stupid UGA bulldog statue off his lawn!: (my other note is I take issue with the M/K fin nail unit usage, should be MM and M but oh well)

Ya man, I accidentally stood up a freight, factoring business unit with over 1 billion in volume and nowhere to process it. It’s been a weird month and a half.

Vcs are in Vegas so that’s where I’m going, unfortunately

We are cool on capital for now, I’ve got a facility for the factoring biz at bank rates and we’ve still got $50m collecting dust. Mostly going so those guys remember me when we need it. Happy to talk to anyone interesting.

Mostly looking for an odfi with a decent size balance sheet and modern enough infrastructure, maybe does fbo accounts. We are working through “private bank backed by a FIG PE firm in the NE” (my edit in quotes here) right now, but only 700m in assets and all our volume could trip compliance for them. Standing something up with JPM, then probably looking for one more to load balance volume before someone makes us get money transmitter licenses.

[Jim Malone]

Can't really argue the premise.

Our sovereign debt is runaway with small probability of full repayment from what I can tell.

https://www.msn.com/en-us/money/markets ... a16&ei=135

[PizzaSnake]

Can't really argue the premise.

Our sovereign debt is runaway with small probability of full repayment from what I can tell.

https://www.msn.com/en-us/money/markets ... a16&ei=135

Raise revenue.

[a fan]

Can't really argue the premise.

Our sovereign debt is runaway with small probability of full repayment from what I can tell.

https://www.msn.com/en-us/money/markets ... a16&ei=135

Raise revenue.

Yep. Couldn't agree more.

[MDlaxfan76]

Can't really argue the premise.

Our sovereign debt is runaway with small probability of full repayment from what I can tell.

https://www.msn.com/en-us/money/markets ... a16&ei=135

Raise revenue.

Yep. Couldn't agree more.

Revenue is actually rising at a pretty darn good clip and is projected to continue to do so. See this chart:

https://www.statista.com/statistics/200 ... year-2000/

The question, perhaps, is what would happen with a return to something closer to the tax regimen prior to the massive tax rate cuts in early Trump admin.

[a fan]

Can't really argue the premise.

Our sovereign debt is runaway with small probability of full repayment from what I can tell.

https://www.msn.com/en-us/money/markets ... a16&ei=135

Raise revenue.

Yep. Couldn't agree more.

Revenue is actually rising at a pretty darn good clip and is projected to continue to do so. See this chart:

https://www.statista.com/statistics/200 ... year-2000/

Of course it is, MDlax.... all those Trillions in borrowed dollars are taxed, my man....so yes, SOME makes it back, moving revenue up.

But nowhere close to enough to cover the debt, let alone the interest.

Which is why I have always used the analogy of a husband stopping off on the way home to take out a $10K loan, and bragging to his wife "honey, our revenue is WAY up" .....without bothering to tell her that you now have a loan to pay back, plus interest.

Republican voters think that that $10K is a raise from work for this family. Yes, they are that bad at economics.





I've told the forum this from day one of the Water Cooler: our effective income tax rates are less than half of where they were under Bill Clinton.

Raise taxes like adults, and these issues go away.

[MDlaxfan76]

Can't really argue the premise.

Our sovereign debt is runaway with small probability of full repayment from what I can tell.

https://www.msn.com/en-us/money/markets ... a16&ei=135

Raise revenue.

Yep. Couldn't agree more.

Revenue is actually rising at a pretty darn good clip and is projected to continue to do so. See this chart:

https://www.statista.com/statistics/200 ... year-2000/

Of course it is, MDlax.... all those Trillions in borrowed dollars are taxed, my man....so yes, SOME makes it back, moving revenue up.

But nowhere close to enough to cover the debt, let alone the interest.

Which is why I have always used the analogy of a husband stopping off on the way home to take out a $10K loan, and bragging to his wife "honey, our revenue is WAY up" .....without bothering to tell her that you now have a loan to pay back, plus interest.

Republican voters think that that $10K is a raise from work for this family. Yes, they are that bad at economics.





I've told the forum this from day one of the Water Cooler: our effective income tax rates are less than half of where they were under Bill Clinton.

Raise taxes like adults, and these issues go away.

I think this data set is actually more illuminating.
https://www.taxpolicycenter.org/statist ... ay-summary

I think the variations in % of GDP are interesting, as well as the gap in % between revenue and receipts as it varies within a particular range...we obviously had a huge gap in 2020 and 2021. We'd also had a spike in dealing with the financial crisis back in 2009. That's coming back down to a more normal range in 2022 and onward, but on the higher side of 'normal'.

Can we comfortably handle more than 18% of GDP in tax receipts? Would 20% be fine? 22%?

I'm not a practicing economist, but seems to me that these are the questions.

Like you, I think there was a sugar high with the tax cuts under Trump and a corresponding increase in gap, and then a sugar high from emergency spending under Trump then Biden.

Me, I'd increase corp tax rates a smidge, individual tax rates at the very top a smidge, and bring back family tax credits. Overall increase in rates/revenue, but not a massive increase.

[cradleandshoot]

Our country is in quite the dilemma. One side detests tax cuts and the other side detests tax increases. The funny thing is both sides are all in favor of spending increases for their wish lists. The debt is skyrocketing to obscene levels and neither side in DC has the giblets to do a damn thing to stop it. When I read some economists say 33 trillion in debt is no big deal. Well when the cost of maintaining that debt starts to equal what this nation pays for defense how is that not a problem?? Doing more with less is a common theme among American business. Doing more with more is what the government is all about.

[a fan]

I think this data set is actually more illuminating.
https://www.taxpolicycenter.org/statist ... ay-summary

I think the variations in % of GDP are interesting, as well as the gap in % between revenue and receipts as it varies within a particular range...we obviously had a huge gap in 2020 and 2021. We'd also had a spike in dealing with the financial crisis back in 2009. That's coming back down to a more normal range in 2022 and onward, but on the higher side of 'normal'.

Can we comfortably handle more than 18% of GDP in tax receipts? Would 20% be fine? 22%?

That's a great way to look it, and we've done this in the past.

You see from the chart INSTANTLY that spending isn't the problem, and we're in line with what Reagan spent: it's that our taxes are too low.

THAT is the problem. Pay for what we get, like grown ups.

And the Republican voters and their leaders need to stop pretending like they want spending cuts. You're both lying, and your fellow voters are sick of the lying about your NEED for big Federal government to make up for your State's inability to be self sufficient.

[Farfromgeneva]

This bank is so…I knew of other issues they had and this hadn’t even been on my radar

Metropolitan Commercial Bank to Pay $15 Million Penalty for Fraud Oversight

PYMNTS

Metropolitan Commercial Bank (MCB) has agreed to pay a penalty of $15 million following an investigation by the New York State Department of Financial Services (DFS).

Superintendent of Financial Services Adrienne A. Harris announced that MCB had failed to properly oversee its MovoCash Digital Prepaid Visa Card Program, leading to fraud actors diverting pandemic unemployment benefits, according to a Thursday (Oct. 19) press release.

The DFS conducted an investigation into MCB’s oversight of the program and found that the bank had not maintained an effective and compliant anti-money laundering program. Additionally, the investigation revealed that MCB had conducted its banking business in an unsafe and unsound manner.

“During the pandemic, scammers used sophisticated tactics to take advantage of vulnerable New Yorkers at a time when institutions should have been most vigilant,” Harris said. “MCB failed to prevent a massive, ongoing fraud in the MovoCash prepaid card program, allowing bad actors to abuse the financial system.”

The DFS investigation was coordinated with the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York, both of which have reached a separate settlement with MCB.

As the sponsoring bank for the MovoCash cards, MCB had the responsibility of ensuring compliance with applicable laws, including the maintenance of an effective Customer Identification Program, the DFS said in the release. However, the investigation found weak controls at MovoCash and inadequate oversight by MCB, which allowed fraud actors to exploit the program.

The fraudulent activity began as early as January 2020, when fraud actors opened MovoCash card accounts using fraudulently obtained personal identifying information. These accounts were then used to redirect direct deposit payroll payments and government benefits to the fraud actors.

The passage of the CARES Act in late March 2020, which expanded unemployment insurance, exacerbated the fraud. DFS said MCB observed a surge in fraudulent MovoCash account openings but failed to address the issue, allowing new fraudulent accounts to be opened. As a result, over the next few months, more than $300 million in pandemic unemployment benefits were misdirected to the MovoCash accounts of fraud actors.

This is only one such instance of fraudsters stealing pandemic benefits.

Experts estimated last August that COVID-19 fraud thefts could hit $163 billion, PYMNTS reported.

A report from the Department of Labor’s Office of Inspector General (OIG) last year indicated that a minimum of $163 billion in UI [unemployment insurance] benefits “could be improper, with a significant portion being attributed to fraud.”

The total fraud will likely increase, the OIG noted. The three pandemic UI programs issued close to $655 billion in benefits.

In August 2022, President Joe Biden signed two bipartisan bills into law that extended the statute of limitations for some pandemic-related fraud to 10 years.

“There are years and years and years of work ahead of us,” said Kevin Chambers, chief pandemic prosecutor for the Department of Justice, the New York Times reported at the time. “I’m confident that we’ll be using every last day of those 10 years.”

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[Farfromgeneva]

Can't really argue the premise.

Our sovereign debt is runaway with small probability of full repayment from what I can tell.

https://www.msn.com/en-us/money/markets ... a16&ei=135

Raise revenue.

Yep. Couldn't agree more.

Revenue is actually rising at a pretty darn good clip and is projected to continue to do so. See this chart:

https://www.statista.com/statistics/200 ... year-2000/

Of course it is, MDlax.... all those Trillions in borrowed dollars are taxed, my man....so yes, SOME makes it back, moving revenue up.

But nowhere close to enough to cover the debt, let alone the interest.

Which is why I have always used the analogy of a husband stopping off on the way home to take out a $10K loan, and bragging to his wife "honey, our revenue is WAY up" .....without bothering to tell her that you now have a loan to pay back, plus interest.

Republican voters think that that $10K is a raise from work for this family. Yes, they are that bad at economics.





I've told the forum this from day one of the Water Cooler: our effective income tax rates are less than half of where they were under Bill Clinton.

Raise taxes like adults, and these issues go away.

I think this data set is actually more illuminating.
https://www.taxpolicycenter.org/statist ... ay-summary

I think the variations in % of GDP are interesting, as well as the gap in % between revenue and receipts as it varies within a particular range...we obviously had a huge gap in 2020 and 2021. We'd also had a spike in dealing with the financial crisis back in 2009. That's coming back down to a more normal range in 2022 and onward, but on the higher side of 'normal'.

Can we comfortably handle more than 18% of GDP in tax receipts? Would 20% be fine? 22%?

I'm not a practicing economist, but seems to me that these are the questions.

Like you, I think there was a sugar high with the tax cuts under Trump and a corresponding increase in gap, and then a sugar high from emergency spending under Trump then Biden.

Me, I'd increase corp tax rates a smidge, individual tax rates at the very top a smidge, and bring back family tax credits. Overall increase in rates/revenue, but not a massive increase.

Should probably include (at a min) the third variable of deficit % in that formula (regression) for a more precise answer. It jumped out to me quickly that deficit spending as a % of GDP (and need to figure out latency impact) is wildly volatile and economists did what they do because they’re better at narrating how resources were allocated than how outcomes will unfold-they straight lined and smoothed it out. I’m highly skeptical that we will have that controlled very linear deficit as % of GDP or the smooth outlay as %. Like it won’t happen that cleanly over next four years.

I bring this up because this is the problem we have. Not being credibly enough in our going in approaches no different than the BS feasibility study for a new ballpark being revenue accretive to the political subdivision over time justifying the subsidy. The forecasters end up all with a solution looking for a problem in these

[MDlaxfan76]

I think this data set is actually more illuminating.
https://www.taxpolicycenter.org/statist ... ay-summary

I think the variations in % of GDP are interesting, as well as the gap in % between revenue and receipts as it varies within a particular range...we obviously had a huge gap in 2020 and 2021. We'd also had a spike in dealing with the financial crisis back in 2009. That's coming back down to a more normal range in 2022 and onward, but on the higher side of 'normal'.

Can we comfortably handle more than 18% of GDP in tax receipts? Would 20% be fine? 22%?

That's a great way to look it, and we've done this in the past.

You see from the chart INSTANTLY that spending isn't the problem, and we're in line with what Reagan spent: it's that our taxes are too low.

THAT is the problem. Pay for what we get, like grown ups.

And the Republican voters and their leaders need to stop pretending like they want spending cuts. You're both lying, and your fellow voters are sick of the lying about your NEED for big Federal government to make up for your State's inability to be self sufficient.

Not sure who you mean by "you're both lying"? did you mean "they're both lying"?

[a fan]

Should probably include (at a min) the third variable of deficit % in that formula (regression) for a more precise answer. It jumped out to me quickly that deficit spending as a % of GDP (and need to figure out latency impact) is wildly volatile and economists did what they do because they’re better at narrating how resources were allocated than how outcomes will unfold-they straight lined and smoothed it out. I’m highly skeptical that we will have that controlled very linear deficit as % of GDP or the smooth outlay as %. Like it won’t happen that cleanly over next four years.

I bring this up because this is the problem we have. Not being credibly enough in our going in approaches no different than the BS feasibility study for a new ballpark being revenue accretive to the political subdivision over time justifying the subsidy. The forecasters end up all with a solution looking for a problem in these

Fair points.

[a fan]

I think this data set is actually more illuminating.
https://www.taxpolicycenter.org/statist ... ay-summary

I think the variations in % of GDP are interesting, as well as the gap in % between revenue and receipts as it varies within a particular range...we obviously had a huge gap in 2020 and 2021. We'd also had a spike in dealing with the financial crisis back in 2009. That's coming back down to a more normal range in 2022 and onward, but on the higher side of 'normal'.

Can we comfortably handle more than 18% of GDP in tax receipts? Would 20% be fine? 22%?

That's a great way to look it, and we've done this in the past.

You see from the chart INSTANTLY that spending isn't the problem, and we're in line with what Reagan spent: it's that our taxes are too low.

THAT is the problem. Pay for what we get, like grown ups.

And the Republican voters and their leaders need to stop pretending like they want spending cuts. You're both lying, and your fellow voters are sick of the lying about your NEED for big Federal government to make up for your State's inability to be self sufficient.

Not sure who you mean by "you're both lying"? did you mean "they're both lying"?

They're-----apologies....this isn't directed at you.

[Farfromgeneva]

https://techcrunch.com/2023/10/17/when- ... ccounter=1

When was the last time Marc Andreessen talked to a poor person?

2:32 PM EDT•October 17, 2023
Venture capitalist Marc Andreessen posted a manifesto on the a16z website, calling for “techno-optimism” in a frenzied, 5,000-word blog post that somehow manages to re-invent Reaganomics, propose the colonization of outer space and unironically answer a question with the phrase “QED.”

Andreessen’s vision of techno-optimism could seem inspiring: He imagines a Libertarian-esque world where technology solves all of our problems, poverty and climate change are eradicated, and an honest meritocracy reigns supreme. Though Andreessen may call us “Communists and Luddites” for saying so, his dreams are unrealistic, and founded upon a flawed premise that tech exclusively makes the world better.

First, we need to remember the biases that Andreessen brings to the table, mainly that he is absurdly wealthy (worth an estimated $1.35 billion as of September 2022) and that his absurd wealth is largely tied to the investments of his namesake tech venture fund. So, he inherently is going to push for his techno-optimist vision, because the success of tech companies means he gets even more rich. When you have a financial stake in something, you become biased: This is why, as reporters, we can’t buy Netflix stock, then turn around and write an article about why Netflix is going to have a great Q4.

But money can be blinding. Early on in his essay, Andreessen writes, “We believe that there is no material problem – whether created by nature or by technology – that cannot be solved with more technology.” A16z is increasingly investing in defense companies, including Palmer Luckey’s controversial startup Anduril, which manufactures autonomous weapons. Is war the problem these companies are solving? What does “solve” even mean in the context of conflicts like the ongoing war in Israel and Gaza — isn’t the true solution an end to conflict?

Another inconsistency lies in Andreessen’s assertion that “technological innovation in a market system is inherently philanthropic, by a 50:1 ratio.” He references economist William Nordhaus’ claim that those who create technology only retain 2% of its economic value, so the other 98% “flows through to society.”

“Who gets more value from a new technology, the single company that makes it, or the millions or billions of people who use it to improve their lives?” asks Andreessen.

We won’t lie and say that tech startups have not made our lives easier. If we’re out too late and the subway isn’t running, we can take an Uber or Lyft. If we want to buy a book and get it delivered to our doors by the end of the day, we can order it on Amazon. But to deny the negative impacts of these companies is to move through the world with blinders up.

Furthermore, it’s implicit — but not stated in Andreessen’s argument — that these platforms have effectively made large swathes of society renters, and the platforms, the landlords. Perhaps he needs a refresher on the ills of the “rentier economy” and how antithetical it is to innovators and entrepreneurship?

When was the last time Marc Andreessen walked through the streets of San Francisco, where wealthy tech workers pretend that they don’t see the homeless encampments outside of their companies’ HQ?

When was the last time Marc Andreessen talked to a poor person — or an Instacart shopper struggling to make ends meet, for that matter?

Andreessen’s argument is a contemporary rehashing of trickle-down economics, the notorious Reagan-era idea that as rich people get richer, some of that wealth will “trickle down” to the poor. But this theory has been repeatedly debunked. Again: Do Amazon warehouse workers really get their fair share?

At one point, Andreessen makes the case that free markets “prevent monopolies” because the “market naturally disciplines.” As any third-party Amazon seller will tell you — or anyone who’s tried to get Eras Tour tickets — this is a point easily disproved. Andreessen may argue that the U.S. market isn’t truly “free” in the sense that it’s regulated by agencies and the lawmakers who empower those agencies to enforce policy. But the U.S. has had its fair share of stretches of laissez-faire tech oversight, and each has spawned — not stifled — tech giants strongly inclined to crush competition.

Andreessen’s motivations are further crystalized when he makes a list of whom he considers to be his enemies.

In that section, he lists off what he feels has subjugated society to “mass demoralization.” On this list is a mention of the United Nations’ Sustainable Development Goals (SDGs), the 17 objectives that were created to inspire nations to strive toward peace. According to Andreessen, these are the so-called enemies “against technology and life:” environmental sustainability, reduced gender inequalities, the elimination of poverty or hunger, and more good jobs.

How are these 17 goals against technology and life, when technology is already being used to achieve more life — already being used to make clean water, alleviate mass production and generate clean energy? He has a vague, empty way of writing that leaves more questions than answers; it brings forth the idea that he has probably never read the 17 Sustainable Goals, and that instead he is using it as a code word for something else. Then, Andreessen decries ESG stakeholder capitalism, tech ethics, trust and safety, and risk management as enemies to his cause.

What are you really trying to say, Marc? That regulation and accountability are bad? That we should pursue the development of technology at the expense of all else, in hopes that the world will be better if Amazon stock breaks $200 per share?

Andreessen has a coded way of speaking in general, so it’s no wonder that he takes such umbrage with the UN’s goals of supporting those most at risk. He talks about the planet being “dramatically underpopulated” and specifically calls out the way “developed societies” are dwindling in population, a seeming endorsement of one of the core tenets of pronatalism. He wants 50 billion people to be on earth (and then for some of us to colonize outer space), and says the “markets” can generate the money needed to fund social welfare programs. (We must repeat the question: Has this man been to San Francisco lately?) He also mentions that Universal Basic Income “would turn people into zoo animals to be farmed by the state.” (Sam Altman would no doubt disagree.) He wants us to work, to be productive, “to be proud.”

The missing link here is how we can use tech to actually take care of people; how to feed them, clothe them, how to make sure the planet doesn’t reach such high temperatures that we all just melt away. What is missing here is that San Francisco is already the tech hub of the world and is one of the most unequal places in the universe, both socially and economically. What is missing here is that the technological revolution made it easier to hail an Uber or order food delivery, but did nothing about how those drivers and delivery people are being exploited, and how some live in their cars to sustain a decent wage.

There are lines and lines to analyze in his manifesto, but it all goes back to the point that what’s missing here is life: the element of living and all its nuances. He takes an either “you are for technology” or “against it” approach to actually utilizing productivity to help make lives better. He talks about the economic frameworks that life is spun around, without mentioning the intricate ways it actually impacts people.

Plenty of tech giants speak of creating a world they have no grasp on. We watch as Meta founder Mark Zuckerberg “moves fast and breaks things” and then ends up testifying before Congress about election interference. We watch as OpenAI founder Sam Altman draws parallels between himself and Robert Oppenheimer, not stopping to think so much about whether or not it’s a good thing to push the limits of technological innovation at any cost.

Andreessen is a product — and an engineer — of a tech bubble that doesn’t understand the people whom it purports to serve.

[Farfromgeneva]

Blackstone “completely” writes off Playa District office campus

Deutsche Bank holds $483M in loans on former Howard Hughes Center near LAX

Isabella Farr
Blackstone “Completely” Writes Off Playa District
Blackstone’s Jonathan Gray and Playa District at 6060 Center Drive (Getty, Blackstone, LoopNet)
Blackstone has “completely” written off its stake in the 1.4 million-square-foot Playa District office campus in Los Angeles, a spokesperson for the firm confirmed to Bloomberg on Tuesday.

The private equity firm is now in talks with lenders about what to do with the property, Bloomberg reported.

“Given the challenges facing the property, we began writing this property down over three years ago and completely wrote it off earlier this year,” a Blackstone spokesperson said in a statement. “Playa District was purchased as part of a broader portfolio, the remainder of which was sold prior to the pandemic.”

In 2016, Blackstone bought Playa District, located on a triangular piece of land wedged between Sepulveda Boulevard and the 405 Freeway near Los Angeles International Airport, for $583 million. Three years later, the company called it a “high-quality asset” — one it wanted to invest in significantly.

The property was formerly called the Howard Hughes Center.

Blackstone is not the only landlord to slash values of their office investments in Los Angeles, as rising interest rates, a new transfer tax and the prevalence of remote work has deteriorated investor and tenant interest. In April, Brookfield slashed the value of its 45-story 355 South Grand Avenue in Downtown L.A. by $111 million, or roughly 26 percent.

Playa District, located at 6060 Center Drive, has about $482 million in debt.

Deutsche Bank, on behalf of a consortium of lenders, provided a $372 million senior loan and a mezzanine note of $110 million in 2016, according to property records and reports at the time.

Blackstone bought the campus from Hines, after the latter liquidated its real estate investment trust, through its eighth real estate fund.

The original loan from Deutsche Bank had an interest rate tied to the benchmark rate one-month Libor plus 2.7 percent, according to Green Street’s Commercial Mortgage Alert. Libor was phased out starting at the end of 2021 and has often been replaced with the one-month secured overnight financing rate.

Blackstone currently has no plans to sell the property, according to a source familiar with the matter.

When Blackstone bought Playa District, the property was 82 percent leased, according to reports at the time. The complex is now about 70 percent leased, according to Bloomberg, which cited Real Estate Alert.

Blackstone has said it has pivoted away from office in recent years.

“The majority of the real estate we own is in sectors like logistics, student housing and data centers and less than 2 percent of our owned portfolio is traditional U.S. office,” a Blackstone spokesperson said in a statement.

Blackstone’s real estate fund that owns Playa District reported $657 million in accrued revenues in the third quarter, according to an earnings release this month, down 20 percent from the year prior.

[PizzaSnake]

Blackstone “completely” writes off Playa District office campus

Deutsche Bank holds $483M in loans on former Howard Hughes Center near LAX

Isabella Farr
Blackstone “Completely” Writes Off Playa District
Blackstone’s Jonathan Gray and Playa District at 6060 Center Drive (Getty, Blackstone, LoopNet)
Blackstone has “completely” written off its stake in the 1.4 million-square-foot Playa District office campus in Los Angeles, a spokesperson for the firm confirmed to Bloomberg on Tuesday.

The private equity firm is now in talks with lenders about what to do with the property, Bloomberg reported.

“Given the challenges facing the property, we began writing this property down over three years ago and completely wrote it off earlier this year,” a Blackstone spokesperson said in a statement. “Playa District was purchased as part of a broader portfolio, the remainder of which was sold prior to the pandemic.”

In 2016, Blackstone bought Playa District, located on a triangular piece of land wedged between Sepulveda Boulevard and the 405 Freeway near Los Angeles International Airport, for $583 million. Three years later, the company called it a “high-quality asset” — one it wanted to invest in significantly.

The property was formerly called the Howard Hughes Center.

Blackstone is not the only landlord to slash values of their office investments in Los Angeles, as rising interest rates, a new transfer tax and the prevalence of remote work has deteriorated investor and tenant interest. In April, Brookfield slashed the value of its 45-story 355 South Grand Avenue in Downtown L.A. by $111 million, or roughly 26 percent.

Playa District, located at 6060 Center Drive, has about $482 million in debt.

Deutsche Bank, on behalf of a consortium of lenders, provided a $372 million senior loan and a mezzanine note of $110 million in 2016, according to property records and reports at the time.

Blackstone bought the campus from Hines, after the latter liquidated its real estate investment trust, through its eighth real estate fund.

The original loan from Deutsche Bank had an interest rate tied to the benchmark rate one-month Libor plus 2.7 percent, according to Green Street’s Commercial Mortgage Alert. Libor was phased out starting at the end of 2021 and has often been replaced with the one-month secured overnight financing rate.

Blackstone currently has no plans to sell the property, according to a source familiar with the matter.

When Blackstone bought Playa District, the property was 82 percent leased, according to reports at the time. The complex is now about 70 percent leased, according to Bloomberg, which cited Real Estate Alert.

Blackstone has said it has pivoted away from office in recent years.

“The majority of the real estate we own is in sectors like logistics, student housing and data centers and less than 2 percent of our owned portfolio is traditional U.S. office,” a Blackstone spokesperson said in a statement.

Blackstone’s real estate fund that owns Playa District reported $657 million in accrued revenues in the third quarter, according to an earnings release this month, down 20 percent from the year prior.

Hard being a playa…