Bad Business Models

CitiApartments is losing a ton of buildings to foreclosure. What's interesting to me, though, is that the reasons resemble the same reasons a ponzi scheme eventually fails. San Francisco Tenants Union reports:
The, notoriously bad landlord CitiApartments seems to be in deep financial trouble. The CitiApartments business model was based on forcing out long-term tenants paying affordable rents and replacing them with market-rent paying tenants. This strategy failed as tenants organized and refused to be intimidated from their homes. Their main strategy was tenant harassment coupled with buyout offers. Tenants should be aware that CitiApartments has now reneged on numerous such buyouts, refusing to pay after tenants had moved.
In my experience, Citi's model is dependent upon tenants in rent-controlled units accepting payouts to move out of their units, allowing Citi to bring in new renters at much higher prices. We've received many offers from Citi for moving costs, free rent in a new building, and returned deposits, but we were holding out in hopes of them offering more (and because we LOVE our apartment). I've heard stories of people who've been able to get $10-20,ooo just to move out because they had entered into their lease at a low point, and the sum was not much for Citi when considering long-term revenue increases. They use the profits to purchase more buildings and remodel units to charge higher prices. Citi owns a seriously large portion of the rentable units in San Francisco.

This seemed like a decent model. Until, of course, people stopped paying higher rents. All of a sudden, Citi had to compete on price, rather than total property domination. Rather than moving tenants out, Citi needs them to stay at their current rent prices. No more consistent income increases means Citi has to rely on its actual business, and we can see that's not working. The SF Tenant's Union has published lists of the foreclosed properties. Ours isn't on it yet, but one of the buildings in our little community is. Could be interesting.


Veitch Zingers #1

My macro prof has a habit of making strange analogies and trying to use humor to demonstrate his points. Sometimes he goes so far with the humor that the point doesn't make sense, usually with amusing results. Some from tonight:

"You wanna see a loser? Look in the mirror!"

"You don't have to be the best at anything, and you can still succeed."

"[Adjusting interest rates to fix the foreign exchange rate] is like using a sledgehammer to beat a splinter out of my toe. I might get rid of the splinter, but there will be a lot of collateral damage."

"There's always a place where you can make the trade. Where did I find it? Behind the hotel last night."