Comment by KennyBlanken | Hacker News Reader

Comment by KennyBlanken | Hacker News Reader

> The paper declared bankruptcy on July 21, 2023. In a fitting final insult, the court filing listed more than $116,000 in company assets — an implausibly low valuation — as it was revealed McCaw had previously shifted the real estate property of the newspaper’s historic De la Guerra Plaza headquarters and Goleta printing plant into private LLCs under her control

This is also a very standard play in the private equity field. The property (which is usually what they really wanted) is forked off to a different entity, and then that entity charges rent back to the original corp.

This is how they kill off assisted living homes. They don't bother with cost-cutting; they just keep jacking the "rent" the property-owning corp charges the assisted living facility entity. In desperation to keep the home for residents, the staff cut every cost they can. Cracks in care quickly appear, everyone who can leave does which means lots of lost cash flow and expenses split among fewer residents...at some point there's just no more squeezing possible, the corp misses a rent payment...and that's that.

It's also the classic plot for many stories; gang/army strong-arms a village and keeps asking for larger and larger takes of the village's crops, eventually leading to the villagers starving, etc.

> The property (which is usually what they really wanted) is forked off to a different entity, and then that entity charges rent back to the original corp.

The IRS treats the owner’s basis in an entity differently based on being a business or passive activity. Included in basis for a passive investment is both recourse and nonrecourse debt, while the basis in a business such as a newspaper takes into account the recourse debt.

If the business and passive activity are not separated, then if the owners refinance the asset with non recourse debt and distribute additional proceeds, it is a capital gain since the non recourse debt does not increase each partner’s basis.

However, if you separate the business activity and passive activity, then the partners can include all the non recourse debt in their basis, and any distribution from refinancing would not be taxable.

This is why you typically want your real estate to be a separate entity collecting rent from the entity operating the business.

Yikes man do MBA types and PE just wake up and think of evil fucked up ways to make money?

My dad works at a company run by PE monkeys who are some of the most evil mfs. My dad is a smart guy but he’s an immigrant and he says he can think but he can’t talk. It’s unfortunate but it pisses me off how badly they treat him and others.

It's nuts that this is legal. This is seems so fraudulent to me: giving away your assets to an entity so you can rent them back from that entity.

Why wouldn’t it be legal? They own both corporations, and have all the rights in the world to dispose of the property as they see fit.

"Legal", of course, seldom equals "moral", "ethical" or even "right".

In fact, "legal" often means "brazen thievery, but rich and entitled people doing it so that's okay".

There's quite a few reasons that could be illegal, especially if it's trying to avoid debt etc. Not saying that is the case here, but there is such a (very rampant) thing called corporate crime that could violate both the letter and the spirit of the law; the latter certainly warranting some investigation – if not a bit of outrage.

It may be illegal if the intent behind it is fraudulent.

For the same reason why insider trading and price fixing is illegal: It's a scam to siphon money from others, and in doing so destabilizes the whole system.

If you don't protect against this sort of behavior, public confidence erodes and eventually the system collapses because nobody's actually producing anything; they're just scamming each other.

Once the rich own everything, your country's productivity and competitiveness falls through the floor (banana republic) because nobody doing the actual work has anything left to strive for other than subsistence.

Separating assets from liabilities, and cross-charging between related entities often seems to surprise those who don't own and run businesses. But it's basic business 101 which is pretty common everywhere.

Think of it this way. You build a business over 40 years, accumulating value along the way. You would be crazy to leave all that accumulated value in a high-risk entity (which a business naturally is.) So periodically the value is separated from the risk.

So, for example, a business owning the building is nuts. The building is a different asset class, and should be in its own structure. Any reasonable new owner who acquires a business and building in one bite will move to separate them.

This is not scammy or fraud, its the ways things are done and should be done by the original owner.

"separating the value from the risk" is euphemism for removing all financial cushion and making sure the pain of any downturn is borne only by employees and customers, or it could even mean purposefully killing off what is considered to be a worthless business and an inefficient use of assets. It's usually done by monstrous new owners who have zero care for the people or community or legacy that they destroy. Their view of the world is only through maximizing financial calculations.

Progressives' general anti-business bias blinds them to the need to protect small to medium businesses from the true capitalist evils such as vulture capitalists. Things like rent control could be useful tools for protecting communities from the devastation that can be caused by financial engineering preying on real businesses.

I agree that businesses that have unproductive assets become targets for PE takeover. Typically these are small businesses that have kept their assets and business together, without separating them. At some point the value of the asset exceeds the value of the business and it becomes ripe to be bought out, sold for parts, and closed.

Thus keeping them bound together makes things worse for employees and customers, not better.

Separating them makes it worse for creditors. Specifically creditors are less likely to institute bankruptcy if there are no juicy assets to liquidate. Most small businesses can survive a cash squeeze, at least for a short while, as long as creditors don't preemptively move to shut it down.

Equally, business owners are less tempted to over-extend if there is less "equity in the business". Obviously they can still borrow against the asset, but that's then a conscious decision.

Of course large companies know all this, and do it. Yhe way to protect small businesses from predatory buyouts or creditors is to educate small business owners.

> For the same reason why insider trading and price fixing is illegal: [...]

Insider trading isn't illegal everywhere, and it's not even illegal for the same reasons in different jurisdictions. (Specifically, I know that the reasons are different in eg France and the US.)

> If you don't protect against this sort of behavior, public confidence erodes and eventually the system collapses because nobody's actually producing anything; they're just scamming each other.

That would be easy to test: compare different market with different degrees and kinds of 'protection' against the ills you mention, and see how confidence differs. I doubt you'll find the kind of correlation you are asserting here. (But, of course, we need to watch out for correlation vs causation.)

You don't even need to look at different countries: even in the same country different assets are often traded under different rules. Eg equities vs bonds vs commodities vs commodity futures etc in the US.

https://en.wikipedia.org/wiki/Arm%27s_length_principle

There are a lot of the cases when the law requires arm's-length transactions, and those transactions definitely aren't arm's-length.

For retirement communities, it's called "upstreaming". Residents of the Hyatt Residences near Stanford litigated that and, after eight years, settled.[1]

[1] https://en.wikipedia.org/wiki/Vi_Senior_Living#Litigation

[2] https://www.mercurynews.com/2014/02/19/residents-sue-palo-al...

Amusing for one reason.

If you're going to go after a retirement community, I can't think of a worst place. It's actually on Sand Hill Road. Talk about potentially connected people, and people with deep pockets, or whose friends may have deep pockets.

Burton Richter, 82, is among the affected residents. In 2005, the 1976 Nobel Laureate in Physics paid an entrance fee of roughly $1.59 million, 90 percent of which was supposed to be refundable.

Brilliant. Steal from millionaires and multimillionaires. No possible way they'd be able to hire lawyers. No way their friends and family could.

Well, hopefully this does indeed work as a usable judgement in other circumstances.

The residents didn't win. They eventually settled, on terms worse than they were fighting for.

If that's the case, then it looks like legislation may be the only fix here.

Retirement communities are housing, and more of course. Yet housing is well protected, so whatever legislation protects such homes should be expanded it seems.

They are doing this with hospitals also. Hospitals.

The large PE firms come in, buy the hospital and rent the land back to it. Eventually the hospital goes under.

This involves some of the biggest PE firms out there, and often MPT - "Medical Properties Trust".

"The plundering of America's hospitals":

https://www.businessinsider.com/how-wealthy-investors-got-ri...

> It's also the classic plot for many stories;

And a more general trope: one idea that stuck with me from childhood TV was that badguys were always trying to drive people off their land. (Scooby Doo, A-Team, Airwolf, etc.)

But what TV also taught us kids was that, no matter what weapons the badguys bolted onto a trafficopter, the big black attack helicopter of justice would rain Hellfires down upon them.

Where are the Airwolves, BA Baracuses, and Mystery Teams that we were promised?

Reply on news.ycombinator.com