Atlanta Offers an Ominous Warning

In many ways, the Sunbelt city is booming, but even there, workers are not returning and the office market is melting down.

Good Morning!

Here are today’s highlights:            

• In its antitrust suit against Amazon, the FTC focuses on two tactics it claims damaged sellers.

• Racing to serve the owners of electric vehicles, truck stops are being reborn.

• Mehran’s Steak House is more evidence of the problem with online reviews.

• A decade after its financial crisis, Greece has one of Europe’s fastest-growing economies.

COMMERCIAL REAL ESTATE

Even in Atlanta, the office market is melting down: “Vacancy rates are soaring and companies are competing to unload space in the sublease market. Office values and rents are falling. Developers are delaying new office projects, while office defaults are mounting. Atlanta’s commercial-property turmoil shows that even Sunbelt cities with thriving economies can’t escape the office-sector meltdown. Strong job growth hasn’t made up for the city’s anemic return-to-office rate, a glut of new office supply in the years leading up to the pandemic and companies shedding space as leases expire.

• “It offers an ominous warning to other cities that are hoping their office towers will fill up again when more robust economic growth returns. ‘In the past, you could take the job numbers and see a one-to-one-relationship to how much office space we’re going to add,’ said Madelyn Shields, associate director of real-estate-data firm CoStar Group. Today, she said, ‘there’s a total disconnect.’” 

• “Now, the jump in interest rates that began in 2022 is pushing many property owners over the edge. Miami-based Banyan Street Capital gave up six office towers and an underground mall inside Atlanta’s downtown Peachtree Center in a foreclosure auction last year. More recently, Starwood Capital Group defaulted on an office-building mortgage that it was unable to refinance, according to loan documents.”

• “Some hotel owners are giving up. Arden Group defaulted last year on its $98.2 million mortgage on the Sheraton Atlanta, a convention-oriented property. This year, Ashford Hospitality Trust is handing back the keys to its lender on a portfolio of hotels including the W Atlanta, a luxury hotel near Peachtree Center.” READ MORE

COMPETITION

In its lawsuit against Amazon, the FTC says it used two tactics to stifle competition and raise prices: “The F.T.C. said Amazon steers the prices of its competitors and effectively raises them for consumers. It said Amazon discouraged third-party sellers on its site from offering discounts on other websites by controlling a key piece of online real estate, an area on its site known as the ‘Buy Box.’ This area on a product page prompts users to ‘Add to Cart’ or ‘Buy Now,’ and is a major driver of sales. Amazon wants to offer competitive pricing, so it scours the web to make sure products are not available for less elsewhere.”

• “If a product is offered for less on another site, Amazon removes the Buy Box buttons for that seller on its site and replaces them with a less appealing design. ‘As Amazon internally recognizes, eliminating a seller from the Buy Box causes that seller’s sales to tank,’ the complaint said.”

• “The F.T.C. said that selling on Amazon is so critical for sellers that they end discounts on other sites to regain the Buy Box on Amazon. That raises prices for consumers, the commission said, and makes it harder for other sites to compete on price.”

• “The F.T.C. also said Amazon coerces sellers into using its vast fulfillment and delivery services if they want to succeed, raising prices for customers and blocking competition. Using Amazon’s fulfillment services, the commission said, is a condition for a product to be eligible for fast and free delivery to customers who subscribe to Amazon’s Prime membership program.”

• “Those product listings receive a ‘Prime’ check-mark logo, and are easier to find on Amazon’s site. ‘The Prime designation makes sellers’ products more discoverable — and therefore likely to be purchased,’ the F.T.C. said.” READ MORE

How many dispensaries are too many? “At first glance, Apex Noire’s lawsuit to block Soul Cannabis from opening on the other side of Faneuil Hall Marketplace might seem like a simple salvo from one rival pot shop to another. But the suit filed last month in Suffolk Superior Court underscores an issue much bigger than a feud between two competing businesses: When it comes to downtown Boston, how many cannabis stores are too many? Boston’s zoning rules say a new marijuana retailer shall not open within a half-mile of an existing one.”

• “In practice, it’s quite different: The Zoning Board of Appeal has granted a number of variances to that buffer rule, primarily to reach a state-mandated minimum of 52 cannabis dispensary licenses within the city and to keep pace with a city rule that half of the licenses go to equity applicants, such as people of color or those in communities unduly affected by the federal government’s ‘war on drugs.’ As a result, downtown has become a major marijuana marketplace.”

• “The city’s cannabis board hired consultancy Whitney Economics, which concluded that plenty of room remains in Massachusetts for more marijuana retailers. Founder Beau Whitney told the board in March that his analysis showed the same is true for the city of Boston, but that neighborhood-specific data was not available.”

• “Tito Jackson didn’t need a consultant to conclude that downtown has reached its tipping point. Jackson spent three years on permitting, financing and renovations to launch Apex Noire, which opened in February. One of the attractions of his State Street location is its proximity to Faneuil Hall Marketplace just a block away.”

• “His lawsuit argues that the ZBA exceeded its authority in exempting Soul Cannabis from the half-mile buffer because it did not cite any ‘special circumstances or conditions’ that applied to the Durgin-Park site to justify the variance.” READ MORE

OPPORTUNITIES

Truck stops are upgrading to recharge electric vehicles: “The truck stops that keep Americans fueled, fed and refreshed along major highways are spending billions overhauling their stores to keep up with changing consumer behavior, particularly the growing popularity of electric vehicles. Along with the addition of charging stations, these travel centers are being redesigned to accommodate longer stays, with renovated restrooms and showers, quick-serve kitchens, full-service and fast-food restaurants, and dog parks.”

• “To foster development of a cross-country charging network along major highways, Congress in 2021 passed the Infrastructure Investment and Jobs Act, which included $5 billion to pay for up to 80 percent of the cost of installing fast chargers. Truck stop operators and others are petitioning states for the grants, which are targeting locations along major highway interchanges that are least 50 miles apart.”

• “Over the years, truck stops were often perceived as grimy — and occasionally seedy. But today, they are more akin to a mini-Walmart, filled with energy drinks, iced coffee, and healthy snacks like sliced fruit and veggies. Across the aisle, you’re likely to find purses and puzzles, as well as phone chargers and birdhouses.”

• “The changes better position truck stops to serve the growing number of electric vehicles on the road, said Jim Hurless, a managing director in Dallas for CBRE, a real estate services firm. ‘Truck stops are trying to get electric car owners to spend as much of that time as possible inside their stores,’ he said. ‘So they’re trying to differentiate themselves by providing amenities that will be more appealing to that consumer.’” READ MORE

HUMAN RESOURCES

Artificial intelligence is likely to have a profound impact on the market for software developers: “Coding jobs are plentiful across industries, and the pay is good—even after the tech layoffs of the past year. The average starting salary for someone with a computer-science degree is significantly higher than that of a mid-career English graduate, according to the Federal Reserve; at Google, an entry-level software engineer reportedly makes $184,000, and that doesn’t include the free meals, massages, and other perks.”

• “Since 2016, enrollment in undergraduate computer-science programs has increased nearly 49 percent. Meanwhile, humanities enrollments across the United States have withered at a clip—in some cases, shrinking entire departments to nonexistence.”

• “But that was before the age of generative AI. ChatGPT and other chatbots can do more than compose full essays in an instant; they can also write lines of code in any number of programming languages. You can’t just type make me a video game into ChatGPT and get something that’s playable on the other end, but many programmers have now developed rudimentary smartphone apps coded by AI.”

• “In the ultimate irony, software engineers helped create AI, and now they are the American workers who think it will have the biggest impact on their livelihoods, according to a new survey from Pew Research Center. So much for learning to code.” READ MORE

TAXES

Not sure what’s up with the suspended employee retention tax credit? Gene Marks says this is what you need to know: “If you’ve already filed — whether you’ve received the credit or even a cash refund from the IRS yet — and your claim is legitimate then you have nothing to worry about. However, you should check with your accountant or payroll service to be sure. For those still waiting, processing has been suspended but it will restart in early 2024, and the credit will eventually be applied. It will, however, probably take more time than expected (as much as 180 days from the time of filing, according to the IRS announcement).”

• “‘As a tax professional, I am in complete agreement with the IRS announcement of the ERC moratorium,’ said Mitchel Gerstein, a senior tax adviser at accounting firm Isdaner & Co in [Pennsylvania]. ‘Most accounting firms, including my firm, are not actively preparing ERC claims as their clients’ claims were submitted a while back.’”

• “Don’t panic if your return is in process or if you’ve already received the credit and you think it may be incorrect. The IRS is working now on further guidance, expected this fall, on how to withdraw unprocessed ERC claims, along with a settlement program for small businesses that wrongly received the credit and want to pay it back. If you’re not sure whether or not your claim is suspect, you can review a list of ‘red flags’ recently issued.”

• “‘The IRS plans on rolling out new announcements and a plan in the coming weeks which will include a process to withdraw ERC claims already submitted,’ Gerstein said. ‘They’ve indicated there will be a way to withdraw the claim and avoid penalties and future actions by the IRS.” READ MORE

FINANCE

Over the past six years, SBA loan programs have more than doubled their lending to Black-owned businesses: “The SBA credited the increase, in part, to its efforts to dramatically expand its Community Advantage Pilot Program through 2024 with beefed-up provisions, including higher loan limits, as well as its $100 million Community Navigator Pilot Program designed to guide more underserved business owners into SBA programs. It also tripled the number of Women’s Business Centers at Historically Black Colleges and Universities. The SBA recently introduced rule changes to its Small Business Investment Company program, aimed at streamlining the program and encouraging wider adoption from underserved business owners.” READ MORE

REPUTATION MANAGEMENT

Here’s another reason to be skeptical about online reviews: “Mehran’s Steak House has a near-perfect Google rating, with 91 glowing reviews: ‘Best steak I have ever had in NY, ‘Words cannot explain how phenomenal the steak was’ and ‘Chef Mehran is a genius-god among men.’ Yet few diners have been lucky enough to land a reservation. Mehran’s website and voicemail state that the restaurant, on East 83rd Street in Manhattan, is fully booked for months, an irresistible challenge for New Yorkers who treat reservation-hunting like a professional sport.”

• “Most will never get a seat. Mehran’s is an elaborate joke among friends that, somewhere along the way, became entirely serious. On Saturday, for one night only, Mehran’s Steak House opened to the public.”

• “Creating a Google listing is as simple as picking a name, clicking a few buttons and waiting for it to appear. There are few safeguards to prevent fake reviews, which is how the listing racked up raves (written as a joke by friends).”

• “They developed a four-course menu ($114 before tax, tip and wine), and asked the chef Elias Bikahi of Le Sandwich to taste and critique their dishes. On Saturday afternoon, as Tropical Storm Ophelia drenched the city, Mr. Jalali and his ‘staff’ (60 of his, Mr. Walz’s, and Ms. Egan’s friends, mostly college students and tech dropouts, invited to fly in for the event) prepared for dinner service.”

• “​Reactions to the food were about evenly split. Some diners praised the steak, but others sent theirs back, and one man said his ‘was like at a wedding buffet.’” READ MORE

INTERNATIONAL

A decade later, Greece has one of Europe’s fastest growing economies: “Paris Skouros pointed toward the sky outside his office in Athens on a recent weekday. In the past six months, four high-rises had sprung up, built by Greek and international builders to be sold for use as tourist rentals, foreign real estate investments and company offices. Farther afield, a fresh crop of new buildings dotted the horizon. Greece’s financial crisis almost ruined his firm, Skouros & Sons, an elevator company. Years of harsh austerity measures imposed by international bailouts had been wrenching, Mr. Skouros said, as new construction ground to a standstill. But now an economic recovery has barreled in.”

• “‘During the crisis, we just wanted to survive,’ Mr. Skouros said, as the sound of hammers hitting sheet metal rang out in his workshop. ‘Now we’re profitable, and business is so strong that we can’t find enough workers to keep up with demand.’”

• “Laden with debt it couldn’t pay back, Greece nearly broke the eurozone a decade ago. Today, it is one of Europe’s fastest-growing economies. In a significant acknowledgment of the country’s turnaround, credit ratings agencies have been upgrading their appraisal of Greece’s debt, and opening the door for large foreign investors.”

• “The economy is growing at twice the eurozone average, and unemployment, while still high at 11 percent, is the lowest in over a decade. Tourists have returned in droves, fueling a construction frenzy and new jobs. Multinational companies, like Microsoft and Pfizer, are investing. And banks that almost collapsed have cleaned up and are lending again, benefiting the broader economy.” READ MORE

THE 21 HATS PODCAST

I’ve Never Had to Lay Off Anyone Before: This week, in episode 169, Sarah Segal tells Shawn Busse that the other shoe has dropped. A couple of months ago, as she’s shared here previously, Sarah lost two big clients in one week. Now she takes us through her decision to lay off three of her employees, including what it means for the business and what it means for Sarah’s own role in the business. Before the layoffs, she had gotten to the point where she was working on the business—but now that’s changed. “I'm not working on the business,” she says. “I am working for clients. I am getting the job done. I am making sure that we're successful with our clients, and that is my priority right now.”

• “Plus: We also discuss how to choose a CRM, why Sarah and Shawn’s home cities of San Francisco and Portland have been getting such bad PR, and whether former business owners are employable. “I wouldn’t hire me,” says Sarah.

• You can subscribe to the 21 Hats Podcast wherever you get podcasts.

Thanks for reading, everyone. — Loren