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How Private Equity Firms Avoid Taxes

There were two weeks left in the Trump administration when the Treasury Department handed down a set of rules governing an obscure corner of the tax code.

Overseen by a senior Treasury official whose previous job involved helping the wealthy avoid taxes, the new regulations represented a major victory for private equity firms. They ensured that executives in the $4.5 trillion industry, whose leaders often measure their yearly pay in eight or nine figures, could avoid paying hundreds of millions in taxes.

The rules were approved on Jan. 5, the day before the riot at the U.S. Capitol. Hardly anyone noticed.

The Trump administration’s farewell gift to the buyout industry was part of a pattern that has spanned Republican and Democratic presidencies and Congresses: Private equity has conquered the American tax system.

one recent estimate, the United States loses $75 billion a year from investors in partnerships failing to report their income accurately — at least some of which would probably be recovered if the I.R.S. conducted more audits. That’s enough to roughly double annual federal spending on education.

It is also a dramatic understatement of the true cost. It doesn’t include the ever-changing array of maneuvers — often skating the edge of the law — that private equity firms have devised to help their managers avoid income taxes on the roughly $120 billion the industry pays its executives each year.

Private equity’s ability to vanquish the I.R.S., Treasury and Congress goes a long way toward explaining the deep inequities in the U.S. tax system. When it comes to bankrolling the federal government, the richest of America’s rich — many of them hailing from the private equity industry — play by an entirely different set of rules than everyone else.

The result is that men like Blackstone Group’s chief executive, Stephen A. Schwarzman, who earned more than $610 million last year, can pay federal taxes at rates similar to the average American.

Lawmakers have periodically tried to force private equity to pay more, and the Biden administration has proposed a series of reforms, including enlarging the I.R.S.’s enforcement budget and closing loopholes. The push for reform gained new momentum after ProPublica’s recent revelation that some of America’s richest men paid little or no federal taxes.

nearly $600 million in campaign contributions over the last decade, has repeatedly derailed past efforts to increase its tax burden.

Taylor Swift’s back music catalog.

The industry makes money in two main ways. Firms typically charge their investors a management fee of 2 percent of their assets. And they keep 20 percent of future profits that their investments generate.

That slice of future profits is known as “carried interest.” The term dates at least to the Renaissance. Italian ship captains were compensated in part with an interest in whatever profits were realized on the cargo they carried.

The I.R.S. has long allowed the industry to treat the money it makes from carried interests as capital gains, rather than as ordinary income.

article highlighting the inequity of the tax treatment. It prompted lawmakers from both parties to try to close the so-called carried interest loophole. The on-again, off-again campaign has continued ever since.

Whenever legislation gathers momentum, the private equity industry — joined by real estate, venture capital and other sectors that rely on partnerships — has pumped up campaign contributions and dispatched top executives to Capitol Hill. One bill after another has died, generally without a vote.

One day in 2011, Gregg Polsky, then a professor of tax law at the University of North Carolina, received an out-of-the-blue email. It was from a lawyer for a former private equity executive. The executive had filed a whistle-blower claim with the I.R.S. alleging that their old firm was using illegal tactics to avoid taxes.

The whistle-blower wanted Mr. Polsky’s advice.

Mr. Polsky had previously served as the I.R.S.’s “professor in residence,” and in that role he had developed an expertise in how private equity firms’ vast profits were taxed. Back in academia, he had published a research paper detailing a little-known but pervasive industry tax-dodging technique.

$89 billion in private equity assets — as being “abusive” and a “thinly disguised way of paying the management company its quarterly paycheck.”

Apollo said in a statement that the company stopped using fee waivers in 2012 and is “not aware of any I.R.S. inquiries involving the firm’s use of fee waivers.”

floated the idea of cracking down on carried interest.

Private equity firms mobilized. Blackstone’s lobbying spending increased by nearly a third that year, to $8.5 million. (Matt Anderson, a Blackstone spokesman, said the company’s senior executives “are among the largest individual taxpayers in the country.” He wouldn’t disclose Mr. Schwarzman’s tax rate but said the firm never used fee waivers.)

Lawmakers got cold feet. The initiative fizzled.

In 2015, the Obama administration took a more modest approach. The Treasury Department issued regulations that barred certain types of especially aggressive fee waivers.

But by spelling that out, the new rules codified the legitimacy of fee waivers in general, which until that point many experts had viewed as abusive on their face.

So did his predecessor in the Obama administration, Timothy F. Geithner.

Inside the I.R.S. — which lost about one-third of its agents and officers from 2008 to 2018 — many viewed private equity’s webs of interlocking partnerships as designed to befuddle auditors and dodge taxes.

One I.R.S. agent complained that “income is pushed down so many tiers, you are never able to find out where the real problems or duplication of deductions exist,” according to a U.S. Government Accountability Office investigation of partnerships in 2014. Another agent said the purpose of large partnerships seemed to be making “it difficult to identify income sources and tax shelters.”

The Times reviewed 10 years of annual reports filed by the five largest publicly traded private equity firms. They contained no trace of the firms ever having to pay the I.R.S. extra money, and they referred to only minor audits that they said were unlikely to affect their finances.

Current and former I.R.S. officials said in interviews that such audits generally involved issues like firms’ accounting for travel costs, rather than major reckonings over their taxable profits. The officials said they were unaware of any recent significant audits of private equity firms.

For a while, it looked as if there would be an exception to this general rule: the I.R.S.’s reviews of the fee waivers spurred by the whistle-blower claims. But it soon became clear that the effort lacked teeth.

Kat Gregor, a tax lawyer at the law firm Ropes & Gray, said the I.R.S. had challenged fee waivers used by four of her clients, whom she wouldn’t identify. The auditors struck her as untrained in the thicket of tax laws governing partnerships.

“It’s the equivalent of picking someone who was used to conducting an interview in English and tell them to go do it in Spanish,” Ms. Gregor said.

The audits of her clients wrapped up in late 2019. None owed any money.

As a presidential candidate, Mr. Trump vowed to “eliminate the carried interest deduction, well-known deduction, and other special-interest loopholes that have been so good for Wall Street investors, and for people like me, but unfair to American workers.”

wanted to close the loophole, congressional Republicans resisted. Instead, they embraced a much milder measure: requiring private equity officials to hold their investments for at least three years before reaping preferential tax treatment on their carried interests. Steven Mnuchin, the Treasury secretary, who had previously run an investment partnership, signed off.

McKinsey, typically holds investments for more than five years. The measure, part of a $1.5 trillion package of tax cuts, was projected to generate $1 billion in revenue over a decade.

credited Mr. Mnuchin, hailing him as “an all-star.”

Mr. Fleischer, who a decade earlier had raised alarms about carried interest, said the measure “was structured by industry to appear to do something while affecting as few as possible.”

Months later, Mr. Callas joined the law and lobbying firm Steptoe & Johnson. The private equity giant Carlyle is one of his biggest clients.

It took the Treasury Department more than two years to propose rules spelling out the fine print of the 2017 law. The Treasury’s suggested language was strict. One proposal would have empowered I.R.S. auditors to more closely examine internal transactions that private equity firms might use to get around the law’s three-year holding period.

The industry, so happy with the tepid 2017 law, was up in arms over the tough rules the Treasury’s staff was now proposing. In a letter in October 2020, the American Investment Council, led by Drew Maloney, a former aide to Mr. Mnuchin, noted how private equity had invested in hundreds of companies during the coronavirus pandemic and said the Treasury’s overzealous approach would harm the industry.

The rules were the responsibility of Treasury’s top tax official, David Kautter. He previously was the national tax director at EY, formerly Ernst & Young, when the firm was marketing illegal tax shelters that led to a federal criminal investigation and a $123 million settlement. (Mr. Kautter has denied being involved with selling the shelters but has expressed regret about not speaking up about them.)

On his watch at Treasury, the rules under development began getting softer, including when it came to the three-year holding period.

Monte Jackel, a former I.R.S. attorney who worked on the original version of the proposed regulations.

Mr. Mnuchin, back in the private sector, is starting an investment fund that could benefit from his department’s weaker rules.

Even during the pandemic, the charmed march of private equity continued.

The top five publicly traded firms reported net profits last year of $8.6 billion. They paid their executives $8.3 billion. In addition to Mr. Schwarzman’s $610 million, the co-founders of KKR each made about $90 million, and Apollo’s Leon Black received $211 million, according to Equilar, an executive compensation consulting firm.

now advising clients on techniques to circumvent the three-year holding period.

The most popular is known as a “carry waiver.” It enables private equity managers to hold their carried interests for less than three years without paying higher tax rates. The technique is complicated, but it involves temporarily moving money into other investment vehicles. That provides the industry with greater flexibility to buy and sell things whenever it wants, without triggering a higher tax rate.

Private equity firms don’t broadcast this. But there are clues. In a recent presentation to a Pennsylvania retirement system by Hellman & Friedman, the California private equity giant included a string of disclaimers in small font. The last one flagged the firm’s use of carry waivers.

The Biden administration is negotiating its tax overhaul agenda with Republicans, who have aired advertisements attacking the proposal to increase the I.R.S.’s budget. The White House is already backing down from some of its most ambitious proposals.

Even if the agency’s budget were significantly expanded, veterans of the I.R.S. doubt it would make much difference when it comes to scrutinizing complex partnerships.

“If the I.R.S. started staffing up now, it would take them at least a decade to catch up,” Mr. Jackel said. “They don’t have enough I.R.S. agents with enough knowledge to know what they are looking at. They are so grossly overmatched it’s not funny.”

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Why Apple and Google’s Virus Alert Apps Had Limited Success

Sarah Cavey, a real estate agent in Denver, was thrilled last fall when Colorado introduced an app to warn people of possible coronavirus exposures.

Based on software from Apple and Google, the state’s smartphone app uses Bluetooth signals to detect users who come into close contact. If a user later tests positive, the person can anonymously notify other app users whom the person may have crossed paths with in restaurants, on trains or elsewhere.

Ms. Cavey immediately downloaded the app. But after testing positive for the virus in February, she was unable to get the special verification code she needed from the state to warn others, she said, even after calling Colorado’s health department three times.

“They advertise this app to make people feel good,” Ms. Cavey said, adding that she had since deleted the app, called CO Exposure Notifications, in frustration. “But it’s not really doing anything.”

announced last year that they were working together to create a smartphone-based system to help stem the virus, their collaboration seemed like a game changer. Human contact tracers were struggling to keep up with spiking virus caseloads, and the trillion-dollar rival companies — whose systems run 99 percent of the world’s smartphones — had the potential to quickly and automatically alert far more people.

Soon Austria, Switzerland and other nations introduced virus apps based on the Apple-Google software, as did some two dozen American states, including Alabama and Virginia. To date, the apps have been downloaded more than 90 million times, according to an analysis by Sensor Tower, an app research firm.

But some researchers say the companies’ product and policy choices limited the system’s usefulness, raising questions about the power of Big Tech to set global standards for public health tools.

Stephen Farrell and Doug Leith, computer science researchers at Trinity College in Dublin, wrote in a report in April on Ireland’s virus alert app.

CA Notify in December, about 65,000 people have used the system to alert other app users, the state said.

“Exposure notification technology has shown success,” said Dr. Christopher Longhurst, the chief information officer of UC San Diego Health, which manages California’s app. “Whether it’s hundreds of lives saved or dozens or a handful, if we save lives, that’s a big deal.”

In a joint statement, Apple and Google said: “We’re proud to collaborate with public health authorities and provide a resource — which many millions of people around the world have enabled — that has helped protect public health.”

Based in part on ideas developed by Singapore and by academics, Apple and Google’s system incorporated privacy protections that gave health agencies an alternative to more invasive apps. Unlike virus-tracing apps that continuously track users’ whereabouts, the Apple and Google software relies on Bluetooth signals, which can estimate the distance between smartphones without needing to know people’s locations. And it uses rotating ID codes — not real names — to log app users who come into close contact for 15 minutes or more.

said last year in a video promoting the country’s alert system, called Corona-Warn-App.

But the apps never received the large-scale efficacy testing typically done before governments introduce public health interventions like vaccines. And the software’s privacy features — which prevent government agencies from identifying app users — have made it difficult for researchers to determine whether the notifications helped hinder virus transmission, said Michael T. Osterholm, the director of the Center for Infectious Disease Research and Policy at the University of Minnesota.

“The apps played virtually no role at all in our being able to investigate outbreaks that occurred here,” Dr. Osterholm said.

Some limitations emerged even before the apps were released. For one thing, some researchers note, exposure notification software inherently excludes certain vulnerable populations, such as elderly people who cannot afford smartphones. For another thing, they say, the apps may send out false alarms because the system is not set up to incorporate mitigation factors like whether users are vaccinated, wearing masks or sitting outside.

Proximity detection in virus alert apps can also be inconsistent. Last year, a study on Google’s system for Android phones conducted on a light-rail tram in Dublin reported that the metal walls, flooring and ceilings distorted Bluetooth signal strength to such a degree that the chance of accurate proximity detection would be “similar to that of triggering notifications by randomly selecting” passengers.

Kimbley Craig, the mayor of Salinas, Calif. Last December, when virus rates there were spiking, she said, she downloaded the state’s exposure notification app on her Android phone and soon after tested positive for Covid-19. But after she entered the verification code, she said, the system failed to send an alert to her partner, whom she lives with and who had also downloaded the app.

“If it doesn’t pick up a person in the same household, I don’t know what to tell you,” Mayor Craig said.

In a statement, Steph Hannon, Google’s senior director of product management for exposure notifications, said that there were “known challenges with using Bluetooth technology to approximate the precise distance between devices” and that the company was continuously working to improve accuracy.

The companies’ policies have also influenced usage trends. In certain U.S. states, for instance, iPhone users can activate the exposure notifications with one click — by simply turning on a feature on their settings — but Android users must download a separate app. As a result, about 9.6 million iPhone users in California had turned on the notifications as of May 10, the state said, far outstripping the 900,000 app downloads on Android phones.

Google said it had built its system for states to work on the widest range of devices and be deployed as quickly as possible.

Some public health experts acknowledged that the exposure alert system was an experiment in which they, and the tech giants, were learning and incorporating improvements as they went along.

One issue they discovered early on: To hinder false alarms, states verify positive test results before a person can send out exposure notifications. But local labs can sometimes take days to send test results to health agencies, limiting the ability of app users to quickly alert others.

In Alabama, for instance, the state’s GuideSafe virus alert app has been downloaded about 250,000 times, according to Sensor Tower. But state health officials said they had been able to confirm the positive test results of only 1,300 app users. That is a much lower number than health officials would have expected, they said, given that more than 10 percent of Alabamians have tested positive for the coronavirus.

“The app would be a lot more efficient if those processes were less manual and more automated,” said Dr. Scott Harris, who oversees the Alabama Department of Public Health.

Colorado, which automatically issues the verification codes to people who test positive, has reported higher usage rates. And in California, UC San Diego Health has set up a dedicated help line that app users can call if they did not receive their verification codes.

Dr. Longhurst, the medical center’s chief information officer, said the California app had proved useful as part of a larger statewide public health push that also involved mask-wearing and virus testing.

“It’s not a panacea,” he said. But “it can be an effective part of a pandemic response.”

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Vets Go Upscale to Care for Pets (and Their Owners)

When Allegra Brochin and her boyfriend adopted Sprinkles, a feisty white Maltese, last year, they set about finding pet care.

“I immediately started looking,” said Ms. Brochin, 23, who works as a communications coordinator for Michael Kors in New York.

She saw ads for Bond Vet pop up on her Instagram feed, and when she took in Sprinkles for her shots, she was won over by the look and feel of the clinic, “especially when it’s for a pet you care about and feel responsible for,” she said.

Ms. Brochin is not alone in her devotion to her pandemic pet. More than 12.6 million households adopted animals from March to December of last year, according to the American Pet Products Association, helping to propel an increase in visits and revenue to veterinary offices, as new owners took pets in for their first checkup.

pet care business is riding a growth spurt: Morgan Stanley projected that it would be a $275 billion industry in 2030, up from $100 billion in 2019, with vet care the fastest-growing segment over the next decade.

“Ten years ago, there was a baby boom,” Arash Danialifar, chief executive of GD Realty Group, a California company that has leased space to a veterinary start-up, said about the proliferation of shops selling children’s fashion. “Now it’s all about pets.”

Small Door Veterinary recently announced it had raised $20 million and planned to go from a single location to 25 by 2025. The firm operates on a membership model, with 24/7 telemedicine and waiting areas with arched, white oak-paneled alcoves that give owners and their pets an intimate place to chill before appointments. Designed by Alda Ly Architecture, the clinics are rented storefronts of 2,000 to 3,000 square feet and cost about $1 million to kit out, said Josh Guttman, Small Door’s co-founder and chief executive.

Bond Vet, another New York start-up, models itself on CityMD clinics; it recently raised $17 million and now has six offices, including its first suburban location, in Garden City on Long Island.

Modern Animal, has an office in a high-end shopping district in West Hollywood, with three more to come in the city by year’s end and a dozen clinics in California by 2022, said the company’s founder and chief executive, Steven Eidelman.

new pet owners during the pandemic. Seventy-six percent of millennials own pets, according to a recent survey, and they are spending generously on their charges.

Terravet Real Estate Solutions, founded in 2016, now owns more than 100 buildings in 30 states, many of them housing practices owned by consolidators. For instance, Terravet owns the building housing CountryChase Veterinary Hospital in Tampa, Fla., and the American Veterinary Group, which operates practices across the South, owns the business.

Hound Properties, founded two years ago, has been buying buildings with an investor-backed fund. And Vetley Capital, started this year, has a portfolio of 20 buildings in nine states, most of them on the small side, ranging from 2,500 to 4,000 square feet and costing around $1 million, said Zach Goldman, the company’s founder and president.

The price of real estate has risen, but the returns are generally modest. “It’s the ultimate slow and steady income,” said Tripp Stewart, co-founder and chief executive of Hound Properties, who is also a practicing vet.

Despite the interest, there are obstacles to opening pet hospitals. Zoning sometimes limits their locations. In Pasadena, Calif., GD Realty had to request a zoning change for Modern Animal.

Because such businesses revolve around animal doctors, who are in demand as veterinary companies expand, there are shortages of vets in some parts of the country, according to the American Veterinary Medical Association.

The improvements in vet facilities are thus aimed not only at pets and their owners, but also at the doctors themselves, who can choose where they want to work.

“It used to be that when you went to a vet, it was a family vet who worked out of a kitchen in an old house,” said Dr. Stewart. “Today, you’re not going to attract new young vets to an old house.”

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Will NFTs Transform Tattoos Into Bankable Art?

Top tattoo artists are highly coveted, their work displayed on some of the world’s most visible real estate: LeBron James’s shoulders, Scarlett Johansson’s back, Post Malone’s face.

But you can’t hang tattoos in a gallery, or auction them at Sotheby’s. They live and (unless previously removed) die with their owner. It also means that the most in-demand tattoo artists are still paid by the hour, just as many were during their apprenticeships decorating the biceps of sailors and bikers.

Artists do not generally get paid by the hour, said Scott Campbell, 44, a Los Angeles tattoo artist who has inked Robert Downey Jr., Jennifer Aniston and Marc Jacobs. “Musicians don’t get paid by how long it takes them to create a song. You’d never go to a gallery and think, ‘How long did it take the artist to paint it? I’ll pay him for his time.’”

Mr. Cartoon) and Brian Woo (Dr. Woo), wants to change this equation.

All Our Best, where tattoo artists can offer their designs as permanent, tradable commodities in the form of NFTs.

To refresh: an NFT, which stands for non-fungible token, is basically a digital stamp of authenticity that can be bought, sold or traded like cryptocurrency on a blockchain. This is a far cry from the tattoo world, where the stars of the field see their earnings capped at around $1,000 an hour for a one- to three-hour session, even when working on Hollywood stars.

In this new marketplace, customers will be buying the exclusive rights to the design of the tattoo, rather than the tattoo itself. “I’m selling you an idea, instead of just hours of my life,” said Mr. Campbell, who has been blurring the line between tattoo and fine arts for years, showing his tattoo-inspired sculptures and paintings at galleries and art fairs. “The NFT is basically a digital baseball card.”

As a perk of ownership, buyers get a guaranteed slot with the tattoo artist — no small thing, since top tattoo artists can be nearly impossible to book for those outside the celebrity orbit.

Mr. Campbell, Mr. Cartoon, Dr. Woo, Grime, Sean from Texas and Tati Compton. Mr. Campbell plans to expand the roster, and eventually open the marketplace for any tattoo artist to sell work.

He is not the only tattoo artist to see opportunity in blockchain. An artist in Portland, Me., named Brad Wooten, for example, is selling photos of digitally designed tattoos as NFTs.

The earning potential is considerable. Prices for the initial round of NFT tattoos on All Our Best will range from $1,000 to $10,000. The blockchain technology also allows artists to make a 10 percent royalty every time a work is resold.

Clients also stand to profit if the work appreciates, unlike the current setup where “the only thing they get out of the deal is an Instagram post and some bragging rights,” Mr. Campbell said. “They actually have something that they can keep and pass onto their kids, that has a life beyond being just that thing on their arm that in 10 years is going to be sunburned and blurry anyway.”

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Sale of Tribune Newspaper Chain to Hedge Fund Faces One Last Challenge

The hedge fund that wants to buy Tribune Publishing, the owner of some of the nation’s major metropolitan newspapers, has one final hurdle to cross.

Shareholders of the newspaper company, whose titles include The Chicago Tribune, The Baltimore Sun and The New York Daily News, will vote on Friday on whether to approve the company’s sale to Alden Global Capital, an investor with a reputation for slashing costs and cutting jobs at the approximately 200 newspapers it already owns.

Alden’s effort to buy Tribune has faced resistance: Journalists at Tribune’s papers protested the sale and publicly pleaded for another buyer to step in. A Maryland hotel executive who had planned to purchase the The Baltimore Sun offered a glimmer of hope when he emerged with a last-minute offer for the entire company. He was backed for a brief time by a Swiss billionaire.

But the rival bid never fully came together, so the choice facing Tribune’s shareholders is to approve or reject Alden’s offer. Tribune’s board has recommended that they vote for the sale.

Chicago Tribune Guild president, begged Dr. Soon-Shiong to vote “No” on Friday.

“As Tribune Publishing’s second-largest shareholder, you can single-handedly keep Alden from sealing the deal,” Mr. Pratt wrote. “We’re not asking you to buy the company, though that would be great. But we are asking you to use your power to stop Alden from consolidating its own.”

Alden began buying up news outlets more than a decade ago and owns MediaNews Group, the second-largest newspaper group in the country, with titles including The Denver Post and The Boston Herald. While buying a newspaper may sound like a questionable investment in an era of shrinking print circulation and advertising, Alden has found a way to eke out a profit by laying off workers, cutting costs and selling off real estate.

“Alden’s playbook is pretty straightforward: Buy low, cut deeper,” said Jim Friedlich, the chief executive of The Lenfest Institute for Journalism, a journalism nonprofit that owns The Philadelphia Inquirer. “There’s little reason to believe that Alden will approach full ownership of Tribune any differently than they have their other news properties.”

Stewart W. Bainum Jr., the hotel magnate from Baltimore who made a last-ditch effort to rival Alden’s bid.

“This is the strategic logic of the acquisition, and one would hope — but not expect — that the savings from these synergies will be reinvested in local journalism and digital transformation,” he said.

Tribune, Alden Global Capital and Mr. Bainum declined to comment ahead of the vote.

Tribune agreed in February to sell to Alden, which had pursued ownership for years, in a deal that valued Tribune at roughly $630 million.

While a sale to Alden now seems inevitable, the twists and turns of recent weeks had seemed to favor Tribune’s reporters.

Mr. Bainum emerged as a potential savior in February, when he announced that he would establish a nonprofit to buy The Baltimore Sun and other Maryland newspapers from Alden once its purchase of Tribune went through. But his deal with Alden soon ran aground as negotiations stalled over the operating agreements that would be in effect as the papers were transferred.

So Mr. Bainum made a bid for the whole company on March 16, outmatching Alden with an offer that valued the company at about $680 million. He was then joined by Hansjörg Wyss, a Swiss billionaire who lives in Wyoming and had expressed an interest in owning The Chicago Tribune. Mr. Bainum would have put up $100 million, with Mr. Wyss financing the rest.

Tribune agreed to consider the bid from the pair, who formed a company called Newslight, saying on April 5 that it would enter negotiations because it had determined that the deal could lead to a “superior proposal.” Part of the discussions included access to Tribune’s finances.

exiting the bid after his associates reviewed the books. Part of the reason for his decision, according to people with knowledge of the matter, was the realization that his plans to transform the Chicago newspaper into a competitive national daily would be near impossible to pull off.

Mr. Bainum notified Tribune on April 30 that he would increase the amount of money that he would personally put toward the financing from $100 million to $300 million, as he hunted for like-minded investors to replace Mr. Wyss. In addition to needing to fund the balance of his bid, $380 million, Mr. Bainum’s offer was contingent on finding someone to take on responsibility for The Chicago Tribune, according to three people with knowledge of the discussions.

His effort seems to have fallen short.

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A New $260 Million Park Floats on the Hudson. It’s a Charmer.

CRITIC’s Notebook

Little Island, developed by Barry Diller, with an amphitheater and dramatic views, opens on Hudson River Park. Opponents battled it for years.

Hudson Yards.

I won’t dawdle over the mess that followed the island’s announcement. A real estate titan who had bones to pick with the Hudson River Park Trust supported a series of legal challenges. At one point, seeing no end in sight to the court fights, Diller backed out. A deal brokered by New York’s governor, Andrew M. Cuomo, ultimately rescued the project and also delivered public commitments to enhance protections for wildlife habitats and improve other parts of the four-mile-long, 550-acre Hudson River Park.

English garden follies — not least because Little Island can remind you more of a private estate than a city park. It’s clearly going to cost a king’s ransom to maintain, a burden the Hudson River Park Trust (which is to say the public) would have to bear absent other arrangements.

Fortunately, Diller has promised that his family foundation will pick up the tab for the next 20 years. That’s not forever, but it includes programming costs, Diller told me — until the programming (mostly free, not a moneymaker) can find nonprofit funding to “stand on its own.” He estimates he may end up spending $380 million all in — no doubt the largest private gift to a public park in the city’s history, maybe in the planet’s.

The other day I climbed to the topmost point on the island, a grassy crow’s nest with a 360 panorama. A lovely path shaded by dogwoods and redbuds, perfumed by woodland azaleas, snaked up the hillside. The views shifted from city to river, garden to grassland.

Heatherwick’s columns peek through a hill here or there, but you don’t really focus on them once you’re on the island, save for the great arch of giant tulip bulbs at the entrance, which required a year of tweaking to get the curves just right and to accommodate soil for Nielsen’s trees on top.

concerts, dance and children’s programs are planned to get underway this summer. Trish Santini, Little Island’s executive director, told me that her staff has been working closely with community organizations to ensure free and inexpensive tickets get into the hands of underserved groups and neighborhood schoolchildren. A second stage, called the Glade, at the base of a sloping lawn, tucked into the southeast corner of the park and framed by crape myrtle and birch trees, is custom made for kids and educational events. The main plaza, where you can grab a bite to eat and sit at cafe tables under canvas umbrellas, doubles as a third venue.

It’s on the route between the two gangways that link the island to Manhattan — and a stone’s throw from the High Line — so it’s sure to be mobbed. Santini also said the island will do timed reservations to prevent overcrowding. Little Island will need it, I expect. Two-plus acres is half the size of a city block.

sculpture by David Hammons, donated by the Whitney Museum of American Art to Hudson River Park, which traces in steel the outlines of bygone Pier 52.

North of Little Island, Pier 57 — where Google is leasing new quarters — will soon open community spaces, a food court and its roof deck to the public (City Winery is already up and running there). Piers 76 and 97 are also getting makeovers.

agreed with opponents who challenged reports by authorities over whether the project would inhibit the mating habits of juvenile striped bass.

This time environmental agencies determined that Little Island would cause no harm to fish, and the strategy didn’t work.

requirements for wheelchair accessibility are a design opportunity not a burden. I climbed back up the hill to the crow’s nest, and there she still was.

Huddled against a sunny morning gale, the mother duck was tending her eggs.

The ducklings, I learned, just hatched this week. They’ve started paddling in the river.

Maps by Scott Reinhard. Produced by Alicia DeSantis, Jolie Ruben and Tala Safie.

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Investors Put Millions Into a Luxury Student Dorm. They Say They Were Ripped Off.

Ms. Martinez, who lives not far from the dorm, said she had invested a little over $100,000 in the deal — money that came from the sale of a rental property. Like many investors in Skyloft, she was looking for a way to defer paying capital gains on the prior sale, and the private placement was marketed by brokers as a “1031 exchange” deal that would keep the Internal Revenue Service at bay.

A 1031 exchange deal, named after a section of the federal tax code, allows an investor to defer paying capital gains on the sale of property as long as the proceeds are invested into another property of equal or greater value to the one sold. These transactions are often criticized as a tax break for the rich, but the deals have also long attracted interest from investors of more moderate means.

The Biden administration is considering eliminating many of these deals as a way to raise additional revenue to pay for increased spending on child care and family leave programs. The Biden plan would allow 1031 exchanges to continue for most investors seeking to defer up to $500,000 in capital gains — many in the Skyloft deal fit that bill.

In recent years, student housing projects like Skyloft have become especially attractive real estate investments — especially as universities have encouraged the building of luxury apartment buildings to cater to students from wealthy families. Before the pandemic, there were, on average, $7 billion in student housing transactions in the United States each year. That was up from $3 billion just a decade ago, according to CBRE, a commercial real estate services firm.

Court filings and interviews with investors set out how the Skyloft project financing worked. To secure the $124 million purchase of Skyloft, Nelson Partners obtained a $66 million mortgage from a group of lenders led by UBS, in addition to the $75 million raised from ordinary investors. It also got $35 million in short-term financing from Axonic Capital, a New York hedge fund that specializes in commercial real estate transactions. The loan from Axonic was used to complete the purchase while Nelson Partners was raising money from investors.

Nelson Partners was to pay Axonic back the bridge loan, plus interest, using money raised from investors like Ms. Martinez. But Mr. Nelson’s firm did not pay back the loan, according to court filings. In February 2020, Axonic put Nelson Partners on notice, and it notified him last May that it was declaring Nelson Partners in default and taking control of the building.

Mr. Nelson opposed Axonic’s move but did not inform investors about his dealings with the hedge fund, according to the lawsuits. Instead, in April 2020, Nelson Partners stopped paying monthly cash dividends to the investors, telling them that it needed to conserve cash during the pandemic in the event students and their parents stopped paying rent. Mr. Nelson’s firm also received a loan of just over $1.2 million from the Small Business Administration’s Paycheck Protection Program.

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Israel and Hamas: What We Know About the Violence

Some people have been hurt or killed in a burst of unrest in mixed-population cities in Israel, including in Lod, where two people died. And in the occupied West Bank, at least 10 Palestinians were killed by Israeli security forces over the weekend.

The conflict erupted a week ago, on May 10, when weeks of simmering tensions in Jerusalem among Palestinian protesters, the police and right-wing Israelis escalated, against the backdrop of a longstanding battle for control of a city sacred to Jews, Arabs and Christians.

The root of the latest violence is an intense dispute over East Jerusalem, which is predominantly Palestinian. Protests had gone on for days ahead of a Supreme Court ruling, originally expected on May 10 but then postponed, on the eviction of several Palestinian families from East Jerusalem. Israeli officials described it as a dispute over real estate. Many Arabs called it part of a wider Israeli campaign to force Palestinians out of the city, describing it as ethnic cleansing.

The protests sharply intensified after Israeli police prevented Palestinians from gathering near one of the Old City’s ancient gates, as they have customarily done during the holy month of Ramadan. The police responded on May 10 by raiding the Aqsa Mosque compound, one of Islam’s holiest sites, to keep Palestinian protesters from throwing stones, they said. Hundreds of Palestinians and a score of police officers were wounded in the skirmish.

Militants in Gaza then began firing rockets in Jerusalem’s direction, to which Israel responded with airstrikes on Gaza. Barrages by both sides intensified through the week, as did casualties — though Gazans have suffered a disproportionate number of deaths.

Despite Israel’s surveillance capability and overwhelming military firepower next door, Palestinian militants in Gaza have managed to amass a large arsenal of rockets with enhanced range in the 16 years since Israel vacated the coastal enclave, which it had occupied after the 1967 war.

Hamas, with help from allies outside Gaza — including Iran, according to Israeli and Hamas officials — has parlayed that arsenal into an increasingly lethal threat. Since the conflict erupted last week, Hamas has launched more than 3,000 rockets toward Israeli cities and towns. The intensity of the barrages has put the Israeli city of Tel Aviv, among others, under greater threat than in previous conflicts.

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A Police Shooting in Hawaii Has South Africans Demanding Justice

Mr. Myeni and his wife moved to the United States in January 2020.

In a lengthy telephone interview, Ms. Myeni recalled how they met in 2016 at a hostel in Durban, a city on South Africa’s east coast. A professional rugby player, he was playing an away game; she was on a three-day layover during a Christian missionary trip around the world.

Mr. Myeni liked to sing, and once auditioned for the show “Idols South Africa.” He was also a longtime member of Scouts South Africa, leading wilderness camps for children.

The couple married 18 months after they met, and spent their first few years in South Africa, living in his hometown.

Their decision to move the United States, Ms. Myeni said, was driven by her career in real estate. First, they tried Tampa, Fla., but, she said, they found the inequalities between Black and white too reminiscent of South Africa and the legacy of apartheid.

“Every house we looked at, you could either be in a really poor Black neighborhood or a snobby rich white neighborhood, and neither of those fit us,” Ms. Myeni said. “We wanted somewhere where people are progressing and doing well but also, is it safe for us as a mixed couple?”

Next they tried Denver. They had once spent six months there, and it was home to the Glendale Merlins, a rugby team Mr. Myeni could join while he waited for a work permit.

Even before his death in Honolulu, Mr. Myeni had sometimes felt targeted by the police in his new country. In Austin, Texas, he was arrested at a nightclub while traveling with his rugby team, a teammate said, then released without charges. And in Denver, he was stopped by the police while walking to rugby practice.

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