Wednesday, May 24, 2023

Florida's hidden 'climate tax' - btbirkett@gmail.com - Gmail

Today’s newsletter looks at how climate change is making places like Florida an even more expensive state to live in. You can read and share a free version of this story on Bloomberg.com. Subscribe to Bloomberg for unlimited access to climate and energy news, and to receive Bloomberg Green magazine.

How hurricanes are increasing Floridian insurance

By Leslie Kaufman and Tim Quinson

The US hurricane season officially kicks off next week, and no other place in the country is more vulnerable to storm-related damage than Florida, the fastest-growing state in the nation. Last year, Hurricane Ian battered the state, killing almost 150 people and costing insurers roughly $63 billion.

People clear debris following Hurricane Ian in Fort Myers Beach, Florida. Photographer: Giorgio Viera/AFP/Getty Images

Florida has an outsize susceptibility to climate events, with damages equaling almost 4% of the state’s annual gross domestic product since 2017, said Andrew John Stevenson, senior ESG climate analyst at Bloomberg Intelligence. Last year, Hurricane Ian resulted in a more than 10% hit to the economy when totaling up all of the property destruction, infrastructure spending and power outages, he said.

With the climate crisis resulting in increasingly more dangerous storms, the residents of the Sunshine State are left with higher costs in the form of indirect and direct insurance payments.

Here are five ways that climate change is costing Floridians money right now—and in the future.

1. You pay what are fast becoming the highest property insurance rates in the nation.
The average annual property insurance payment in the state is $4,231, nearly triple the national rate of $1,544, according to the Insurance Information Institute, an industry association.

That price is climbing rapidly. Property insurance rates were mid-range until 2020. Insurance rates jumped 27% in 2021, 33% in 2022, and are expected to rise at least 40% this year (maybe 50%), according to the institute, which would put the average price at $6,000.

Florida’s Office of Insurance Regulation blames this on fraud not hurricanes, pointing out that Florida accounts for 9% property insurance claims in the nation, but more than 76% of property insurance lawsuits. For example, it is not uncommon for homeowners to claim storm damage to replace a roof just worn out by age. Florida lawmakers have passed recent changes to make such lawsuits more difficult but their effects are still unclear.

Hurricane Ian is also a factor. “If you look at the difference in the increase between last year and this year, that’s probably Ian,” said Mark Friedlander, a spokesman for the Institute.

2. Your tax money is going to prop up the reinsurance market.
In the last 13 months, seven of Florida’s 47 local property insurance businesses went under and another 24 are on the regulatory watch list. Part of what’s killing off these small firms is the price of reinsurance—that is, the insurance they have to buy to protect themselves in the event of a catastrophe that makes them pay a lot of claims all at once. Many big firms just don’t want to work in the state at any cost.

The insurance industry is bracing for another year of losses. Indeed, Warren Buffett’s Berkshire Hathaway Inc. has an “unbalanced” reinsurance exposure to Florida, according to Ajit Jain, who oversees the company’s insurance operations.

“What that means is if there’s a big hurricane in Florida, we’ll have a very substantial loss,” Jain said, speaking earlier this month at the company’s annual meeting.

To support what’s left of the struggling private market, Florida created a fund that basically acts as partial reinsurance for catastrophic hurricane losses. Florida’s given $3 billion of taxpayer money to reinsurance. Even so the new fund is limited — it doesn’t cover tornados or tropical storms.

And insurance lobbyists have asked for a more robust program. So far lawmakers have resisted, but if more of those two dozen residential insurers fail, taxpayers will have to likely have to pony up more.

3. The insurer of last resort isn’t cheap.
Stevenson says that the property and casualty business in Florida has become two-tiered. There’s Florida’s Citizens Property Insurance Corp., the state-backed insurer of last resort, and everyone else.

Created by the state legislature in 2002, Citizens had a 16% market share last year, up from 4% as recently as 2019, Stevenson says. That makes it the largest home insurer in the state. Its growth is likely to continue, as more homeowners become unable to find sufficient coverage in the private market.

The business environment means climate risk remains “underpriced in the Sunshine State,” Stevenson said. Average premiums at Citizens are 44% below those charged by their private peers and almost 60% below the rate needed for premiums to be actuarily sound, he said, citing an analysis from Florida.

Because Citizens is limited on how much it can raise rates, it is very underfunded. This year Citizens is asking for a rate increase that would average 14% per primary residence—up to 50% for a second home.

If there is a big hurricane that exceeds the amount Citizens has in reserves net reinsurance, everyone will pay: The law creating Citizens requires a state-wide multi-year surcharge on every residential property insurance policy in the state to make up the loss.

4. You need a separate policy for flood protection. In some cases, the state will not let you skip it.
A shocking number of Floridians are underinsured. They assume their regular policy protects them from winds and flood. But those almost always need to be purchased separately.

A new state law is trying to fix that by demanding that anyone who gets new homeowners insurance with Citizens also get flood insurance. That policy will affect new policy holders in federally designated flood zones immediately, but all 1.2 million policy owners anywhere in the state by 2027.

For a lot of people, that means a second expensive policy. Cyndee Haydon, a real estate agent, owns a place on the shore in Tampa that is less than 2,000 square feet. She pays $7,000 annually for homeowners and then another $7,000 for flood.

5. You’re going to pay more to protect your car, too.
Although property insurance is the liability that looms the largest, it is not the only insurance problem Floridians face. The average car insurance premium in Florida for full coverage—comprehensive and collision—is $3,121 annually, about 50% above the national average, according the Insurance Information Institute. And it’s going up quickly. Last year saw the largest year-over-year increase as it jumped $421 on average.

Fraud is a factor here, too, but so is Florida’s high level of accidents and accident fatalities. “We have significant weather events year-round here in Florida, and weather does play a role in accidents,” says Friedlander. “So yes, the climate definitely plays a role in it.”

Inside Brookfield’s $765M Loan Defaults on DTLA Offices

Inside Brookfield’s LA office defaults

With rising interest rates, trophy assets couldn’t service payments on $784M debt

<p>555 West 5th Street, Brookfield’s Brian Kingston and 777 South Figueroa Street (Brookfield)</p>

The double pincers of higher interest rates and lower office vacancy have put landlords in a pinch, as illustrated by Brookfield’s decision to walk away from $784 million in loans connected to two of the firm’s trophy office towers in Downtown Los Angeles.

Earlier this month, the Canadian alternative asset management firm admitted it had defaulted on both sets of loans. With other property owners facing the same set of macroeconomic forces, Brookfield represents a bellweather of where the office market is heading, with financial details provided by the company’s public filings and other documents.

At 777 South Figueroa Street, Brookfield’s publicly traded DTLA entity defaulted on a loan package from Wells Fargo after it declined to obtain an additional rate cap on the loan. Brookfield also defaulted on $465 million worth of loans from Citi Real Estate Funding and Morgan Stanley at the Gas Company Tower at 555 West 5th Street, after declining to extend the loans.

Brookfield saw the defaults on the horizon. In November, the company disclosed it “may not be able to successfully refinance the debt obligations when they fall due, which could result in foreclosure on the encumbered properties,” in light of economic uncertainty and lackluster leasing volume.

Though no foreclosures have been filed yet, lenders on both loan portfolios have the legal right to do so.

Brookfield’s own disclosures show the firm was not reeling in enough rent to cover its debt payments by the end of December, after the Federal Reserve had hiked rates seven times. Filings also show how the firm struggled with vacancy at both properties, as some tenants vacated space last year. And refinancing the debt at current higher interest rates would only exacerbate cash shortfalls at the properties

Here’s a look inside Brookfield’s financials at both properties and how rising interest rates impacted their profitability.

Gas Company Tower

In 2019, Brookfield obtained a two-year, $465 million loan package on the Gas Company Tower at 555 West 5th Street in Los Angeles.

The $350 million senior mortgage on the loan held an interest rate of Libor plus 1.89 percent, according to SEC filings.

The mezzanine tranches held much higher interest rates — $65 million at Libor plus 5 percent and $50 million at Libor plus 7.75 percent.

Last February, the firm would have paid interest at a rate of 1.97 percent on the senior loan, leading to a monthly interest payment of $551,000. On the mezzanine loans, Brookfield would have been paying 5.08 percent for the first loan and 7.83 for the second, coming out to a total of about $601,000 a month in interest.

Together, their debt service last February would have cost about $1.15 million a month in interest.

By December, the senior loan held an interest rate of about 5.89 percent, with monthly payments coming out to $1.7 million.

With the monthly interest payments on the mezzanine loans, the total debt service in December came out to about $2.7 million — more than double its payments just a few months prior.

At the end of September, the Gas Company Tower was about 73 percent leased — no change from the prior quarter, according to SEC filings.

The company reported $27.3 million in yearly base rent at the tower, or about $2.3 million a month — not enough to cover the new debt service payments.

777 South Figueroa Street

In February 2022, Brookfield held a $243.6 million senior loan on 777 South Figueroa Street, one of its trophy office towers in Downtown L.A.

The five-year loan had an interest rate of Libor — a benchmark interest rate used by banks — plus 1.8 percent. At the time, it was a very low spread: that month, Libor was 0.08 percent. So the loan had an overall interest rate of 1.88 percent.

Given that rate, Brookfield would have been paying about $381,600 in interest a month to service the debt.

Come December, the calculations were very different. The Fed’s interest rate hikes during 2022 raised Libor to about 4 percent in December, meaning Brookfield’s interest rate on 777 South Figueroa Street increased to 5.8 percent.

With the new rate, Brookfield would have been paying more than $1.1 million in interest per month.

Brookfield also held a $50 million mezzanine loan on the tower, which held an interest rate of Libor plus 4.15 percent.

By the end of last year, that loan held an interest rate around 8.15 percent, bringing Brookfield’s monthly payment to about $339,600 from about $175,800 at the start of the year.

In total, by the end of the year, Brookfield was paying about $1.45 million a month to service the debt.

And Brookfield was losing rent income at the same time.

Tenants vacated about 84,000 square feet at the 777 Tower from January through September, causing the vacancy rate at the property to rise from 19.5 percent at the end of June to 26.9 percent, according to SEC filings.

That added vacancy lost Brookfield $2.1 million in total base rent a year on the tower, SEC filings show.

At the end of September, Brookfield was reeling in $20.5 million in annualized rent — or about $1.7 million a month, also not enough to cover the debt service after property management expenses and taxes.

Law firm Orrick Herrington & Sutcliffe vacated about 76,000 square feet between June and September — the largest exit across Brookfield’s DTLA portfolio, SEC filings show.

City Storage Systems — the parent company of disgraced Uber CEO Travis Kalanick’s new ghost kitchen venture, CloudKitchens — vacated almost 6,000 square feet, but renewed 39,000 square feet at the tower in the first half of the year. Aspen Insurance Services also exited 4,600 square feet in the third quarter, according to a November SEC filing.

The loans came due on Feb. 9. Brookfield said it did not exercise any option to extend the maturity of the loans, triggering the default. “An event of default has occurred” the company stated, adding that “lenders may exercise their remedies,” including foreclosure.

Ancient lessons for a hotter world - btbirkett@gmail.com - Gmail

What has this relatively recent detachment from nature meant for humanity?

Take the number of farm workers in 1850 compared to 1950 — it’s a collapse of almost 90% because of automation. People are more disconnected from the land and cities became bigger. That means that people who think of themselves as being educated, smart and well-read are smart, educated and well-read — but they can’t milk a cow. We let other people do that, and we step into a world where we never really think about where things come from.

Monday, May 22, 2023

Off-label ChatGPTs - btbirkett@gmail.com - Gmail

View in browser

Hey y’all, it’s Austin Carr in Boston. The release of the official ChatGPT app highlights problems with major app stores. But first...

Today’s must-reads:

• Instagram plans to release a Twitter competitor
• Satellite phone calling is a hot market
• BT might need few layoffs thanks to attrition

Seems legit

When ChatGPT finally debuted in Apple Inc.’s app store last week, I figured I’d find it at the top of the charts. Instead, a search for OpenAI Inc.’s artificial intelligence service yielded an endless scroll of look-alikes with spurious names such as ChatAI and AI ChatBot: GPT-4 Open Chat.

The hiccup appeared to be resolved by the end of the week, with ChatGPT — “the official app by OpenAI”— appearing second on the store’s list, beneath an ad for ChatOn—AI Chat Bot Assistant Powered by ChatGPT & GPT-4. But it’s still easy to get the real thing mixed up among dozens of knockoffs, a stark symbol of the AI gold rush underway.

The ersatz ChatGPTs feature similar logos and seem designed to trick customers into paying for high-priced subscriptions. When I first opened ElevenThirteen LLC’s Chat AI (not to be confused with Koi Apps’ ChatAI), the service promoted itself as “your personal Chat GPT assistant” and immediately asked me to enroll in a free trial that would start charging $7 a week after three days. That’s about $28 a month, more than what OpenAI charges for ChatGPT Plus.

These apps, for the most part, aren’t necessarily selling snake oil. Many of them deliver something resembling ChatGPT by renting access to language models like OpenAI’s GPT-3 or -4, which developers can use to build unique AI software and personalities. They can also help bypass geographic restrictions in certain countries where ChatGPT is banned. For customers simply looking to use ChatGPT on their iPhone where the app is now available, though, it would be hard to rationalize paying more for an off-label bot that doesn’t offer much else.

When asked if it was intended to be a copycat, the Chat AI app responded, “I can assure you that I am not a ripoff of ChatGPT.” While it acknowledged it was trained on OpenAI’s large-language model, among others, the bot said its makers “worked hard to create a unique and innovative AI assistant.” ElevenThirteen’s other releases include apps devoted to crypto art and crystal-rock identification. A spokesperson for the developer said Chat AI has a million active monthly users and distinguishes itself through selectable AI roles, camera integration and tools for professionals.

This kind of approach is turning into a big business. Some chatbots boast tens of thousands of app store ratings and presumably as many, if not more, downloads. They often surface ads when they’re not pushing subscriptions.

AppNation Ltd. founder Yalçın Özdemir, the creator of an app called Genie AI that sells itself as being “powered by OpenAI,” told Bloomberg it had over 3 million active users and generated $3.5 million in April alone. Özdemir said Genie is not pretending to be OpenAI and “already surpasses” ChatGPT's app “in features such as photo identification, file importation and web link access.”

Like OpenAI, Google and Baidu Inc. first launched their chatbots as websites instead of apps for expediency. (The app store approval process can slow the pace of development.) Today, there’s an iPhone app called Bard even though Google doesn’t offer one. Baidu sued Apple and some software developers over fakes of its Ernie bot.

With the real ChatGPT now available on the iPhone, it seems likely the days are numbered for these sorts of copycats. ChatGPT itself sounded peeved about them.

“These knockoff apps use similar logos and brand names to mislead users or capitalize on the reputation of the original ChatGPT,” the chatbot told me. “If you believe there are issue with the availability or prominence of the official OpenAI ChatGPT app in the App Store, I encourage you to reach out to Apple’s support or feedback channels.” —Austin Carr

Thursday, May 18, 2023

Could these Verto air purification towers tackle India’s pollution problem? | CNN

Sunday, May 14, 2023

The Ann and Gordon Getty Collection: Temple of Wings

Friday, May 12, 2023

Hear from QuantumScape’s CEO - btbirkett@gmail.com - Gmail

Unlike other solid-state startups who stuck to “drop-in” tech that could easily slide into existing production lines, QuantumScape is trying to build a new mousetrap. It invented a proprietary cell format, which means it also has to design custom tooling to make that cell, then wait months to have the equipment delivered, then begin the grueling process of testing the equipment and working out the kinks.

Economic Solutions