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ShipBob fulfillment center in Moreno Valley, California
ShipBob

After ShipBob decided last July to let staffers work from anywhere, the logistics start-up had its landlord erect a wall in the middle of its Chicago headquarters so half the space could be rented out to another company.

On March 1, the office reopened at reduced capacity for socially distanced meetings.

But while it’s using less office space, ShipBob’s real estate needs have been expanding at a breakneck pace. The company, which provides fulfillment services to online retailers, has more than doubled its warehouse count since mid-2020 to 24 locations today, including four outside the U.S., with plans to reach 35 by the end of 2021.

The seven-year-old company is a microcosm of the U.S. commercial real estate market. While office vacancies have soared as employers prepare for a post-Covid future of distributed work, the industrial market is hotter than ever because of a pandemic-fueled surge in e-commerce and increased consumer demand to get more products at Amazon-like speeds.

Vacancy rates in industrial buildings are near a record low and new warehouses can’t get built quickly enough to meet the needs of clothing makers, furniture sellers and home appliance manufacturers. Real estate firm CBRE said in its first-quarter report on the industrial and logistics market that almost 100 million square feet of space was absorbed in the period, the third-highest amount ever, and that a record 376 million square feet is under construction.

Rents rose 7.1% in the quarter from the same period a year earlier to an all-time high of $8.44 per square foot, CBRE said. The firm wrote in a follow-up report last month that prices in coastal markets near population centers and inland port hubs are soaring by double-digit percentages. In Northern New Jersey, average base rent for industrial properties jumped 33% in May from a year earlier, and California’s Inland Empire saw an increase of 24%, followed by Philadelphia at 20%.

“The need to have facilities in these markets, coupled with record low vacancy rates, has often led to bidding wars among occupiers that are driving up rental rates,” CBRE said.

Skyrocketing prices

The wheels were well in motion before Covid-19 hit the U.S. in early 2020. Amazon was already turning next-day delivery into the default option for Prime members, and big box stores like Best Buy and Walmart were racing to add fulfillment space to try and keep pace.

The pandemic accelerated everything. Consumers were stuck at home and ordering more stuff, while physical stores had to go digital to stay afloat.

Grocery delivery added to the market tightness, as Instacart and Postmates were suddenly inundated with orders from customers who didn’t want to enter a Costco, Albertsons or Kroger store. Instacart is now planning a network of fulfillment centers loaded up with cereal-picking robots, according to Bloomberg, and Target has bolstered same-day fulfillment through so-called sortation centers.

In addition to the rapid change in consumer behavior, the pandemic also exposed the fragility of the global supply chain. With facilities in China and elsewhere shuttered, stores experienced dramatic shortages of apparel, car parts and packaging materials.

Retailers responded by securing more storage space to mitigate the impact of future shocks, said James Koman, CEO of ElmTree Funds, a private equity firm focused on commercial real estate.

“The reshoring of manufacturing is gaining momentum,” Koman said. Companies are “bringing more products onshore and need to have room for their products so we don’t fall into another situation like we’re in right now.”

All of those factors are contributing to skyrocketing prices, he said. Additionally, construction costs are higher because of inflation and supply constraints, and companies are building more sophisticated facilities, filled with robots.

“You have these automatic forklifts, conveyor belts, and automated storage retrieval systems,” Koman said. “All this is where the world is going.”

Amazon introduces new robots named Bert and Ernie to fulfillment center operations.
Source: Amazon Inc.

Betting on a long-term need for fulfillment and logistics facilities, ElmTree has acquired about $2 billion worth of industrial space over the past seven months, outpacing prior years, Koman said. He estimates the U.S. will need an additional 135-150 million square feet annually to support e-commerce growth.

For ShipBob, the e-commerce boom has played right into its business model. But competition for space is simultaneously forcing the company to reckon with higher costs.

ShipBob works with brands like perfume company Dossier, powdered energy drink maker Juspy and Tom Brady’s sports and fitness brand TB12, providing a wide network of fulfillment centers for fast and reliable shipping and software to manage deliveries and inventory.

Unlike the retail giants, ShipBob doesn’t go after large football field-sized fulfillment centers, and only has leases at a few of its facilities. Rather, it looks for warehouses that are typically family-owned with 75,000-100,000 square feet and some unused capacity. It then outfits them with ShipBob technology and pays based on order volume and the amount of space it uses.

While ShipBob isn’t signing leases, it is competing for space in warehouses that are now sitting on much more valuable property than they were a year ago. ShipBob CEO Dhruv Saxena said that his company has to be in areas like Southern California and Louisville, Kentucky, a major transportation and logistics hub, despite the rapid increase in prices.

“We have to find ways of placing inventory closer to the end customer even if it comes at a lower margin for us,” Saxena said in an interview late last month after his company raised $200 million at a valuation topping $1 billion.

ShipBob competes directly with a number of fulfillment outsourcing start-ups, including ShipMonk, Deliverr and Shippo. Those four companies have raised almost $900 million combined in the past year.

Not just Amazon

Saxena said a major reason smaller retailers turn to ShipBob is to avoid the costs and hassle of finding fulfillment space and hiring the requisite workers. He likened it to companies outsourcing their computing and data storage needs to Amazon Web Services and paying for how much capacity they use rather than leasing their own data centers.

“The same math applies,” Saxena said. “I can open a warehouse, hire people and rig the software or I can convert those fixed costs into variable costs where I pay on a transaction basis.”

ShipBob employees with CEO Dhruv Saxena in middle
ShipBob

Nate Faust is in the very early stages of building Olive, an e-commerce start-up that’s working with brands to offer more sustainable packaging and delivery options by using recycled boxing materials and bundling items.

Olive opened its first two 30,000 square foot warehouses last year, one in New Jersey and the other in Southern California. Faust, who previously co-founded Jet.com and then worked at Walmart after the acquisition, said if he were entering those leases today, they’d easily be 10% to 15% higher.

Olive isn’t actively in the market for more fulfillment centers and doesn’t face a lease renewal until February, but Faust said start-ups have to be opportunistic. He’s working with real estate firm JLL, which he said is constantly on the prowl for attractive space.

“We have them looking all the time because industrial space is so tight right now,” Faust said. “If we find something perfect for what we’re looking for, it’s not unreasonable to have overlapping leases.”

Olive package
Olive

Vik Chawla, a partner at venture firm Fifth Wall, which invests in property technologies, said the challenges in the real estate market are driving more emerging brands and sellers to the outsourcing model.

“It’s very difficult as a single e-commerce business to try to secure attractive space and run your business,” Chawla said. “The line of people trying to get into industrial buildings is out the door.”

Many tenants occupying that line are traditional big third-party logistics providers (3PLs), like C.H. Robinson and XPO Logistics as well as UPS and FedEx. At the top end of the market, Amazon, Walmart and Target are mopping up space to speed distribution and, in Amazon’s case, to manage fulfillment for its massive marketplace of third-party sellers.

Prologis, the largest U.S. owner of industrial real estate, said in a May report that utilization rates, which indicate how much space is being used, reached close to 85%. Vacancy rates are at 4.7%, close to a record low, the company said.

Amazon is the real estate firm’s biggest customer, occupying 22 million square feet, followed by Home Depot at 9 million and then FedEx and UPS, according to Prologis’ latest annual report. Walmart is seventh.

In April, an analyst on Prologis’ earnings call asked what types of clients were most actively pursuing leases.

“E-commerce is a big component of it, but it’s certainly not all about Amazon,” Michael Curless, Prologis’ chief customer officer, said in response. “Certainly, they’re the most active customer. But we’re seeing a lot of activity from the Targets, the Walmarts, Home Depots, and lots of evidence of the Chinese players making their way to the U.S. and Europe as well.”

WATCH: EY on how Covid has boosted digitalization in the retail industry

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DOJ asks for independent probe into FTX bankruptcy, a likely tactic to gather evidence on alleged fraud

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DOJ asks for independent probe into FTX bankruptcy, a likely tactic to gather evidence on alleged fraud

John Ray, chief executive officer of FTX Cryptocurrency Derivatives Exchange, arrives at bankruptcy court in Wilmington, Delaware, US, on Tuesday, Nov. 22, 2022.

Eric Lee | Bloomberg | Getty Images

The Department of Justice has requested that an independent examiner be appointed to review “substantial and serious allegations of fraud, dishonesty” and “incompetence” after the implosion of Sam Bankman-Fried’s crypto empire. It could be one way for the DOJ to gather evidence of alleged fraud.

In a filing in Delaware federal bankruptcy court, Andrew Vara, a U.S. bankruptcy trustee, told the court that the allegations of corporate misconduct and complete failure merited an immediate and speedy examination of the events leading up to FTX’s stunning collapse three weeks ago.

Vara said there’s a substantial basis to believe that Bankman-Fried and other managers mismanaged FTX or engaged in fraudulent conduct.

“It seems to me that the DOJ is trying to use the bankruptcy process as a way of getting evidence,” former federal prosecutor Renato Mariotti told CNBC.

“Many times, the Department of Justice and bankruptcy estates in fraud cases work together in compiling potential restitution or other types of actions to make victims whole,” he said. The DOJ “will likely be part of the asset recovery and potentially having a Victims Fund with money going to those that lost money and what the Department of Justice potentially will view as a fraud.”

“It just shows a level of interest and attention that they’re paying to this that should be troubling to Mr. Bankman-Fried.”

Vara said an examination is preferable to an internal investigation because of the wider implications the company’s collapse may have on the crypto industry.

Another legal expert said that there could be other factors at play too, including the extensive political donations that FTX executives were involved in on both sides of the aisle.

There have been “campaign donations on both sides of the aisle from FTX and there have been political overtones and undertones in this case,” said Braden Perry, former senior trial attorney at the Commodities Futures Trading Commission and Kennyhertz Perry partner.

“I think that this is just out of prudence and out of caution to make sure that whatever is happening is done at an independent level,” Perry continued.

It’s not unusual to appoint a bankruptcy examiner. There was one to oversee the crypto bankruptcy process of Celsius Network, for example.

Bankruptcies above a certain size require an examiner. In this case, the U.S. Trustee said that an examiner is mandatory because FTX’s fixed, liquidated and unsecured debts to customers exceed the $5 million threshold.

FTX’s November collapse left creditors reeling over the loss of hundreds of millions of dollars, in some cases, and has rocked the wider crypto world. BlockFi, a crypto lender, filed for bankruptcy protection in New Jersey last week.

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Tech layoffs send visa holders on frantic search for employment to avoid deportation

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Tech layoffs send visa holders on frantic search for employment to avoid deportation

After years of seemingly boundless expansion, the U.S. tech industry has hit a wall. Companies are in cash preservation mode, leading to thousands of job cuts a month and a surge of layoffs in November.

While the sudden loss of a paycheck can be devastating for anyone, especially during the holiday season, the recent wave of reductions is having an outsized impact on skilled workers who are living in the U.S. on temporary visas and are at risk of being sent home if they can’t secure a new job in short order.

Tech companies are among the employers with the most approvals for H-1B visas, which are granted to people in specialty occupations that often require a college degree and extra training. Silicon Valley has for years leaned on temporary visas issued by the government to employ thousands of foreign workers in technical fields such as engineering, biotech and computer science. That’s a big reason tech companies have been outspoken in their defense of immigrants’ rights.

Workers on temporary visas often have 60 to 90 days to find a new gig so they can avoid being deported.

“It’s this amazing talent pool that the U.S. is fortunate to attract, and they’re always living on the edge,” said Sophie Alcorn, an immigration lawyer based in Mountain View, California, who specializes in securing visas for tech workers. “Many of them up are up against this 60-day grace period deadline. They have a chance to find a new job to sponsor them, and if they can’t do that, they have to leave the U.S. So it’s a stressful time for everybody.”

The already grim situation worsened in November, when Meta, Amazon, Twitter, Lyft, Salesforce, HP and DoorDash announced significant cuts to their workforces. More than 50,000 tech workers were let go from their jobs in November, according to data collected by the website Layoffs.fyi.

Amazon gave staffers who were laid off 60 days to search for a new role inside the company, after which they’d be offered severance, according to a former Amazon Web Services employee who lost his job. The person spoke to CNBC on the condition of anonymity.

In fiscal 2021, Amazon had the most approved petitions for H-1B visas, with 6,182, according to a National Foundation for American Policy review of U.S. immigration data. Google, IBM and Microsoft also ranked near the top of the list.

The former AWS employee has been in the country for two years on student and employment visas. He said he was unexpectedly laid off at the beginning of November, just months after joining the company as an engineer. Despite Amazon informing him that he had 60 days to find another position internally, the person said his manager advised him to apply for jobs elsewhere due the company’s pullback in hiring. Amazon said in November it’s pausing hiring for its corporate workforce.

An Amazon spokesperson didn’t provide a comment beyond what CEO Andy Jassy said last month, when he told those affected by the layoffs that the company would help them find new roles.

Companies generally aren’t specifying what percentage of the people being laid off are on visas. A search for “layoffs H1B” on LinkedIn surfaces a stream of posts from workers who recently lost their jobs and are expressing concern about the 60-day unemployment window. Visa holders have been sharing resources on Discord servers, the anonymous professional network Blind and in WhatsApp groups, the former AWS employee said.

It had already been a frenetic few years for foreign workers in the U.S. well before surging inflation and concerns of a recession sparked the latest round of job cuts.

The Trump administration’s hostile posture toward immigration put the H-1B program at risk. As president in 2020, Donald Trump signed an executive order suspending work visas, including those with H-1B status, claiming they hurt employment prospects for Americans. The move drew a strong rebuke from tech executives, who said the program serves as a pipeline for talented individuals and strengthens American companies. President Joe Biden allowed the Trump-era ban to expire last year.

Whatever relief the Biden presidency provided is of limited value to those who are now jobless. An engineer who was recently laid off by gene-sequencing technology company Illumina said he hoped his employer would sponsor his transfer to an H-1B visa. He’s here on a different visa, known as Optional Practical Training (OPT), which allows graduates in science, technology, engineering and mathematics (STEM) to work in the U.S. for up to three years after graduation.

The former Illumina employee, who spoke on condition that he not be named, not only has to find a new job within 90 days from the layoff date, but his OPT visa expires in August. Any company that hires him must be willing to sponsor his visa transfer and pay the related fees. He’s considering going back to school in order to extend his stay in the U.S., but he’s anxious about taking on student loans.

Illumina said in November it was cutting about 5% of its global workforce. A company spokesperson told CNBC that less than 10% of impacted employees were here on H-1B or related visas.

“We are engaging with each employee individually so that they understand the impact to their employment eligibility and options to remain in the U.S.,” the spokesperson said by email. “We are working to review each and every situation to ensure great care for those impacted, and to ensure compliance with immigration law.”

The ex-employee said he had dreams of working for Illumina, planting roots in the U.S. and buying a house. Now, he said, he’s just trying to find a way to stay in the country without going deep into debt. In just a matter of months, it’s “like a night and day difference,” he said.

WATCH: Tech layoffs double from October to November

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Elon Musk suspends Ye’s Twitter account after swastika post

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Elon Musk suspends Ye's Twitter account after swastika post

Ye suspended from Twitter again after antisemitic post

Ye’s Twitter account was suspended again Friday for violating the social media platform’s rules on “incitement to violence,” CEO Elon Musk said.

The rapper, formerly known as Kanye West, appeared to post an image of a swastika, a symbol synonymous with the Nazis, inside a Star of David, a prominent symbol of Judaism.

Musk said he “tried his best” in response to Ye’s tweet, which can no longer be viewed. “Despite that, he again violated our rule against incitement to violence. Account will be suspended.”

Ye’s tweet came after he made antisemetic comments in an interview with the controversial radio host Alex Jones on Thursday. Ye referred to “the Jewish media” and said he saw “good things about Hitler” in an hourlong conversation with the conspiracy theorist.

In October, Twitter locked Ye’s account for an unspecified amount of time following a string of antisemitic remarks which escalated into threatening and hateful comments about Jewish people. He returned to Twitter in November.

Deals off

Elon Musk is the bravest, most creative person on the planet, says Netflix's Reed Hastings

The billionaire Tesla CEO, who has called himself a “free speech absolutist,” is finding the limits of that tested in his early days of owning Twitter.

‘Verified’ service

Musk has attempted to make sweeping changes in his first few days in charge, including gutting a huge swathe of Twitter’s workforce and launching an $8 per month “Verified” service that allows users to buy the coveted blue check mark.

Twitter was forced to pause its subscription service however after users abused it by paying the fee to get a blue check then impersonating celebrities.

Musk said last week that the “Verified” service would be relaunched on Friday with different colored check marks, but there has been no update on whether this is still the case.

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