Square Feet: Someday Worth Billions, but Now, They Need a Desk

SAN FRANCISCO — In the 20th-century workplace, Duncan Logan might be considered an abusive landlord. He rents working spaces without doors or walls between tenants. Instead, his renters work at long tables, and sometimes those tables are shared with other companies.

Yearn for privacy? “Headphones are the new cubicle,” he said.

In today’s tech world, though, if Mr. Logan did have a door it might be knocked down by clamoring start-ups. What RocketSpace, the office rental company he started in San Francisco in a building on its last legs in late 2010, does provide is lots of high-speed Internet access, proximity to well-regarded young companies, amenities like free beer and occasional chats with the likes of Steven A. Ballmer of Microsoft, Dick Costolo of Twitter and the venture capitalist Vinod Khosla.

That, it seems, more than makes up for the lack of privacy. Besides, in an era of oversharing on social media sites, who needs privacy when you can have collaboration?

“I was here until 10:30 the other night, and so was the guy at that company, and them over there,” said Michael Perry, indicating two tables close to his own at RocketSpace. His four-person start-up, Kit, is trying to use online data so brands can find their most vocal supporters on places like Facebook. “When I was working alone, I thought I had a billion-dollar idea,” he said. “Here, everybody thinks they have a billion-dollar idea, and they’re hammering away. That’s inspiring.”

Rents are up and vacancies scarce in San Francisco as the tech boom has traveled north of Silicon Valley. And novel, flexible office plans have come with it.

According to the real estate service CBRE, technology now accounts for 75 percent of new office demand in San Francisco, compared with the historical norm of perhaps 30 percent. The city seems like a place where almost any space could rent. Some start-ups are setting up in the Tenderloin district, long considered one of the city’s worst neighborhoods.

Even in the hot San Francisco market, however, RocketSpace appears to be making a 20 percent premium to current office rental prices, based on its 580 desks, leased by some 130 companies. Mr. Logan, who leases space inside two buildings near the old Pacific Stock Exchange, charges $700 to $800 a month for a “desk,” or table space.

Unlike temporary offices like Sandbox Suites or WeWork, which rent desk space to freelancers and others, or the so-called incubator spaces that take equity for their start-ups getting off the ground, RocketSpace expects companies to increase staff under its roof, and to pay cash. Once a start-up gets to about 30 people, it is time to move out.

Mr. Logan, 41, works hard at making sure renters have credibility by checking their backers and work histories. He cultivates relationships with venture capitalists and has researchers looking for the next hot thing. There are lots of free Jolly Rancher candies and boxes of coconut water, but renting here takes money, well-known backers and a personal track record at hot firms. “From the start, we’ve vetted which companies would be here,” he said.

If he reaches his goal of filling a thousand desks by the end of the year, Mr. Logan should get more than double the typical per-square-foot rate associated with fancier offices. His costs, besides the tables, Wi-Fi and free beer, include the odd translucent panel between spaces, padded chairs with backs so high and straight that they can be pushed together to enclose a meeting of four people, and an automatic espresso maker in the common kitchen.

Companies that have passed through RocketSpace, either as local start-ups or initial satellite offices, include such tech darlings as Zappos, Uber, Spotify and Kabam, an online gaming company.

“It was amazing — lots of tables, so you can’t tell where one company began or ended, a receptionist who didn’t know who you were, people talking in whispers because everyone is working so closely together,” said Steve Swasey, the head of communications at Kabam. “It’s just how our office looks now, even the wires hanging from the ceiling.”

Billions in Debt, Detroit Tumbles Into Insolvency

The decision, confirmed by officials after it trickled out in late afternoon news reports, also amounts to the largest municipal bankruptcy filing in American history in terms of debt.

“This is a difficult step, but the only viable option to address a problem that has been six decades in the making,” said Gov. Rick Snyder, who authorized the move after a recommendation from the emergency financial manager he had appointed to resolve Detroit’s dire financial situation.

Not everyone agrees how much Detroit owes, but Kevyn D. Orr, the emergency manager, has said the debt is likely to be $18 billion and perhaps as much as $20 billion.

For Detroit, the filing came as a painful reminder of a city’s rise and fall.

“It’s sad, but you could see the writing on the wall,” said Terence Tyson, a city worker who learned of the bankruptcy as he left his job at Detroit’s municipal building on Thursday evening. Like many there, he seemed to react with muted resignation and uncertainty about what lies ahead, but not surprise. “This has been coming for ages.”

Detroit expanded at a stunning rate in the first half of the 20th century with the arrival of the automobile industry, and then shrank away in recent decades at a similarly remarkable pace. A city of 1.8 million in 1950, it is now home to 700,000 people, as well as to tens of thousands of abandoned buildings, vacant lots and unlit streets.

From here, there is no road map for Detroit’s recovery, not least of all because municipal bankruptcies are rare. State officials said ordinary city business would carry on as before, even as city leaders take their case to a judge, first to prove that the city is so financially troubled as to be eligible for bankruptcy, and later to argue that Detroit’s creditors and representatives of city workers and municipal retirees ought to settle for less than they once expected.

Some bankruptcy experts and city leaders bemoaned the likely fallout from the filing, including the stigma. They anticipate further benefit cuts for city workers and retirees, more reductions in services for residents, and a detrimental effect on borrowing.

“For a struggling family I can see bankruptcy, but for a big city like this, can it really work?” said Diane Robinson, an office assistant who has worked for the city for 20 years. “What will happen to city retirees on fixed incomes?”

But others, including some Detroit business leaders who have seen a rise in private investment downtown despite the city’s larger struggles, said bankruptcy seemed the only choice left — and one that might finally lead to a desperately needed overhaul of city services and to a plan to pay off some reduced version of the overwhelming debts. In short, a new start.

“The worst thing we can do is ignore a problem,” said Sandy K. Baruah, president of the Detroit Regional Chamber. “We’re finally executing a fix.”

The decision to go to court signaled a breakdown after weeks of tense negotiations, in which Mr. Orr had been trying to persuade creditors to accept pennies on the dollar and unions to accept cuts in benefits.

All along, the state’s involvement — including Mr. Snyder’s decision to send in an emergency manager — has carried racial implications, setting off a wave of concerns for some in Detroit that the mostly white Republican-led state government was trying to seize control of Detroit, a Democratic city where more than 80 percent of residents are black.

The nature of Detroit’s situation ensures that it will be watched intensely by the municipal bond market, by public sector unions, and by leaders of other financially challenged cities around the country. Just over 60 cities, towns, villages and counties have filed under Chapter 9, the court proceeding used by municipalities, since the mid-1950s.

Leaders in Washington and in Lansing, the state capital, issued statements of concern late Thursday. A White House spokeswoman said President Obama and his senior team were closely monitoring the situation.

Monica Davey reported from Detroit, and Mary Williams Walsh from New York.

DealBook: JPMorgan Sues Boss of Trader Who Lost Billions

Carl Court/Agence France-Presse — Getty ImagesOffices of JPMorgan Chase in London. The trade losses were associated with London workers.

The fallout continues from the multibillion-dollar trading loss at JPMorgan Chase.

Now JPMorgan, the nation’s largest bank, is taking aim at one of its former executives in the chief investment office, a once little-known unit at the center of the bungled trades. JPMorgan is suing Javier Martin-Artajo, the manager who directly supervised Bruno Iksil, the so-called London Whale, according to a lawsuit made public on Wednesday.

Mr. Iksil gained that now infamous moniker after reports emerged in April that he had built up an outsize position in an obscure corner of the credit markets. That position ultimately proved devastating for the bank, resulting in a $6.2 billion loss.

The lawsuit, which was filed in a London court, did not disclose the details of JPMorgan’s claims against Mr. Martin-Artajo, according to a person with knowledge of the complaint. Mr. Martin-Artajo and Mr. Iksil have left the bank. A spokeswoman for JPMorgan declined to comment on the lawsuit. Mr. Martin-Artajo’s lawyer could not be reached immediately for comment.

Since announcing the problem in May, JPMorgan has worked to move beyond the loss and reassure skittish investors. JPMorgan has broadly reshuffled its management ranks and united some of its business operations.

As part of that effort, the bank conducted an internal investigation, combing through thousands of e-mails and phone records of traders to determine what went wrong at the chief investment office.

The investigation, led by Michael J. Cavanagh, the bank’s former chief financial officer, uncovered that some traders within the unit might have improperly valued their positions as losses began to mount. Some phone recordings suggest that Mr. Martin-Artajo encouraged Mr. Iksil to value troubled positions in a favorable manner, according to people with knowledge of the situation.

Mr. Martin-Artajo, Mr. Iksil and two other employees who worked in the chief investment office are under investigation by criminal and civil authorities. Authorities are examining whether the group mismarked the positions to cover up losses, according to the people. After revising the valuations on those trades, JPMorgan had to restate its first-quarter earnings.

Federal authorities face a high legal bar. Traders are given significant leeway to price certain financial instruments like the complex credit derivatives at the center of the bet. None of the people have been accused of any wrongdoing.

JPMorgan, too, faces scrutiny. The Securities and Exchange Commission, the Office of the Comptroller of the Currency, and the Federal Reserve Bank are all looking into the botched trade.

The aftershocks of the trading blowup have reverberated throughout the bank. The multibillion-dollar loss tarnished the reputation of Jamie Dimon, the bank’s chief executive, who is considered one of Wall Street’s best risk navigators. In July, Mr. Dimon appeared before Congress to try to account for the misstep.

The trading debacle has also claimed the job of one of the Mr. Dimon’s most-seasoned and trusted lieutenants, Ina R. Drew, who resigned as head of the chief investment office shortly after the trading losses and volunteered to give back her pay. The bank also clawed back millions of dollars of compensation from Mr. Martin-Artajo, Mr. Iksil and others.

Mr. Dimon has also moved swiftly in the last few months to remake his management team. Douglas L. Braunstein, the bank’s chief financial officer since 2010, will resign by the end of the year, according to former and current executives. Mr. Braunstein initially played down concerns about the chief investment office that emerged in April. Barry Zubrow, a former chief risk officer who now runs the bank’s regulatory affairs, announced his own resignation last month from his current post.

The huge loss stemmed from a complex wager on credit derivatives made by Mr. Iksil out of the London unit of the chief investment office, which was formed five years ago. The chief investment office morphed from a relatively sleepy operation into a profit center as the complexity and risk of its positions swelled.

The risk controls did not keep up with the group’s increasingly large bets, according to several current and former executives familiar with the unit. Part of the problem, the executives said, was that the London branch operated without sufficient oversight. Even when some executives in New York, for example, called for greater risk controls, they were ignored or shouted down.

During JPMorgan’s latest earnings call, Mr. Dimon emphasized that the bank had contained the loss from the troubled trade. It closed out the position and moved the remainder of the credit derivative trade to the investment bank.

Ben Protess and Mark Scott contributed reporting.