23 April 2010

The Exchange Rate Between Lust and Money

Hedge funders meet their match

Excerpted from Issue 9.

December 2007, and Intergalactic Capital LLP, having concluded a string of big-time real estate deals, has sent Khan Kerensky to Amsterdam, Holland, with instructions to whitemail the city. The deals adhering to Intergalactic’s usual formula, commercial properties with rents that can be raised with just a little sprucing. Preference for professional tenants, as these were felt to be most price-elastic. And these tenants were certainly from a well-established profession: the oldest.

Dusk and branches of bare plane trees are sunlit against a winter sky, vast and Protestant blue. Khan Kerensky wanders the red-light district, happy to be back, smoking vaguely. It’s been a harsh winter, the canals have iced over for the first time in a generation, and now tourists take turns skidding laughing along them, swerving around decrepit rowboats stuck listing in the ice, frozen puddles inside holding frozen empties of Heineken.

His first commitment is a meeting with the managing agents for a block of eighteen properties, comprising fifty-one windows in total, to bring them up to speed about the forthcoming whitemail. “Window” in this instance having a more nuanced meaning than usual: these being full-length plateglass ones from which partly nude figures, often young and slim but sometimes spectacularly neither, attract clients who approach the door, chat, set terms, and, once behind drawn curtains, transact.

“Fifty-one windows?”—Bill Heavenly, Khan Kerensky’s boss, had been in Amsterdam in August for the funeral of a friend. “Fifty-one windows in eighteen properties,” shaking his head, leafing through the architectural plans. “Shit is bananas. How have they survived.”

Yes, the gearing was unacceptably slack. He called trusty Khan Kerensky on the satellite phone, who at that time was kite-skiing across Antarctica, and said why didn’t he drop in on him in Amsterdam, Holland. Twenty-eight hours and $12,000 later, Khan was back in slacks and promenading down the Oudezijds Achterburgwal with his boss. Early evening, fairylights just coming on in the trees, wrens going in to roost and Brits coming out to swarm.

“No reason they can’t rationalize like any other business, Khan. Look at this building: One window. One!” Bill Heavenly sucking on a pomegranate smoothie and absently inspecting the construction. “We could get four in here no problem.” He wandered up to the plate glass, peering at an angle to establish wall thickness, load-bearing structure, et cetera. He nodded. Less than a foot away, the most beautiful woman Khan had ever seen was threatening to remove an already insubstantial top, and her eyebrows were asking the two men if she should proceed. “Oh man check it out,” Bill rapped the glass with a knuckle, “double plexi.”

To Khan, it was all achingly beautiful: the vertical and slim vernacular of the city finding expression in its windows, houses, girls. The most beautiful girls he’d ever seen bicycled past in military coats, redcheeked and laughing into cell phones.

“So the Dutch have windows just on the first floor, see Khan? And sometimes the second. Total cottage industry. We’ll show em how to do business. We are going to buy up this crummy little town, and put windows up to the sixth floor. You hear? I want these buildings looking like a woman vending machine! You hear me, Khan?”

“But aren’t there zoning laws?” Khan asked.

“Good one, good one,” Bill said, when they’d finished laughing.

Well. The zoning laws allowed only a set number of windows altogether. So over the fall Intergalactic rapidly accumulated properties across the redlight district, representing by early December nearly three-quarters of the total, purchased through agents and subsidiaries. Because Intergalactic had recently part-floated in New York, disclosures were made there in accordance with Sarbanes-Oxley. Though not to the Amsterdam authorities, who, despite widespread rumors at street level, knew nothing of the takeover of their main tourist attraction until Intergalactic, in the form of point man Khan Kerensky, told them so at a meeting.

“We can shut down the city’s entire tourist dollar,” Khan said. “Either you let us put in more windows, or we’ll board up the ones we have.”

On the other side of the table, municipal officers flustered among contracts and deeds, verifying the situation.

“You wouldn’t!” said the Chief Planning Officer.

“I’m afraid we would.”

“But you will lose money!”

Khan Kerensky nodded. “At first,” he agreed.

Khan didn’t enjoy such moments. In New York it was fine; screwing the other guy was what America was all about, and even as you screwed him you could tell he kind of enjoyed it. Over here it was all socialists and cobblestones, old-timers wearing ties for the fun of it and cities that said no to skyscrapers in order not to spoil the view. Honestly it was no fair. He felt like a GI moving slopes out of grass huts. Not totally what he signed up for.

And besides there’s never a need to board up windows. Prices work like planks. The strategy is clear: the girls who work the windows are self-employed; they rent the windows themselves and keep everything they make. No pimps. Or just the one big pimp, who takes 19 percent as sales tax and another 30 percent on income.

Oh, the girls have panic buttons all right, and if one of them gets pushed it won’t be cops who’ll come running. That falls under “security,” provided by the landlord and included in the rent. Khan has instructions from the partners to keep putting up the rent, which either the girls will swallow whole, because there’s always the possibility of breaking into the paradise of Luxury Economics, where in direct contradiction of classical economics, higher prices generate higher demand. In which case, amazing. Demand Slope Inversion. Seen in rare and wonderful markets, like jewelry, supercars, eye surgery. Every retailer’s giddy fantasy. Or the girls won’t swallow it, in which case Khan will just bring the fucking city to its knees, and force through approval for more windows. Classically hedged.

As Intergalactic’s fourteen managing agencies relayed the news that week, the girls almost didn’t understand what was happening. Rents jumped from €18 an hour to €25. Confusion, then anger. By week’s end, they’d appointed a sort of tribune, one Maja van Zeeping, who came to Khan’s office on the Prinsengracht to protest.

Maja was the most beautiful woman Khan had ever seen. But he was sympathy itself, asked her to pass over that legal pad, so he could explain it all very clearly.

“From the numbers you’ve given me, right Maja? you’re paying a hundred and fifty euro for a window, for a shift of eight hours. And you charge at least fifty euro per customer, sometimes more, so after three customers, max, you’ve washed your face. Right?”

Maja nodded at the pad. “Not just the face.”

“You say on average fifteen minutes each customer, five minutes in between to freshen up, that’s one hour to pay off your overheads, leaving you with seven hours’ clear profit. Yes?” “Yes.” “Okay. Which means you’re making a 700 percent return on investment every time you take a window. See?”

Maja frowned, shook her head. “Not everyone . . .”

“Seven hundred percent, Maja!”

“Maybe the pretty ones yes. But no one becomes rich.”

“Seven hundred percent, every day! In New York, no one’s ever made that kind of money!”

“Not even the prostitutes?”

“We don’t have em.” Then, in response to her look, “Different business model. Frankly, the bottom line is we think a daily seven-times profit is excessive, and at Intergalactic Capital, we’re an old-fashioned company, we don’t approve of excessive profit-taking.”

A period of tense eye contact during which Khan finds the strength, god knows from where, not to laugh.

Eventually she looks away. “It’s not profit,” distantly, “it’s just a wage.”

“Well hang on, you’re self-employed, right? By definition if you’re the owners, it’s a profit.” Smiling not unkindly. “Look, our improvements will be worth it. It’ll help your business, you can go for ‘massclusivity,’ market yourself as luxury prostitutes. No seriously,” in answer to her eyes, “you can drive in a wedge at the top of any market. You name it. Just keep adding bells and whistles. You can make luxury anything. Freaking gumboots, look at Le Chameau. But even if you don’t do that, at the new rents, you’ll still be left with 600 percent profit, and that’s still mad good. Got to move with the times, Maja.”

Khan wore a smile as he saw her off the premises, her fingers at her lips and troubles across her forehead. The girls dug deep and paid. But he needed plenty of self-medication on the flight back to New York.

“Celebrating?” said the foxy Italian-American woman in the seat next to him, as he bit a chunk out of his sixth mini-Macallan.

“Absolutely.” Khan turned to give her the full megawattage. She was the most beautiful woman Khan had ever seen. “Specially when I get back to the city, at that new nightclub, Ng! Want to come?”

A slow blink of extravagantly decorated eyes. “Always.”

This is an excerpt from n+1 Issue 9: Bad Money. To purchase the issue and read the rest of this article, which appears on page 143, go to the n+1 store »

Image: Charles Cohen, 7a (detail) from the series Buff, 2003, Archival Inkjet print, 8 X 10". Courtesy of the artist (www.promulgator.com)and Bonni Benrubi Gallery.


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