I’m working on a mammoth multi-part Google post and WeWork ties in nicely with the overall theme.
(To be clear, I have no opinion on WeWork as an investment - and I have zero knowledge of real estate - but I saw this thread and thought I could add value)
My partner Bruce Dunlevie once asked "what could go right?" This is the defining attitude needed in VC investing. When they work .... Wow. - Bill Gurley
WeWork certainly seems bubbly (or even fraudulent):
The CEO is making millions renting property to his own company, the primary backer has the dubious distinction of losing the most money in history - in the last tech bubble no less - and we’re overdue for a recession that would hit CRE particularly hard.
@Addinator" pointed out WeWork’s use of “community adjusted EBITDA,” which made me chuckle - what’s a good multiple on “consciousness adjusted EBITDA?”- and it is cause for concern...*
But it’s not all bad.
Revenue growth is up and to the right, WW has successfully embraced the enterprise, bringing on blue chip clients including Microsoft, IBM, and Amazon, and Adam Neumann’s access to capital appears limitless.
Let’s also not forget that EBITDA is not a Generally Accepted Accounting Principle - the term was popularized by a genius (John Malone) who wanted to maximize leverage and minimize net income to fund acquisitions in the fast growing cable industry using pre tax cash flow.
What if we’re at an inflection point in real estate?
The shit’s chess it ain’t checkers! - Denzel Washington, Training Day
WeWork is well positioned to exploit a (literal) land grab situation, using their rent arbitrage model as a trojan horse, analogous to what Amazon did with books to takeover e-commerce.
Interestingly, many lenders are already overexposed to WeWork - apparently WW is the largest corporate office occupier in NYC? - what if, through savvy financial maneuvering - and Neumann has access to some extremely sophisticated financiers through Softbank - WW manages to become the only game in town?
Leases are currently structured individually through special purpose vehicles, preventing any one bad loan from bringing down the house, and who knows what goes on behind the scenes.
Expansion to adjacent sectors is already underway, with co-living, a gym, and even a school appearing under the newly rebranded “The We Company” (awful, awful name) umbrella.
For people who don’t like WeWork as a product, they now offer WeWaaS (WeWork-as-a-Service :) ), providing commercial remodeling services (a $1tt industry? Huh?) and “space management” software to the enterprise.
Still, none of this is “innovation” per se, so why would anyone be excited?
Situational Awareness
Invention is a lot like surfing; you have to catch the wave at the right time - Ray Kurzweil
The Internet of Things (IoT) revolution never really took hold, did it?
I don’t know about you, but I’m still waiting for my smart-salt-shaker to ping Amazon when it’s running low, and for the autonomous delivery drone to show up jusssssst before I notice it needs a refill.
A version of this is on the way I’m told, it’s just that the “cost per computation” has been prohibitively high, and early investors had the timing all wrong.
WeWork seems to think the time is now.
And, IMHO anyways, WeWork is taking the right approach, giving users a platform to behave how they want, and letting the system learn with each interaction.
Acquisitions like Euclid - I know people in this space - underscore their commitment to this strategy.
Taken in the context of an information services play, a bet on WeWork is a bet that they can:
1. Get to x scale without going bankrupt, where x provides the necessary data (the timing) 2. They can capture that data (the technology) 3. Monetize that data (the economics)
Assuming they can pull it off, maybe they prove that people in WeWork offices are x% more productive, and therefore charge y% more per square foot.
Maybe they become the ultimate AI-powered interior designer, optimizing space across the enterprise globally.
Still, a LOT that has to go right, what about downside protection?
SoftBanking on the Future
WeWork’s shenanigans might not play in the public markets, but Masa Son and Co. appear ready, willing, and able to extend private market runway indefinitely.
Softbank has become something of a “Berkshire for startups,” providing access to liquidity while still allowing founders to operate (mostly) independently.
So if you don’t like WeWork on its own, what are your thoughts on it as one piece of a larger real estate puzzle:
Source
Perhaps knowledge gained from WeWork helps inform better building design at Katerra…
Which makes WeWork spaces more attractive…
Which makes property more valuable on OpenDoor...
Which makes it easier to get mortgage loans through SOFI...
Which makes property easier to sell through Compass…
Which drives demand for Katerra’s construction software...
and round and round we go...
What Else?
How about an AirBnB + WeWork merger?
AirBnB on its own will never have access to spatial intelligence, and Benchmark is a significant stakeholder in both...
Or is there no hope whatsoever?
Is The We Company (shudder) just a giant ponzi scheme?
Is Adam Neumann a huckster?
Is Masa Son just another false prophet?
What do you guys/gals think?
Cheers,
CC
prob not going to read your post cause I dont care but awesome picture of peter thiel, thanks for including that
WeWork has expanded rapidly in part due to favorable lease terms including years of free rent. Much of this free rent is set to burn-off over the next few years, substantially increasing total lease payments.
What is WeWork's economic moat? Are there any barriers to entry in the space? How is their offering unique?
How will WeWork obtain credit going into the future with a non-existent tangible asset base? They are supposedly trying to form an acquisition vehicle, but timing of this is terrible considering current valuations and the credit cycle...
+1 and to piggy back on number 1, they are getting these favorable lease terms because they are (generally) winding up in crappy older buildings which are desperate to fill space.
Can't imagine there is any public information on it, but I'd be more curious how many of these leases are guaranteed by the parent entity vs. the local SPE.
Interesting concept regarding potential synergies in softbanks portfolio companies, but I just don't see it:
Am a firm believer that anything can be a good investment for a price, but I just don't see what synergies there are to justify the prices softbank is paying for these business. That being said, I am eager to hear counter arguments
other users in CRE are more astute than I am on the shortcomings with wework as a real estate investment, I worry about the CEO's behavior. he's treating softbank's money as a way for him to acquire toys. he's a surf bro (as am I), but he also has a fiduciary duty to shareholders. buying a wavepool, maybe that's a CRE play. buying a turmeric coffee company just so you can look at Laird's wife...what? buying a $60mm brand new jet and taking it to hawaii on a personal surf trip? dude, you'd get proxy raped if wework was public.
regardless of the business model shortcomings, this is not the kind of person I'd want running a company. as much as I talk shit about elon musk, the man slept in the factory and put in 80-100 hour weeks. this bro just uses the company coffers as his personal slush fund, despicable
We need more surf bros calling out other surf bros. Thank you for the lesson in facts, thebrofessor. LOL.
I will call out surf bros all day long, since I'm not good it's one of the most fun parts about competitive surfing
hey kelly slater - shut the fuck up and just do cutbacks
hey dane - you're not too cool for the tour, you just suck at variable conditions and are out of shape (don't hate me, I love your videos)
hey mick - I love you
hey brazilians - chill tf out, you ask us to respect your culture, tone it down a bit
hey hawaiians - we get it, you invented surfing, stop preaching aloha spirit when you get into fistfights because someone almost dropped in on you at 3 ft windswell
....more on hawaiians - don't complain about people coming to the island 24/7 and then plead for help when shit hits the fan. you can't be a NIMBY and then want help when it's convenient, balance is key.
hey girls on tour - don't complain about being sexualized in a sport where you choose to wear a thong when the water's warm, they make girl boardshorts
hey WSL judges - stop smoking crack
I'm somewhat skeptical.
Commercial office space-- or residential space-- doesn't benefit from the same economies of scale as a Lyft or AirBNB. Yes, WeWork is a brand name, but when someone switches office spaces or even starts a business, they typically have the time and energy to invest in switching and investigation costs that they don't have for a cab ride or place to stay.
I can see WeWork becoming the Chipotle of commercial real estate, but I don't see them becoming the Lyft or Ebay. Maybe I'm missing something about subleasing from a WeWork vs a Regus-- maybe there is some sort of curation and networking effect among startups that I don't see coming from a big firm. But I don't see WeWork's advantages being so huge that they bring the industry beyond monopolistic competition.
They're a well-run firm with a lot of natural competitors and they don't benefit from network effects. That might change if they turn into a sort of weird tech incubator/ curator of tech startups.
I could see a model where WeWork begins hosting tech startups and they up the pay for facilities managers by about $30K/year to try and get some guys and girls with a thoughtful eye for VC rather than just an eye for hiring electrical contractors. You start curating which startups sit next to each other and try to get some positive interaction between the two. Eventually, you turn WeWork into this validating brand name, you make getting into WeWork a little bit more like getting into an NYC co-op than buying a condo, and you go from being a commercial space subleasing firm to something that looks a bit more like a startup incubator.
So the question here sort of is, how do you turn Chipotle into an exclusive social club with a dining room? If you can pull that off, you can charge 50-100% more than the competition and still be turning away business.