CBRE Launches Coworking Management Platform - Goodnight WeWork

"The new business, called Hana, will not lease space directly, but will work with property owners and will design, build and operate flexible office space for them. It will make money through revenue and profit-sharing agreements with landlords."
https://www.bisnow.com/national/news/office/cbre-t...

Pretty sure at this point that everyone saw this coming. WeWork brings nothing to the table, besides brand recognition, that a landlord could not create on their own with the right management platform. Their business model is reliant on landlord's willingness to lease them space, and when you can just hire Hana (CBRE) why would you lease to any coworking company? Not only that, but WeWork has literally zero credit. Smart owners are VERY concerned about overexposure to WeWork. Not only that, but CBRE is entrenched into the world of commercial real estate. I would not be surprised at all if CBRE bundles this service into their management agreements. I fully expect that CBRE is about to choke WeWork out of the market.

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Comments (47)

Nov 14, 2018

CBRE market cap 14.6B
WeWork valuation 20B

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Nov 14, 2018

CBRE - net income $700M, revenue $14.21BN
WeWork - net loss $933M, revenue $886M

Besides the fact that WeWork's valuation is completely insane, I don't believe that the success of a company is determined by it's implied valuation.

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Nov 15, 2018

Will be interesting to see how this plays out. Softbank just committed another $3B yesterday, valuing WeWork at $45B.

https://www.wsj.com/articles/softbank-boosts-wewor...

Nov 15, 2018
Edifice:

Will be interesting to see how this plays out. Softbank just committed another $3B yesterday, valuing WeWork at $45B.

https://www.wsj.com/articles/softbank-boosts-wewor...

I predict that's SoftBank vision find will have horrible returns within a few years. Uber is trash (from a down-to-earth investors POV), WeWork is trash... they're just throwing money around at insane valuations because they have the money to do so

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Nov 15, 2018

Crazy to think WeWork has a larger market cap than CBRE, JLL, CushWake, Colliers, Newmark and Regus combined...

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Nov 15, 2018
Trunk Yeti:

Pretty sure at this point that everyone saw this coming. WeWork brings nothing to the table, besides brand recognition, that a landlord could not create on their own with the right management platform.

I'm generally skeptical of WeWork too, but that's a bit unfair. WeWork provides space, furniture, flexibility, connectivity, etc. explicitly so that the landlord and tenants don't have to deal with that. "The right management platform" is a bit like a perfect 10 girl who is down with watching sports and playing video games and likes all of the same things you do and comes from a billionaire father who becomes your best friend and plans to give you the keys to the business when he retires. I'm sure that's out there somewhere, but it's a bit of a unicorn. There's a reason why WeWork has been successful and why it is growing rapidly. It's a bit more than just renting a single office

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Nov 15, 2018

Just curious on your thoughts. Do you think the company is overvalued to hell? I feel like that goes to say, especially because Softbank and all these PE guys are there to make a quick buck through potential IPO, so they have incentive to pump the price a little bit.

I am also a little skeptical on how WeWork can perform in a down market as it has no other real business model to fall back on. If the big brokerages start coming into WeWork and other coworking spaces market, they have a lot more services to offer and I just don't see WeWork being able to compete with that.

With all that said, the big PE guys have to see something special here that most of us others can't see if they keep throwing massive amounts of money at it.

Nov 15, 2018

I'm not the guy to ask about that. I just know that from a tenant perspective it makes a lot of sense and if I was a hip young entrepreneur, WeWork sounds a lot cooler to me than CBRE

Nov 15, 2018

I am of the opinion that WeWork is overvalued. So much so that we've had the opportunity to buy multiple buildings where they are the primary tenant and we bow out because we can't get our investment committee or investors comfortable with them as a tenant.

But that's just our opinion, not really any data points behind it other than we don't think the business model is viable long-term.

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Nov 15, 2018

You're not wrong. They are straddling TWO bubbles: tech and commercial RE.

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Nov 15, 2018

I'd probably be fine with them as like +/- 20% of the rent roll, but the problem is they usually take up such massive amounts of space in the buildings they occupy that there's just so much exposure risk in any one deal.

Nov 15, 2018

We think similarly. We start to get very concerned if WeWork represents 20%+ of revenue.

Nov 15, 2018

That one building in Miami that was fully leased to We Work has been making the rounds for atleast a year now and they are not able to get it financed. Not a good sign and shows that lenders have a poor opinion on We Work.

Nov 14, 2018

I interned for a top 15 REPE this Summer that had several buildings with WeWork exposure. They noticed that they start taking a big capital markets hit when the property has greater than 30% exposure to WeWork.

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Nov 15, 2018

^This

Nov 15, 2018

There is also a very limited track record for us to look at. So, that naturally makes us nervous and we dont want to be the first one to finance a fully leased We Work building. As I am on the CMBS side, I scoured the market to see if there were any fully occupied We Work buildings securitized. I found only one- 315 W 36th near Penn station. While Fitch treated the building well and there were no significant haircuts, it was a building that had a 15-year vacancy of 1.7% even before We Work signed the lease and a submarket vacancy of less than 5%. If its not in a market like that, I dont know how any lender will get comfortable with a We Work building.

Nov 15, 2018

Yeah in that case they are underwriting the market/micro-economy, not the tenant/building/cash flow stability itself.

Nov 15, 2018

But Fitch will apply stresses to vacancy when you have a poorly rated tenant. Here there were no significant stresses, it was treated like any other single tenant building. Though, the market
and property's occupancy history definitely makes the property unique.

Nov 15, 2018

Yeah but what I'm saying is that the vacancy factor would be essentially nonexistent because you have a high likelihood that the space would be filled. Risk/stress modeling when applied to a vacant building in a 98.5% occupied market is much different than the same applied to a 80%-90% occupied market.

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Nov 14, 2018

It isn't just on financing. On sale the properties were getting dinged as well.

Nov 15, 2018

I think what he means though is that the financing risk is an indicator of the exit risk on the opportunity. For example, if you have lenders that are unwilling to underwrite favorably due to the tenancy, many groups will not be able to buy the asset down the road if their purchase has a financing contingency, thus less groups look at the asset when it comes time to sell, and your sale price is limited as the demand for the asset is limited, assuming the building is widely marketed.

Nov 16, 2018

This is true. Mortgage Bankers Association puts the sweet spot at about 40%:

  • When coworking space was within less than 40% of the building, 67% of the assets achieved values similar to peers without coworking space.
  • When compared against assets with coworking space greater than 40% of the total RSF, 64% of assets realized lower value than their coworking-free peers.
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Nov 16, 2018

Can you post the source?

Nov 16, 2018

Those stats are pulled from a CBRE presentation given by their sr. economic advisor. I can send you the deck if interested. Shoot me a PM.

Nov 15, 2018

Rating agencies are no longer rating WeWork's debt, which should be a major red flag to owners. Not surprised they are taking a hit upon disposition.

Funniest
Nov 15, 2018

If you lease all your space to WeWork...

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Nov 15, 2018

It's Regus valued with a tech multiple rather than a real estate multiple. Pretty silly.

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Nov 19, 2018

'the big private equity guys' lol... this is not rocket science; there is no edge to Wework supporting this valuation. If you dig deep into what they make available, there is not much substance. Anyone working in real estate, and especially anyone that knows the mechanics of office operations/sales should be able to identify the bs on their bs and supporting statements. No technology that creates any efficiency, no nothing. The big investors are probably recycling each other's capital at this point, and yes, the exit will be an IPO that is either a disaster, or fucks your parents' 401ks

Nov 19, 2018

probably pretty cool to work for though, at least for a few more years... anyone know what the comp/lifestyle is like on their acq/re team?

Nov 19, 2018

No, have heard from multiple people that they are a mess to work for.

Nov 15, 2018

They don't do acquisitions either. They are the tenants. Someone else can definitely do what they are doing and achieve better margins.

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Nov 15, 2018

WeWork has done well for itself, albeit only during the current up-cycle we are in. They haven't proven their staying power through a correction - look what happened to Regus - and they continue to lever-up. I am far more bullish on Hana. This concept was driven by CBRE's relationship with Institutional Owners asking them to deliver this service. The difference is that it is a Landlord initiative - not a tenant/sub-tenant scenario a la WeWork - whereby all of the benefits are aimed at the building tenants.

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Nov 15, 2018

What's the difference between Hana and Industrious in terms of business model?

Nov 15, 2018

In a downturn, I'm assuming CBRE can undercut WeWork on price which could kill WeWork. But I think success could still come down to branding. People will pay $200 for a $15 shirt if it has a certain designer label on it...

Nov 14, 2018

No one is safe in a downturn
CBRE stock was $2 in 2009 and worth less than a billion lol (a whole company worth less than Sky apartment in Manhattan, imagine that)

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Nov 15, 2018

Crazy statistic. 2009 wasn't your average downturn though.

Nov 15, 2018

WeWork is absolute insanity. They own nothing, have GIGANTIC long-term obligations that are fixed, but their revenues are month-to-month - they can go to zero in 30 days. This is picking up dimes in front of a steamroller. The analytics are valuable and worth something, but the idea that WeWork is a viable business long-term is nuts. Honestly the biggest thing it has going for it is that if it failed it'd cause a systemic issue in gateway office markets so you think that landlords won't let them totally default.

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Nov 15, 2018

Interesting point, would be curious what the vacancy rate in various urban cores would be if you assumed WeWork-leased space went dark... wonder if we're talking 25 bps or 5% (I have no idea).

Nov 15, 2018

According to their wikipedia page, WeWork manages about 10,000,000 SF of office space as of July 2017 in 471 locations that are in 90 cities for what that's worth.

Nov 15, 2018
Count_Chocula:

Interesting point, would be curious what the vacancy rate in various urban cores would be if you assumed WeWork-leased space went dark... wonder if we're talking 25 bps or 5% (I have no idea).

I've been told they're 3%+ in Atlanta. Don't have numbers to back it up though.

Nov 20, 2018
CRE:
Count_Chocula:

Interesting point, would be curious what the vacancy rate in various urban cores would be if you assumed WeWork-leased space went dark... wonder if we're talking 25 bps or 5% (I have no idea).

I've been told they're 3%+ in Atlanta. Don't have numbers to back it up though.

between 2-5% in most of the major markets

Nov 15, 2018

Im excited to see all these VC funds and their companies throwing ridiculous valuations around implode in the next recession. Even the seed stage monkeys I run into are overpaying ridiculously for stock.... The series B and on guys are even worse. VC returns are already shit for non top quartile but I think they'll bottom out even harder in the next 10 years.

Nov 14, 2018

Do you think you are better than Masayoshi Son?

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Nov 15, 2018

I think Warren Buffett is. :)

Nov 14, 2018
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Nov 15, 2018

Robert Clayton Dean: What is happening?
Brill: I blew up the building.
Robert Clayton Dean: Why?
Brill: Because you made a phone call.

Nov 19, 2018