WeWork?

Is it just me or is this firm moving and at a rapid pace which in my opinion may not end well..they are only 7 years running and in that time they have went from their core business of office coworking, to building a fund, elementary school and now are possibly going into retail and hospitality? The latter all within the past like two years..

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Comments (56)

Nov 22, 2017

Not sure what's driving your analysis that it may not "end well". Maybe from RE bubble standpoint, which I know little about that market. But, I would suggest the industry is going up right now. Recently, WeWork led a series B in $32MM financing to help a similar startup and competitor, The Wing, expand with more locations. They desperately need it, seems like because they have thousands on a waiting list, with 1500 members already, and they're willing to pay up to $3K a year. The consumer demand is there for more locations, so right now all signs are pretty positive for WeWork.

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Nov 29, 2017
iBankedUp:

Not sure what's driving your analysis that it may not "end well". Maybe from RE bubble standpoint, which I know little about that market. But, I would suggest the industry is going up right now. Recently, WeWork led a series B in $32MM financing to help a similar startup and competitor, The Wing, expand with more locations. They desperately need it, seems like because they have thousands on a waiting list, with 1500 members already, and they're willing to pay up to $3K a year. The consumer demand is there for more locations, so right now all signs are pretty positive for WeWork.

It's a massively saturated market. In Denver there is a co-working space more or less on every other block. I can think of at least 6 brands which all have multiple locations.

The new verticals they are chasing seem to be a reach from their core model, and fundamentally, they are a real estate company that is valued like a tech company. Their model is way too capital intensive and not scalable enough to replicate long term tech company margins.

Nov 22, 2017

great article from about a month ago in WSJ about this

https://www.wsj.com/articles/wework-a-20-billion-s...
if this IPOs, Imma short it

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Nov 22, 2017

They are effectively a cooler version of Regus, never been sure why they are valued with a tech-like multiple. Easy short for me.

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Jan 9, 2019

Made the mistake of not shorting Snap, not going to do the same mistake twice... short WeWork when they go public does seem the way to go

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Nov 22, 2017

I agree that I have no idea what they are doing. Seems like they are rapidly expanding into only tangentially connected fields. Their corporate business model makes no sense to me. I have zero idea if that will end well or not, but it seems to me that their focus should be on perfecting the shared office space model since the model is barely profitable; however, this may be why they are expanding into seemingly other industries because their investors realize that shared office space has limited upside potential.

Best Response
Nov 27, 2017

All one has to do is look at what happened to regus. During the tech boom in the late 90's/early 2000's, they were trading at upwards of $350ish/share in late 2000. By Q4 2001, they were down to $20/share. Why would wework be any different during a downturn? Do people really think that because they have "cooler" buildouts that they are better positioned? I'd also be pissed if i was an investor and they went and put money into wavepools simply because the CEO is an avid surfer. Its bananas.

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Nov 27, 2017

Agreed.

Nov 22, 2017

Even better, their lease guarantor is shit credit and their TI packages are $80+

Nov 22, 2017
larry david:

Even better, their lease guarantor is shit credit and their TI packages are $80+

the perception of wework in the capital markets is poor to say the least. A prudent investor does not get caught up in the wework cachet....

Jan 11, 2019
ThatGuyBalls:
larry david:

Even better, their lease guarantor is shit credit and their TI packages are $80+

the perception of wework in the capital markets is poor to say the least. A prudent investor does not get caught up in the wework cachet....

If you've ever been involved with a lease negotiation with these guys, you'll most certainly have a negative perception. From top to bottom, they demand the world while offering little back to landlords. Astoundingly arrogant about the whole process as well. Very back and forth about the long-term effectiveness of their business model AND its impact on landlords/tenants/investors (read: a lot of people) in a downturn.

Nov 22, 2017

Try $100+

Nov 22, 2017

Yikes. What market are we talking? NY/SF?

Nov 28, 2017

Austin

Nov 29, 2017

That's absurd.

Nov 22, 2017

And now they are venturing into the wave pool business: https://www.wsj.com/articles/wework-takes-a-dip-in...
Their $2k/ft valuation is insane. I don't know much about this company but it seems like the majority of their tenant base are start ups (read: no credit) on short term leases. I think they get hit hard once a downturn hits and many of these tenants either stop paying rent or vacate.

Nov 22, 2017

So WeWork is basically a glorified venture capital fund. It has raised more money than it knows what to do with so it's--investing in start-ups...?

I mean, if I want to participate in venture capital investing, I've got to figure that there are better avenues than investing in WeWork.

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Nov 23, 2017

Fifth Wall for Real Estate VC.

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Nov 28, 2017

Not sure i understand the meaning behind your comment. Please expand...

Nov 29, 2017

Fifth Wall is a Real Estate Tech VC Fund. Currently has ~$200+ MM in AUM.

Fund is backed by some of the larger players in CRE: Equity Residential, Lennar, CBRE, etc.

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Nov 27, 2017

Anecdotally, if you've been in any of the buildings they occupy, it's a little spooky. There are fairly substantial blocks of space that are not filled.

From a more technical perspective, I just don't feel good about buying buildings with these guys in it, because this is the type of thing to go first in a down economy - boutique, collaborative office space where the often 'tiny' subletting tenants could probably operate just as well from home. Secondly, there have been a few articles I've read where larger companies are now shaking the 'work remotely' concept and are now trying to consolidate/bring people back into offices for productivity. If that's the case, this business plan won't hold up since no company is going to want to lease a ton of space from them at one time when they could just go to the landlord direct for much lower rent. But there are definitely some contrarian firms that are buying these properties up like crazy.

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Nov 29, 2017

I've spoken with a guy within global corporate services and he's indicated that for a lot of companies, renting from WeWork is significantly cheaper on a cost per head basis. Furthermore, from what I understand companies technically aren't leasing the space but rather signing a license agreement classified as an operating expense thus enabling them to keep their "lease" off the balance sheet.

Nov 30, 2017

Right, but is he talking about a company renting a block of space for 'hoteling'/traveling employees, or for static office space? I could see it being a saving in the former case, but would have a tough time thinking it's cost saving in the latter scenario.

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Nov 28, 2017

Series G funding from this Summer implies a $20B mkt cap, roughly $133k per member. FFO/member of approx 3k per annum suggests a 2.25% capitalization.

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Nov 29, 2017

The entire tech culture is nauseating. I hope the whole thing crashes.

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Nov 29, 2017

World Burn

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Nov 29, 2017

I just want shareholders that are indifferent to earnings, is that so much to ask for?

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Nov 29, 2017

Should cycle hard.

As others have alluded to, their customers are not creditworthy, and at some point, someone will realize that the Millennial "entrepreneurs" that occupy these spaces are really just "unemployed." The kid that is fresh out of college and has "influencer and entrepreneur" as his LinkedIn job probably isn't the best tenant to have through a cycle.

Add on the arrogant comments from the CEO and the expansion into irrelevant businesses such as the wave pool company, and I think WeWork will come to reveal the same cultural rot that seems to characterize many of the other Silicon Valley enterprises that have had meteoric rises to fame.

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Jan 8, 2019

Agreed, but even calling their tenants "not creditworthy" is overly favorable to WeWork in a sense. A bad credit tenant is a risk to default on a normal lease, but WeWork's lease durations are so short that most of their tenants won't even need to default. They'll just bail.

The "influencer and entrepreneur" types will be gone in a downturn, but a lot of the more serious startup companies will leave as well. They'll lay off a few people and scrape by with some combination of remote workers and a reduced real estate footprint.

Jan 8, 2019

Big enterprises (companies with more than 1,000 people, these include Amazon, Google, Microsoft, Salesforce, etc ) make up close to 30 percent of their membership, it is up from 17% last year.

Jan 10, 2019
BeaconStreet:

The "influencer and entrepreneur" types will be gone in a downturn, but a lot of the more serious startup companies will leave as well. They'll lay off a few people and scrape by with some combination of remote workers and a reduced real estate footprint.

This has always been one of the things that confuses me about their model. Every company that successfully incubates in their space will eventually leave, because if you have 10 employees instead of 3 people tinkering with an idea, it makes more sense to have your own space. So even in the best case scenarios, WeWork is likely to drive out most of it's "most-creditworthy" tenants and replace them with unknowns.

Plus, landlords give WeWork a ton of free rent and concessions in order to fill up otherwise un-leasable space; I'm not nearly the first to notice or point this out, but what happens when those run out?

Jan 10, 2019

I mentioned this in another comment. Big enterprises (companies with more than 1,000 people, these include Amazon, Google, Microsoft, Salesforce, etc ) make up close to 30 percent of their membership, it is up from 17% last year. Corporate demand for flex space is only rising. Fortune 500 companies are increasingly leasing space from We work or are hiring WeWork to come to their locations and essentially make it "hip" and we work like. So, gone are the days where We work is leasing space to wannabe entrepreneurs. Also, a building entirely leased by WeWork was securitized- 315 W 36th and Fitch treated the building very well, no significant haircuts. Shows rising confidence in the company.

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Jan 10, 2019
Brody92:

I mentioned this in another comment. Big enterprises (companies with more than 1,000 people, these include Amazon, Google, Microsoft, Salesforce, etc ) make up close to 30 percent of their membership, it is up from 17% last year.

And what happens when those companies realize that it's cheaper to lease and manage that flex space themselves? If "flex space" as a concept is becoming more and more mainstream, it means that larger proportions of companies will be utilizing it. Which means it will be increasingly economic for traditional F500 companies to eschew the traditional HQ-and-branch model and open a bunch of flex spaces under their own aegis.

hiring WeWork to come to their locations and essentially make it "hip" and we work like.

I mean, this seems like a sustainable business model, but essentially as a consultant, which wouldn't come close to justifying their current valuation.

So, gone are the days where We work is leasing space to wannabe entrepreneurs.

I understand your point, but... it's still 70% entrepreneurs. That's an overwhelmingly massive percentage.

Also, a building entirely leased by WeWork was securitized- 315 W 36th and Fitch treated the building very well, no significant haircuts. Shows rising confidence in the company.

Fine. That's one building. And not a typical one, either, because WeWork is far more often a smaller amount of space in a larger building where they don't have the same leverage against their landlord. When you're 5-10% of an office building you don't have a ton of buying power on lease terms and concessions. When you're 100%, it's a different story.

Jan 10, 2019

When you say 70% entrepreneurs, whom do you have in mind? A one man shop with a "Hey guys, I have built an app its an uber for dogwalkers!" guy? That was Regus in the 1990's. For we work, its more of a VC backed mid size startups or small companies (accountants, architects, advertising/marketing companies etc). Its no different from your small multi tenant office building where you have a ton of small law firms, cpa's, architect's etc. There is of course risk during a downtown for a small multi tenant office product too, but in my opinion We work is essentially betting on minimizing the damage by having a Fortune 500 base to fall back on . On your point about F500 companies opening up flex spaces on their own, they could, they could also all own their spaces, why do they rent and why do middlemen exist in any industry? Wework is a middleman that is attempting to add value and justify their fees essentially. And if you think Fitch stresses vacancy all the time for quality of tenants, isn't is rational to expect a stress to vacancy or cash flows to a building that is fully occupied by WeWork that has supposedly shit credit.

Jan 10, 2019
Brody92:

When you say 70% entrepreneurs, whom do you have in mind? A one man shop with a "Hey guys, I have built an app its an uber for dogwalkers!" guy? That was Regus in the 1990's. For we work, its more of a VC backed mid size startups or small companies (accountants, architects, advertising/marketing companies etc). Its no different from your small multi tenant office building where you have a ton of small law firms, cpa's, architect's etc. There is of course risk during a downtown for a small multi tenant office product too, but in my opinion We work is essentially betting on minimizing the damage by having a Fortune 500 base to fall back on . On your point about F500 companies opening up flex spaces on their own, they could, they could also all own their spaces, why do they rent and why do middlemen exist in any industry? Wework is a middleman that is attempting to add value and justify their fees essentially. And if you think Fitch stresses vacancy all the time for quality of tenants, isn't is rational to expect a stress to vacancy or cash flows to a building that is fully occupied by WeWork that has supposedly shit credit.

When I think entrepreneur I think of the kind of folks I generally see in WeWork offices. Ignore the people alone on their laptop, I'm thinking the 2-5 people who need a collaborative workspace (e.g. not their living room) to work out the kinks in a business idea they're involved with. I don't read/write/otherwise analyze the credit reports on WeWork, nor do I have anything more than anecdotal evidence or hearsay. I don't think I'm an expert. Maybe in non-NYC markets its vastly different.

And for what it's worth, tons of F500 DO own their own space, or at least are single-lease tenants. For the same exact reason that those companies have their own campuses and HQs and whatever, they'll be incentivized (is that really not a word?) to lease and operate their own "flex space" as that paradigm takes over the office market. Middlemen exist, they're called property managers, and I get why companies don't want to deal with that kind of nonsense that isn't their core business. But WeWork is another level of middleman, and I can easily see that being excised - WeWork doesn't actually offer anything to a large company in the mid-term, as the only reason to use them is because they provide small-scale flex space. As larger companies transition to that model, they'll need more space and it'll become more economical to do it themselves, the same as it was for (to use a random example I drive by occasionally) Pepsi to build their Westchester campus.

That's my two cents.

Nov 30, 2017

For those that buy into the whole wework situation, they're hiring an acquistions associate in NY.

Nov 30, 2017
brosephstalin:

For those that buy into the whole wework situation, they're hiring an acquistions associate in NY.

Thing is, I buy into the whole principle of space sharing, but I don't think I would stake my career on it.

Nov 30, 2017

Their Real Estate Analyst position in NYC is like a revolving door or they are just hiring at an insane capacity for additional roles.

I see the position like every month posted.

Nov 30, 2017

Kind of ironic, no?

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Jan 2, 2018

Does anyone have any insight into their acquisitions role? From what I understand it seems to be a leasing expansion role to grow their footprint, not actually acquiring property.

Jan 2, 2018

They have been acquiring property as of late such as the Lord&Taylor building with PE shop Rhone... but they usually lease their space.

Does any broker know what their lease rates typically are and the structure? Landlords were hesitant a few years back leasing to WeWork since they weren't so established. Wondering if things have changed since they are so prevalent now.

Jan 2, 2018

Also interested in this. Anyone have insight on the actual duties of their RE Analyst role?

Jan 2, 2018

In case anyone missed it Brookfield may make a bid for IWG

Jan 8, 2019
Jan 8, 2019

If anybody does not have access to WSJ, you can just type outline.com before the link and you can read it for free.

Jan 8, 2019
Jan 8, 2019

I'm just amazed mayayoshi son still has any money left. people forget he lost $70billion in the tech bubble burst. what makes you think he'll be smarter this time around?

https://arstechnica.com/information-technology/201...

Jan 8, 2019

Seems like WeWork just doesn't know who it is or what direction it's going anymore...From someone in CRE who used to fear them my worries are waning as developers adjust.

From Matt Levine this morning:

https://www.bloomberg.com/opinion/articles/2019-01...

Jan 8, 2019

Easy to see how this happened when you have a company boasting multiples off its "community adjusted ebitda"

Jan 9, 2019

It's very rare to see LPs (Saudi Arabia and Abu Dhabi) tell the GP (SoftBank) no especially when the GP has such a high conviction about this investment. The tech bubble is beginning to deflate... let the fun commence.

SoftBank has invested ~$10 billion into WeWork (combination of Vision Fund and balance sheet), but needless to say, if I was an investor I'd be scratching my head as this might be the Fund's largest position.

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

Jan 9, 2019

I said maybe a year ago on this site that WeWork's business model makes no sense. It is just a glorified PE or hedge fund or VC fund at this point that invests in all different types of businesses.

Jan 9, 2019

Uber and Lyft will be the next to fall... Uber is losing billions a QUARTER. Let them keep selling you on their "story" though..

Jan 9, 2019

they better hope Waymo is wrong then, they're only profitable if they don't need to pay drivers haha

https://www.cnet.com/news/alphabet-google-waymo-ce...

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Jan 9, 2019
Jan 10, 2019
Jan 10, 2019