Everything I've read about the founders of WeWork leaves me with the impression that they've gone to the Elizabeth Holmes School of Hubris. They believe that their approach to office space and use is God's gift to the human race, and that anyone who doesn't share that opinion is a loathsome luddite. I'm surprised the prospectus wasn't limited to just this:
We are WeWork!
We are the future!
You would be stupid to not invest.
Trust us.
What could possibly go wrong?
74
I worked from a WeWork location in Boston for almost two years and there's not much there there. I guess in cases where appearances are more important than substance, WeWork has some utility. Not enough to create long term value, though. It's helpful for entrepreneurs who obviously appreciate the dedicated address and the business services that come with membership. A lot of midsize companies with traditional leases in the 'burbs use it as an address in the city. It's also popular with "traditional" companies looking for a veneer of hipness even if nobody ever shows up to use it. We had some offshoot of GE on our floor and I think the space had someone in it once in the entire two years I was there.
The dedicated office spaces are loud, echo-y glass boxes. I could always hear neighboring office's conversations loud and clear, so if privacy was your thing, forget it.
People may think the decor is hip or whatever but it's obvious they just went the cheapest route possible in outfitting those buildings from the polished cement floors to the exposed pipe and beam ceilings. There's a bank or two of phone booths for privacy on every floor that tend to fill up by mid-morning and the meeting spaces are the same sort of loud, echo-y glass boxes rented out by the half hour.
There's not a whole lot of tech that I saw beyond your membership being tied to your access card, your copy machine and meeting room credits, and things like a WeWork social network you could interact on.
116
@EM
You said:
"People may think the decor is hip or whatever but it's obvious they just went the cheapest route possible in outfitting those buildings from the polished cement floors to the exposed pipe and beam ceilings. "
When I worked at a dot-com in 2000, they called "the polished cement floors to the exposed pipe and beam ceilings"...drum roll, please..."warehouse chic". I called it "modern unfinished basement".
Everything old is new again, I guess.
34
Dancing is very difficult sometimes. Even coming back from an injury. I can relate to that because earlier this dance season, I sprained my back. It sucked very bad, and was painful. Reading this has showed that no matter what obstacles come into your way, you just have to fight through it. That helps a lot, in any sport event. Sports can make your muscles feel pain, you feel tired, and can even be mentally challenging. To see her come back after an ankle, back, and hip injury is really impressive. It makes me feel like no matter what gets in my way, you just fight through it. She seems like a warrior to just want to get back to what she's doing even while not being able to walk for months. It shows a lot of pride, and determination she has for the sport of dance. Hopefully I never get re-injured but if I do, I hope I can be just as great as her.
I work in a WeWork in Sydney and I've been telling other people there about this crazy valuation problem for months (I didn't see it - another financial whiz WeWork member pointed it out to me). Most of the people who are WeWork members don't want to hear it - it's a "Koolaid Kompany" - or maybe we need to update that to Kombucha for this example.
That's what WeWork is counting on - the people who have bought into the model becoming advocates for it. More and more we seem to be living in a work where work is some kind of ideology, "I believe in WeWork", or something. So people sign up and then they don't want to listen to anything negative that might question their decision.
It might work. I work for a start up who buys space from WeWork and the pressure to adopt the company line is really cult-like, and totally absurd. It just seems to be the way of Millennial business dealings now - you aren't just going a job, you're working for a cause (it's just that you're too dumb to understand is that the cause is the bank balance of the guy who employs you).
It's obvious that the serious players see through the rubbish and if this IPO goes anywhere, it will be with people who want to believe more than they want to understand. I just think it's pretty obvious to anyone with a week's worth of bookkeeping training that a lease is an expense, not an asset, and all WeWork has is leases - hundreds of leases - and tens of thousands of month-to-month sub-leases. Fun to watch, at least.
42
Comparing WE to AWS is a bridge too far. AWS grew out of significant investment that AMZN made in its own platform that they could white label to companies as an alternative to blowing 20% of their raise on hardware and software they might never need. As the founder of a tech company in 1996, I would have killed for this option. As a director of a company in 2007, it was a godsend. Ironically, both companies were in Regus office space.
For WE to be remotely like AWS, it would have had to create the model by using its own space first, not throwing kombucha at the wall hoping the tech bros would stick; figuratively or literally given how short term the renters are. Of course, then it would just be a sublet. How would that have been worth $47 B? It would not be and still is not.
5
To answer the question posed in the title: No.
5
It’s instructive to look at the captains of these ships. None of the great ones — Gates, Jobs, Bezos, etc — were in it for short-term financial gain. They wanted to change the world, and yes, maybe rule a part of it. But a quick cash out? Never.
6
WeWork is NOT A TECH COMPANY.
Are journalists and investors so gullible as to believe that WW is anything other than a shell company renting office space to itinerant hipsters?
Any other real-estate holding company can do what they do, and others already do so. The bubble in their valuation shows only that Softbank are being played for suckers.
12
I cannot figure out what "sensors and machine learning" have to do with renting office space. Invocation of these fad phrases is itself a huge red flag. Do they plan to expand and contract real estate based on machine learning projections?!
12
WeWork is a bad bet for a very simple reason. If it’s successful. existing landlords will emerge to turn their properties into the same service. And that’s just for starters. You can’t patent the real estate market.
16
I have been intimately involved in commercial real estate office leasing transactions for more than 40 years. While I have not had the opportunity to examine WeWork's IPO prospectus, I am astounded at the chutzpah of the WeWork promoters for attempting to classify and sell to investors an office sub-leasing business model as high tech brilliance.
It appears WeWorks has entered into long-term lease obligations on millions of square feet of office space worth tens of billions of dollars with landlords across the globe, which they then hope to sublease to large and small sub-tenants at Silicon Valley profit margins. If one were to perform a sniff test on WeWork's business model, I would venture a guess that the aroma of the "executive suites" business model would immediately clog your sinuses. Other than offering high tech favored floor plans and amenities, WeWorks appears to be a low tech real estate office leasing venture worth perhaps a twelve times earnings multiple. "Been there, done that," a thousand times!
19
The point of a company (this week's CEO's epiphany notwithstanding) is to make money, and the stock price should reflect its earning potential. A negative earning potential should mean a negative stock price. Period. The rest is noise.
It's only worth something as long as there's another sucker out there willing to waste his money on a bad dream.
1
"above a $10 billion valuation is lying, stupid or both,” he wrote.
The current valuation, in fact, is more than four times that now, as We Co. seeks to raise $3.5 billion ..."
Can the writer explain how 3.5 is more than 4x10?
There's a raft of instances of jumbled jargon and unhelpful, too-clever wordplay in this column but I'm too tired from reading it to call them out.
10
Year after year, there's plenty of evidence that some allegedly very smart people aren't nearly as smart as they look -- notwithstanding their lionization in whatever hagiographic business media are currently fashionable.
Then, every decade or so, they do some things that make it utterly impossible to deny... for awhile, until we forget again.
3
WeWork has locked up so much desirable real estate around the world, I'm afraid that they'll succeed despite their questionable business practices and corporate communications. Neumann is one of the most obnoxious people in the business world, and it's a minor miracle that Mike Judge hasn't done a sent-up of him in HBO's "Silicon Valley." While a lot of people are drawing parallels between WeWork and the empty promises of companies associated with the dot-com bust, WeWork has something concrete and valuable that's as old as time: real estate with the value of location, location, location. Additionally, WeWork meets the needs of our gig-based, 1099 world that needs a physical place to work. A solitary computer programmer working in her bedroom is a worker who'll have a tough time building a meaningful network for professional development. There are compelling reasons why people pay significant sums of money to access WeWork. Maybe sometime soon, Neumann will leave the scene to enjoy his fortunes and WeWork will have to tweak its business plan, but the need for physical space for all the independent contractors and special projects will keep growing at an accelerated rate.
3
The whole concept of technology is that it's scalable at very low incremental cost and has strategic lock-in. Once Microsoft has written their operating system, the copies they sell are free. WeWork is real estate. They lease properties, make improvements, and subdivide the leases with enhanced services to the tenants. No technology in that.
6
Let's be honest, these "new economy" companies are being founded by people that are throwing ideas against the wall and seeing what sticks. More power to them if they can get investments. Certainly not all survive - remember Washio?
My problem is with the adults in the room who invest in these venturess. Essentially they are subsidizing WeWork's office space since WeWork doesn't actually turn a profit on their real estate versus rental rates. The real problem is if your 401k funds invest in companies like this. Then WeWork becomes YouPay with your retirement savings so Millennials can pretend to go to the office everyday.
8
Having had the miserable experience of working out of a WeWork facility in Atlanta, let me just say that it’s great if you want to spend $1500 a month for a tiny glass enclosed cube.
But wait, there’s more! The glass cubes do nothing to muffle noise. So you get to hear dozens of conversations which have nothing to do with your work.
It was a great day when my CEO said we’re done with WeWork. Now we have a real office with doors and walls for $1k a month.
22
Do you bring your Kombucha?
Or is it that your CEO pays?
…before you leave do you clean your workspace?
Who pays for internet , etc
.. Which lawyers revised the leasing contract?
Did you pay? Or it was a collection plate?
Or I get it your CEO paid for all the things above
…wake up that will be something of the past I mean renting
WeWork has a future and is bright!
@Bill Seng
This is nothing but a marketing scam disguised as a technology scam. Adding some new-age slogans to the old real estate business doesn't turn it into Amazon.
9
WeWork misses the vast improvements in tech - high-speed Internet and teleconferencing that make their model redundant.
Why commute to a WeWork when you can simply telecommute from home? For the kombucha? Give me a break.
There's a small requirement for day conference office space, but not on WeWork's scale. Sure, they have invented a better model than current office leases, but they are a whole cycle BEHIND the curve.
This IPO suggests that Adam Neumann knows this, and is trying to get his cash out before it's too late.
...and I wouldn't invest in speculative office developments or skyscrapers either, unless I was an oligarch with a sovereign fund that needs rinsing.
7
Hmmm? Very little barriers to competition. A business model that experienced bankruptcy in the last recession (Regus). No material increase to operating earnings as a percentage of revenues (about 18%) notwithstanding a doubling of those same revenues. Huge annual operating losses after deducting G&A. Long term fixed rate liabilities and short term variable income. Dual class stock voting rights. Innumerable affiliated transactions. What’s not to like in this 21st century investment opportunity?
9
Their business model isn't bad. They take down blocks of office space and sublet it to businesses needing more flexibility than a traditional lease affords.
It's not just open office space with pingpong tables. Their offerings include traditional closed offices, but you can lease month to month vs signing a 5 year commitment. If you are an entrepreneur hoping to grow- this is a great deal because you can expand when you need to. If you are a company working on a short term project you can ramp up space and ramp down just as rapidly when then project is done.
A lot of corporations also use co-working space for short term housing of workers.
It's really not a bad model. Also, it's interesting, but I've talked to other coworking managers and they found that in recession, they grew as that is when laid off people go out and try and consult, thus want some office space.
That said, it may be overvalued, and it's not really a tech company. It's just a new model for leasing commercial real estate that has a lot of flexibility.
19
@MC I would push back on your assessment by clarifying that the "offering" isn't bad since customers have access to property that would otherwise never be available or affordable to them. But in a business sense, the "model" IS bad because its about making money and WeWork's operating costs are almost equal to its revenues. AND, in its model, it promotes itself as a tech company when in fact it is a real estate company. Its model is seriously flawed.
26
@Matt
By offering, I mean the product they are selling is good. I don't know enough about their financials to state that their offering is good.
In my city, a lot of WeWork's customers could afford to lease the spaces WeWork is leasing, very handily, but don't need the space long term- they just want some flexibility. We do have local companies who have done this profitably and grown.
I agree that they aren't a tech company, they are basically a landlord like a Regus. I don't believe their general model is flawed, though their execution may be flawed (ie, they pay too much for the space), but other companies have pulled it off.
Like it or not, corporations are moving towards a more on demand workforce and the traditional model of owning space or having long term space may be a thing of the past sooner rather than later. If say, a bank needs to add 100 tech workers to get an 18 month project done, it's probably easier to lease space from a WeWork or a Regus than sign a 5 year lease, upfit the space, manage the space etc etc.
5
@MC What are the entry barriers for competitors to do the same thing as We Work? Especially ones that don't give big payouts to management before turning a real life profit?
Ultimately for Wework they won't turn a profit until they get pricing power based on supply and demand- and in Real Estate that changes every day.
8
WeWork is just another scam - a money-losing unicorn seeking to cash out before the bottom falls out of the economy. The founder cashed out long ago, but the early investors still need to get paid bigly. At least Uber and Lyft looked plausible on paper.
15
WeWork will go bust when the recession hits. Maybe before. So sip that kombucha while ye may...
3
If this isn't a short, nothing is.
No wonder the founder wants to cash out in the first two minutes of trading.
8
If enough people wear their superhero costumes to the Superhero Club does that mean they are superheros?
5
Just FYI: WeWork is based in NYC, and not Silicon Valley.
2
The reasons you think WeWork is dumb are the same reasons most people didn't join after a dull tour 4 years ago...guess what...lots of differently brained people really like it. It's like a country club. I've toured many country clubs- I was always unimpressed. Always seem like dumps. Guess what? So many people love the country club that most of DC works hard just to go to one of these nothing burger getaways.
4
Short short short. We Work enters long term leases then turns around and obtains very short term subleases. An economic down term will blow this thing up in a heartbeat.
1
“…exhibiting the kind of arrogant attitude that has too long been tolerated and encouraged in the tech world.”
Bullseye…
“Tech is not exceptional.” - a quote from another article here by the Times.
Until this myth of “the exceptionality of Tech” is openly, widely, and very publicly discussed, debated, and debunked by subject matter experts such as Ms. Swisher, Mr. Galloway, Mr. Wallace and others, the overall “obfuscation” will continue.
“If the underlying facts were positive, why would a company go to so much trouble to prevent you from understanding them?”
Another bullseye…
Congrats on a great piece, Ms. Swisher!
1
If you guys have this incessant need to work each other, you can come over and use my place, for God's sake. Or see if some church will let you use the rectory during the day or something. But why participate in Uber I.P.O. II?
6
@MARCSHANK
Hm, use church space. Wasn't there an article recently that said churches are trying to find ways to monetize their spaces during the week? Sounds like a win-win idea.
2
WeWork is as much of a tech company as the New York Times.
1
The magnitude of the numbers in this article make me ill.
2
I always laugh when a stock market analyst (CNBC is full of them) tries to convince you that a company with no discernible path to profitability is playing some sort of three-dimensional chess. Good that Ms. Swisher and others are questioning WeWork's IPO. The same scenario exists for Uber, Lyft, and others. I feel another tech bubble is about to burst.
13
There’s a WeWork location in downtown Vancouver. It’s in a nice enough building, although a few years back it was bought by new owners, who probably see WeWork in a their own pragmatic way: Tenant as a Service. Something that anyone renting space from WeWork might want to bear in mind.
Folks in the NYC start-up community have been sharing Adam Neumann oddball stories for years,. My favorite is how he had an assistant spoonfeed him lunch at the same time he was conducting a meeting with a potential partner. His rationale was that he was saving time.
Given this and other even more outlandish tales, the S-1 makes perfect sense.
6
AWS to computing and WeWork to space aren't the same thing - think of what do you need in these times to set up and run a business? One can get started fairly easy and fast WeWork or not i.e. set up a wi-fi, give employees the laptops, a place to sit and do their work - no WeWork! WeWork is nice to have, it surely will ease off some of this work. AWS on the other hand lowers the bar significantly to start a business in terms of computing hardware, software and resources to manage them - it's a huge thing! One can still go look out for office space on their own and get started setting up an office fairly quickly without WeWork. $1.8 billion revenues is nice but $1.6 billion loss isn't. One should carefully look at these valuations and the benefactors!
This is so far above my head. Who lives in this world? How does this relate to all the rest of us who have to work for a living?
1
Good column. The attractiveness of contract space is clear when relatively inflexible office leases are a major financial commitment to newer and smaller firms, but the premium price of the WeWork space is also clear. Established firms will not pay the premium for contract space like WeWork, so it must depend upon smaller firms for its tenants. Long term liabilities of leases incurred against uncertain occupancy, short term assets of prospective rental revenue are not an optimal business combination. That is all aside from the obvious self-dealing of the founder. The cool factor is not worth a penny, much less $46 billion for a money losing operation.
6
The business model is not new. Sub-leasing has been going on since there were first renters. What is the end game here, lease all of the buildings and drive up rents? When the market shakes out, and defaults occur, what recourse are landlords going to have....?
3
I can't believe the underwriters are supporting this valuation for this dreck, especially when the comps trade at a fraction of this. The roadshow for this issue will be a catastrophe.
Between that and the somewhat dicey nature of the markets at current time, I have to believe that this will be pulled from the market and WeWork will be allowed to continue to simply drain investor cash as it burns away.
2
I remember Webvan. I also remember investors who passed on Google and Amazon. Big plays like this always presume an inflection point in markets. You actually find out only in retrospect.
What sours WeWork for me is the stock structure and massive advance payouts. Facebook adopted a similar structure to give Zuckerberg absolute control, but the cash is unacceptable. Call me old fashioned, but this seems to be a tipping point of silicon valley greed.
101
Amazon AWS is scalable. Real estate on fixed leases is not. This generation of silicon valley was built on programming and the internet which is an inherently scalable platform. But they all really seem to struggle when dealing with the real world. Elon Musk seems to think that his cars are iPhones with over the air updates. But when you are actually building your own cars (as opposed to outsoucing that to Foxconn) making high quality cars consistently is really, really difficult. In all of his conference calls he is so dismissive of the auto industry that he will "disrupt." But now he is blowing his brand by making sloppy cars. Office space leasing is also a really difficult. Sensors and machine learning sounds great. But just wait for the next recession when you are eating all o those lease payments.
93
@rrobert
You nailed it, its a niche market with trendy but limited appeal. Think of we-work as just a way to subdivide the lease of office space down to the desk-per-day level.
There's no real innovation and no moat (as if there was any profits to protect.)
Profits can't be that much better than normal office leases, and the risk of market turn downs gets shifted to them. The transient,fail fast and trendy rootlessness, fits tech culture, but if a company succeeds and gets to scale they will move on and lease real office space.
Its definitely not a technology company, but like tech companies they want to break rules and do it their own way. An analogy to consider would be micro-finance banking, that road ain't paved with gold for the founders,.
8
I had an office at WeWork on Montague Street. For the first half a year, while it was brand new, it was great. Then they took their best staff away to open a new location in downtown Manhattan, and replaced them with ornery people who could care less, locked up the Kombucha a beer stations at 6pm, and filled the space with so many people that the carpets and furniture got filthy and the "phone booths' - with 20 minute maximums as a place for a private phone call -- became permanently occupied as offices by people who were paying just to use the lounge. WeLeft. This is not a company with an interest in keeping customers satisfied, it is a company very very interested in its own growth. And that is not a compelling business model for a service business. We quickly discovered there are plenty of other smaller workspace rental companies in NYC that do a much better job of providing a clean, focussed environment that supports you.
245
@notme can you name some of those other workspace rental companies? interested in finding alts to WW
5
@notme
How it works: get an idea for a business, but slowly building it with quality and staying involved is for suckers. You want explosive growth at all costs, followed up by a few insiders cashing out, then the whole thing can fall to pieces because the greater fool theory has prevailed again.
25
@newyorker we ended up at the bond collective in gowanis. although not perfect, it worked really well for us and proved to be a much stabler environment. and truly a 24/7 operation. i recommend.
5
I find it hard to understand why people would pay to sit at a desk when they could easily work from home. In the event of a recession, WeWork will end. You can make kombucha at home too.
189
@Suzanne Wheat-not everyone has the discipline to work at home. Too many closets to clean! "Going to work" or "going to the office" has meaning that "going to the other room" doesn't. Maybe people can be trained to accept working at home and thereby be as productive as they are in an office, but not everyone can. Also, working at home is not free; it's yet another way that your job reduces your pay: when you work at home, YOU pay for your air conditioning, YOU pay for your computer/electricity, etc.
And nobody ever did their best work in their pajamas. Getting dressed to go to the office is psychologically useful.
50
I agree that not everyone can work from home. Some people live in glorified rabbit hutches where there's no room to set up an ergonomic workspace. Others may have noisy roommates or children who make working from home more difficult.
In my job, I am able to work from home. I do so, but only occasionally (e.g. to wait for a delivery or the plumber.) Every year, people encourage me to work from home for the week between Christmas and New Year when the office is pretty much dead. I refuse, because I would rather our employer pay for heating than pay for it myself.
22
@Ellen Tabor Are there studies that show the psychological utility of getting dressed and going into an office? So far the reports seem mixed, supporting whatever bias we already happen to be nursing.
It is nice to be able to lean over and ask a colleague for help, or to share some gossip. Can't set up a webex to gripe about the boss!
But your analysis of expenses is way off. Anyone with pets has to heat/cool their home while at work, and the price of gas for those who drive, or transit for those that have reliable access to it, as well as the time lost commuting are not trivial.
And then there is always the dreaded pyjama people, the mythical 'welfare queens' of the labor force. Karl Marx did his best work at home - in his PJs - think about it.
But if you are not this kind of Marxist, simply make video mandatory for teleconferences. Otherwise, put another big entry for the financial and environmental cost of laundry/dry cleaning in the plus column for the work-at-home crowd.
37
Amazon wasn't a mega losing company before it IPO'd. It was earning profits but just investing back into its core business to build it. Anyone who says any of these modern companies who have absolutely no way to ever make a profit would meet that expectation is ludicrous.
2
Smoke and mirrors. Made it through the second paragraph, enough to know that regulating Tech is desperately needed.
9
There is nothing there in this company. It's hype and bad marketing preying to the gullible. Like most of these companies, the emperor has yet to reveal its clothes. The great reckoning is looming.
8
Comparing We to AWS is so dumb it's laughable. AWS started because Amazon had huge server farms for Amazon's business that due to redundancy and peak load requirements had massive amounts of excess capacity. Bezos - because he is a visionary - launched AWS to capitalize on this excess space. If the business didn't work, it didn't matter since Amazon already had the servers at scale and engineers that could manage the server business. This is a classic sunk cost, internal economy of scale, growth play. Now AWS is it's own, massively profitable business but it didn't start that way. This is not, by any stretch of the imagination, what We work is doing. And one more thing - We's use of space is not efficient and they are not "cramming employees into desk. All that common area space, conference room space, ping pong area space it not rented at the PPSF that We charges. The building loss factors are massive.
5
I don’t see any real barriers to entry in the office leasing space besides money.
9
@Elisa F
The only thing this company got right was the kombucha. I loves me some kombucha.
3
I still recall an article about this scam of a company and its cheerful signs posted near the kombucha, or the water cooler: "Don't work till you're tired, work till you're done."
They left out, "While the .01% takes the proceeds."
Junk stock has been around since the Erie Railroad was the "Scarlet Woman of Wall Street." But at least with the Erie, New York State got a railroad. I don't see how WeWork contributes anything of value.
7
WeWork's CEO is actually an avatar. All those "red flags" its got paying itself in the IPO are going to its account in a Bitcoin bank. Welcome to the future.
It's impossible to work at WeWork. The noise level is stupefying. Like working in a bar.
The business model is simply more $ per sf by cramming people together and distracting them with the Kombucha.
Many big companies are parking their consultants there—they know the game is for these guys to spend as little time there as possible because they actually get free space from customers.
WeMovedOut
15
Those of you checking Twitter and listening to Spotify while taking an Uber to your job at a Wework site, better have a backup plan.
13
When the real estate market turns, as it invariably does, WeWork’s revenue is going to dry up faster than you think. As Barry Sternlicht has said, “When these things go down they do not go from $16 to $14, they go to from $16 to $2. There is no elevator down, you hit the floor.” May I add, that they also don't have a model that is remotely as scaleable as Amazon. If their marketing is so good, landlord building owners will just do the same thing themselves.
They don't call it "Silly-Dot-CON" Valley for nothing.
16
You may also be the Uber of your Neiborghood , but still you will not be because you need so many requirements, you will not be profitable besides the neighbor will call Uber
WeWork sounds a lot like Bitcoin...
2
I work in a WeWork and it's awful. Conference rooms are unusable for conference calls due to terrible acoustics, phones are cheap (so bring your own), bathrooms are dirty, and everything, from the floors to the doors, is chintzy and flimsy.
27
I believe "goat rodeo" applies to most of the tech public offerings of recent history. Uber? Lyft? Goats all the way....
Where's the beef?
11
@Stephen Beard
At least you can sell your used goats if you run your goat rodeo into the ground...
2
Without the benefit of having read the prospectus, it seems the central premise of the We strategy is to make long term real estate commitments and lease them on a short term basis and profit on the market rate differential — turbo charging its acquisition efforts to capitalize on bigness. At a basic level, this violates one of the first laws of finance taught in business schools to match the duration of your assets and liabilities. While not doing so can and does produce spectacular results, when it goes wrong, it can do so both rapidly and catastrophically. Just ask Dick Fuld. Or as perfectly framed by a line from the movie, Top Gun: “That was some of the best flying I’ve ever seen — right up to the point where you got killed.”
4
“...Another key question is whether it is a “tech” play or not...
Kara, surely you jest...
It is the biggest tech play around – it is the Option ARM and tranched securitization play all bundled into one...
There, the odds that more than ten percent of that high-quality debt would go under...
Well, that had simply never ever happened with such gilt securities, in the history of Wall Street...
Here, looking through the other end of the binoculars...
At least ten percent of their current tenants – though we don’t know which ten percent – are going to go on to trillion dollar valuations...
Only a matter of time – and WeWork’s only challenge will be finding them enough space, and which one to sell out to, for $100B...
That’s the long and short of it...
The short, anyway...
PS
AOC – would think twice before shaking the chain-link fence around their construction sites and telling them to get out of NYC...
You have a way with these once and future centibillionaires...
They just might point at you as the reason they got out of Dodge...
That, and the elimination of the SALT deduction...
@W in the Middle
Really?
So far, only Amazon, Apple and Microsoft have made the trillion dollar valuation. I would not be very sure that any of WeWork's tenants will get there anytime soon, and if they do, they will not be a WeWork tenant at that point.
Should the economy take a downturn, which inevitably it will, their short term rental income will dry up, but their long term leasing costs will still be there. As someone has already pointed out, generally, your revenue and expenses should have matching maturities.
They are losing money, and have no clear path to profitability. The prospectus is an obfuscation...why would a company use three classes of stock and several LLC's to describe ownership, leaving control of the company with a person who can cash out immediately?
If you feel so strongly, then I suggest you put all of your assets into the stock as soon as it is issued. For my part, I would not touch this with a twenty nine and a half foot pole.
PS
The elimination of the SALT deduction...that was Trump and the Republicans. AOC had not been elected yet.
PPS
Neither the Republicans nor AOC have anything to do with this article, or the fact that this company is a house of cards. It is business fundamentals, not politics.
2
WeWork is a house of cards, and its CEO is Music Man, Wizard of Oz and Phantom of the Opera all in one - if he is even that clever.
Its value proposition to “members” is that it beats the solitary, staring-at-the-screen all day monotony most solo consultants and other practitioners dread. All this talk of WeWork lounge friends and bonding over kombucha and other treats is just that. I’m the most gregarious person in most rooms but at some point, as I learned quickly during my WeWork membership last year, WeWork members are in one of the following scenarios: 1) a solo office, doing your solo work and interacting mostly by devices with colleagues or clients you know (not at WeWork), maybe a nod or two to other WeWorkers on your way to bio breaks; 2) in a small company “suite” - a space no bigger than 150-sq feet, some of them very dark, tiny window, 6 people crammed in at small wooden desks, with the leader/boss watching everyone like a hawk; 3) in a newsroom-like set up, maybe a bright windowed room, but the cacophony is relentless even with the loudest music in your ears.
Definitely better to work at home, schedule some form of daily IRL interactions - lunch offsite, or coffee or supermarket runs, dress business casual so you’re not rolling out of bed and into work, and set very specific goals for human interaction as well as deep work.
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@Liz DiMarco Weinmann shared exactly my experience and observations
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@Liz DiMarco Weinmann
This is a marketing scam masquerading as a tech scam.
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@Markymark
It will be case-history fodder in b-school classes for a very long time - up and down the curriculum, from strategy to ops to marketing. WeFail How-To.
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We considered We Work for a new office space for a small software company but two things kept us away bigly: Sticker Shock and Security. Priced in a way and for small company we could rent a small office for the same price. As many of our team were network engineers, I can tell you there is no there there in terms of running your own stuff on a common infrastructure while maintaining any modicum of securely developing or handling customer data. We ended up going with another local co-worker site which was incredibly valuable for the price and they let us wire in our secure infrastructure to boot. Go local.
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@Michael
I would be turned off by a professional company like an engineering firm using a WeWorks address.
11
Nothing has to be viable anymore, you just have to convince people that it is. And there are plenty of people with more money (or greed) than sense.
13
When I travel I always use the most local, most idiosyncratic workspace I can find and wind up meeting artists and students and other people who make the trip a memorable one. It is cheaper and I lose nothing in the process since, for all practical purposes, I am simply my email address, anyway.
1
The workplace as shared space dedicated to collective purpose is one of the foundations of our culture and society. That we so willingly chuck it on the fire for another investment scheme is depressing, but predictable. Plant walls and barn board will not sustain us.
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This has to be the biggest bubble in NYC of the last 100 years.
It will burst, and when it does, watch out.
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If you are asking, "...what might be the equivalent of ‘server-less’ when it comes to office space," then you badly misunderstand what serverless architecture actually is. And that's why WeWork wants these tech comparisons – it helps drive the obfuscation.
Serverless is not "a unique capability that is uniquely unlocked by one company". Lambdas (the AWS product serverless backends use) are simply Amazon selling spare compute to users with short-lived demands who don't mind getting shuffled around. Anyone with a large and steady enough surplus of computing power can do this, and, sure enough, GCP and Azure both provide their own versions of Lambdas.
Maybe there is a unique real estate capability that can only be unlocked at some previously unseen scale. But pointing to serverless architecture does nothing to suggest this is the case. It is just a completely unrelated subject with no clear analogs in real estate.
WeWork is trying to cloak itself in the mythology of AWS and it's being helped along by writers and investors not familiar with the technical details getting distracted by buzz words. There is nothing in cloud computing relevant to real estate. If there were, then Google, Amazon and Microsoft would be selling office space. Weighing down the conversation by introducing highly technical, completely irrelevant subject matter is a key part of the obfuscation.
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@Matt dear Matt Thank you for the clarification in laymen's terms. Agree completely.
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@Matt
I should clarify, this is not a criticism of the article itself as it is obviously not participating in the AWS-ification of WeWork.
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Great column. In my opinion, reality bit the dust the moment the Street allowed Uber and Lyft to go public in spite of releasing documents that said they would NEVER be profitable. NEVER, EVER. At least WeWork might be profitable somewhere down the line.
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Excellent column. I admit that 40+ year of commercial and ag real estate analysis makes me an old fogey, but I always come back to the "greater fool" theory when I encounter a sales pitch like We Co. I have more confidence in Uber and Lyft and that is not saying much.
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I worked at a company recently that leased many floors in a large building in the financial district. They were renovating the floors one by one, and one of the floors under renovation wound up be being an interim graveyard for unused file cabinets. Technology made all the paper they held obsolete. Technology is already making the physical office obsolete. How can anyone consider the WeWork model sustainable?
I would sooner invest in a Starbucks model that builds out conference rooms for it's customers to rent by the hour.
19
Where will you locked your valuables and computer iPad tablets two phones etc when you need t go to thebath Oh isee ! You will trust your fellow next table at Starbucks @@@@
And then on an ie 4 to 6 hours stay at Starbucks Will you consume 3 lattes for a total of 12 - 15 dollars?. Instead WeWork will cost maybe 20 and NO WORRIES!!!
This feels like a kombucha gotcha.....clearly for "early adopters" capable of risking an investment and not sweating their losses. This company reminds me of the type of behavior and justifications we encountered just prior to the Dot Com bust of 2000, where unrealistic business models became completely untethered from revenue- and profit-generating activities, i.e. "we don't generate sufficient revenue, but we'll make it up in customer volume." Silicon Valley appears to have gone off the rails in recent years, and this is just the most recent example Buyer Beware....
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We Work recently bought Lord and Taylor's flagship store on 5th Avenue in NYC. The store had been there for at least 150 years. Employees were first told that they would have their jobs as the first three floors would continue and the upper floors would be We Work space. But then We Work realized the cost of making private entrances and the deal was off -- everyone connected to L&T was out. While Lord and Taylor should have never let this happen and they should have done everything they could to keep their flagship store open, the We Work (kind of a joke to call them a tech company) philosophy is disturbing -- pretending to be a tech company when they are nothing but so-called cheap (office space) real estate company and I might add they have a model that is quickly be dethroned as more and more people can simply work from home or the local coffee shop for that matter. We Work's idea of office space is already outdated.
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!!local coffee shop or Starbucks
Are you kidding me
...who is going to watch your valuable and laptop??
…and if you are in a conference call or even better video conferencing
What the laidies next table are going to say sure they will object
1
If renting rooms, driving taxis, and delivering take-out are ‘tech’, then I say why not leasing cubicles? Fill your boots!
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Despite Swisher’s evidently justified skepticism about its management structure and finances, you have to wonder if WeWork isn't the Jackson Pollock of the office real estate market, a disruptor so revolutionary in its space-as-service model that nobody really sees where it is heading. In a future where mega-corporations will either figure out how to self-engineer a more redistributionist economy or be forced to redistribute their assets in a political climate far more amenable to true socialism, one way of getting ahead of the future would be for a smart, very large corporation to amass an enormous inventory of office space of the sort that might simply be confiscated in a socialist revolution and redistribute it via affordable leasing — along with economies of scale for all sorts of business services — to individuals and small companies that currently face stiff headwinds in the era of tech giants and gig workers. Late stage capitalism is going to have to save itself with ambitious social engineering, or get social engineered out of existence. WeWork is on to something big, whether it can bring it to fruition or not.
@Michael affordable? We work? The most impressive thing about the company is that they manage to lose so much money despite charging a fortune to not have a proper office.
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@Michael
I know Jackson Pollock. WeWork is no Jackson Pollock.
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I have witnessed several new openings of Home Depot. Within a short period of time, the local, family-owned and smaller chain hardware stores go bust.
Home Depot’s super open layout, ultra-high ceilings, clean, industrial striking paint and design scheme seems like an inviting space and somehow positive even inspirational to walk into and in-and-around. Add in genuinely exceptional customer service that includes an abundance of peppy smiling helpers standing around, ex-professional experts who are super professional, approachable, personable, friendly, and incredibly knowledgeable/helpful.
However, it seems that as soon as the location dominates the competition into near or actual obliteration, the exceptional customer service experience can drop off dramatically. In its place are the usual suspects: over-worked, understaffed, under-paid, often visibly disinterested/exhausted, unknowledgeable employees of a transnational publicly-owned, for-profit corporation. Finding assistance becomes an effort, often in frustration. This bait-n-switch seems like it has become a go-to for brick and mortar companies.
The lesson is that employees whose primary functions involve interfacing with customers that are not treated/appreciated/rewarded as the cornerstone of the business that they are, this will ultimately (and unfailingly) be reflected in the customer service experience.
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@SMcStormy My experience exactly. (Including the need to explain to an associate what Velcro was, at which point they claimed not to have any. Unsurprisingly there was a large display two aisles over)
6
So what?
As you said once the competition is out you squeeze people and get a benefit
In this case WeWork wil squueze the landlords
1
I would venture that the end goal of the technology revolution is the almost completely virtual workplace, which will allow us to make increasingly efficient use of our most precious resource: time. (The ancillary environmental benefits are also dramatic.) The virtual workplace already allows people all over the country to work together in real time, without actually being in the same space and technology innovations continue to improve the experience at very reasonable cost. Therefore, I predict that, while the short-term leasing model for physical workspace IS the future, the overall demand for this space is set to decline dramatically. I only hope are cities are planning for this eventuality, which will change them fundamentally from places for work to places for living.
7
Amazing that companies like WeWork and Uber can lose billions with no profitability in sight and get more investment. Meanwhile, media companies that merely break even or make a small profit get hammered or shuttered.
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@Kevin Stevens
That is not how corporate finance work nor is it how the stock market works - the value of a company is its future revenue stream present-valued to today.
I don't really understand why this is considered a tech company. Their product isn't digital, is it? It's space. I thought to be considered "tech" your product had to be in the digital realm, like a website or app.
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@kas,
It's "Tech" because the investors like Softbank are not "sophisticated" -- they bought the lie.
2
I once worked at a company where the CEO when to prison because he created companies and sold them to us for a price he determined. How is leasing different?
8
WeWorks shifts the risk of investing in a long-term lease from their clients to themselves. It is a form of insurance a company can take out against their need to shrink
WeWorks grants a real option to acquire more office space should they need to expand.
WeWorks optimizes shared office services (conference rooms, refreshments, entertainment) to amortize those costs over a larger base.
In the real world, shared office space and sub-leasing are fairly regular businesses, so why would WeWorks have a greater valuation? They have spent investors' and banks' money making their spaces "nicer" compared to traditional offerings, but doesn't that investment have to be paid back? And is going public a way to simply "borrow" more money to pay back the billions they already have spent. In effect just kicking the can onto Joe-investor?
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@OneView
By trying to juice their valuation by raising money and doing and IPO, they are in essence "paying back" their investors by making their shares more valuable. Or it won't work, and the investors will have a loss - that's the risk of investing. Issuing more equity is in no way equivalent to borrowing money. You realize that equity investment does not need to be "paid back" like loan, right?
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@Nick Yes, you got my point. The point being is that this whole IPO is a shell game to move the risk from the early investors "to the market". You'll note the "" around "borrow". Equity investment comes with more risk (and more returns), but you don't invest unless you expect to get something back in the end.
So my point is exactly that WeWorks is selling smoke a mirrors ("juicing their valuation") and we'll see if the dumb money bites.
1
@OneView,
They claim to be like a "tech company," which of course is absurd, but too many investors and journalists buy into that, hence the ridiculous valuation.
Nothing they do isn't already being done by other companies.
2
I work with Millennials, and while I don't like to generalize, a lot of them actually like the crammed-in no-privacy work environments -- the kind that WeWork provides. It is something that I (20+year veteran) do not understand, and I find those work environments toxic.
But it feels like the wave of the future, and as such, may be a better bet than we old folks may expect.
4
@CACondor They hate it too, they've just been conditioned to accept it as the only option by greedy CEOs trying to squeeze more pennies of profit - the same people who tell them they should be grateful for an unpaid internship and that cost of living raises and pensions are silly relics from the past.
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As an old guy, I thought that using office space more efficiently might actually be understood by companies.
And if not, they would get a consultant. Speaking of consultants, I'd be happy to help them write 125 words with a few more periods.
6
I don't understand this company. it seems to be a leasing company that manages its space utilization via an app. Big deal. A quick look at Fifth Avenue reveals how leasing rates can be a boom or a bust.
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WeWork provides an awful work environment. It feels more like a dormitory communal living room that a serious work environment. The price it charges for the possibility of working in a space that is comparable to what feels like glass-enclosed cage is not worth it.
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@Nancy My wife learned to be flexible about work space by consulting internationally for 10 years. Now she has a condo in "the big city" that doubles as an office and goes to the local coffee shop with her computer and phone for a change of working environments. Home office and bagel shop works for my grandson. If We Work is the answer, their clients must still be mentally stuck in the college dorm.
7
"That is especially so with the news that the company has only $3 billion in cash on hand, billions in debt, tens of billions in future lease payment obligations and no clear road to profitability."
Sounds suspiciously like a certain investor funded taxi service that has yet to make a profit.
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@CV Danes,
They should use that as their tag line: "The Uber of Office Space!"
2
WeWork and other similar companies provide a valuable service that independent contractors especially will continue to pay for. Whether or not it's a long term viable business model remains to be seen but those of us that use services like WeWork will enjoy the ride in the meantime.
Who knew that all this time apartments should have just been marketed as 'space-as-a-service' and their corporate value would have skyrocketed.
7
This is a wonderful and clear analysis. As an aside, most surveys across industries show that people really don’t like working in a group setting over having their own space.
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@LTJ You are so right. Group settings are great when you are actually working together as a group but that kind of constant oversight stifles creative thinking in solving difficult problems because nit-pickers with a crab mentality focus on thinking time as laziness. And too many managers don't want to do the harder work of considering actual productivity involving problems solved and how many of their employees aren't capable of handling the really complex issues. They view it like a family where mommy must show that she loves everyone equally and they are all equally valuable. With the best companies there are enough perks it can be tolerable but not in a rat race where it ignores the great performers who can't stop thinking about the hardest problems until they've found a really good solution.
1
Who says that WeWork is a not a real commodity? Can I pay for my membership with Bitcoin?
11
One trend that I'm observing but have not seen reported in the press is established companies putting some of their staff in WeWork offices to save money. I know of two household names in financial services here in London that have already done this or are contemlating it. In one case, it enabled the firm to get rid of its own central London office entirely.
I wonder what will happen to these firms when the bubble bursts as it inevitably does and WeWork either goes bust or puts fees up so high that the firms wish they had their own space again (but can't find any because WeWork has rented out all the spare space around).
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@Beth Indeed, it has ben used by my employer for remote sales offices.
1
@Beth agreed. A very dangerous approach. Its like building your entire web presence on MySpace.
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@Beth I imagine that's the long term play for these guys, no?
Right now it's mostly entrepreneurs and small start-ups using WeWork facilities. I'm assuming the big prize is getting giant corps everywhere to 'outsource' their office needs to WeWork - complete with gig-economy type support staff with zero job security or benefits. It's just another step in the race to the bottom - but as long as investors get their money!
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Ms. Swisher,
WeWorks, once it has gone public sounds like a fantastic opprtunity to make some money. Because their stock price will be going down shortly after they go public. So, what would be the best way to make some money on that scenario? Buying options, shorting, going long? It is all rather confusing. Some advice from you would be most helpful.
1
Seems to me obvious that while a recession will put a serious dent in Starbucks, it will obliterate this company.
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