You forgot the part about disregarding laws/regulations and trying to grow fast enough so that by the time the regulators start to apply pressure you have enough money and clout to fight back, all while preventing the smaller guys from doing the same thing you did.
Not saying that WeWork is doing that, but it's definitely a time-honored Silicon Valley approach. Just look at the recent faux pas from Robinhood with their "checking & savings" accounts that got them bitch slapped nearly instantaneously by regulators, forcing Robinhood to withdraw the announcement and update it to a "cash management" account with details to follow.
Same for companies like Amazon. Grow super fast and ignore tax laws regarding nexus so you don't pay sales tax. And run a massive loss for years on end until you can figure out how to subsidize your losses through another profitable venture which you hope to achieve. They did with their AWS/cloud business and that makes the company as a whole barely profitable. But subsidizing your massive retail business losses with your high cloud margins is supposedly illegal. Number of regulators anywhere to be found? Zero. And don't forget to have an advantage against all the third party sellers because you can undercut them since you also sell millions of products and don't face the platform/marketplace fees, equating to illegal competition. Must be nice to be a big player.
Amazon was most definitely unprofitable until the last few years as a whole. They just continually went back to investors asking for more money with the promise that they'll eventually solidify profits on the books.
Same for companies like Amazon. Grow super fast and ignore tax laws regarding nexus so you don't pay sales tax.
Need to point out that Amazon did not ignore tax laws regarding nexus. They took advantage of a Supreme Court decision on nexus laws (Quill) that resulted in them not having nexus in most states. They were forced to change their stance because at some point it was clear that they had surpassed the Quill factors that had earlier protected them.
Moreover, you have the order of subsidies wrong. Amazon subsidized AWS with its retail earnings. The reason Amazon didn't show profits for years was because it reinvested its gross sales income in building up AWS and other ventures.
But the other stuff about third party sellers, etc. is spot on.
If you look at their SEC filings, it is clear that recently (I last looked early in 2018 or late 2017), the retail business was listed as having huge losses. Losses on the order of 15-20% of gross revenue! Meanwhile, AWS was highly profitable at this time and was the reason the company as a whole was finally booking profits with margins of a paltry ~1.3% or so, if I recall correctly. The retail business has never been profitable because of the huge costs of running all those logistics and warehouses and shipping (even with their rock bottom shipping costs).
You may be right about Quill. I don't know enough about it. But regardless, at some point it's clear they surpassed the guidelines of Quill and became liable and are to this day not complying with the law in my opinion.
In some ways they are. The WeLive brand takes liberties with zoning laws that are in place to prevent SROs, for example. I wouldn't call it disregarding laws/regulations but they are potentially violating the spirit of those restrictions. It's not unique to WeLive - all of the co-living companies are doing similar things.
Normally, though, the people who do this are banks, so we regulate with capital requirements and protect smallholders with deposit insurance.
When the people doing it are a massively leveraged real estate investment pool, masquerading as a disruptive tech startup, it's a lot less clear what happens when the music stops...
(For those not intimate with the finance side: WeWork is making super-long-term commitments of big dollars, and then microchunking them into super-short-term commitments. This is like a bank making long-term big loans by aggregating short-term demand deposits. In both cases, as long as there's a ton of short-term players to work with, you're safe. When there's a "run on the bank" the short-timers all leave quickly, but the institution's long-term obligations can't be unwound, leading to insolvency.)
"WeWork forms a subsidiary to represent each lease deal, which means individual locations could fold without leaving the company itself with much risk."
So basically the institution's multiple long-term obligations can be handled by killing the leases that are the least profitable right?
I was using space at a WeWork like company. This company was leasing office space from a building managed by CBRE. If you have any familiarity with CBRE, then you know that a shared office environment is totally against everything CBRE does. I do not know how long this particular shared office was there, but it recently closed back in October because of friction with CBRE.
I don't think the shared office space concept is a bad one, but landlords/building management companies will fight it for a long time. I'd imagine it to be an easier time for the shared office space companies to buy a building rather than trying to release a leased space.
HANA Haus is named after SAP's database product HANA. It's more of a coffee get together than a co-working space (unless they've deliberately changed it since I've last been there).
Actually its mainly a coworking space with a blue bottle in the building as well. I got open seating just $3 an hour. Has louder areas or you can reserve quieter spaces/meeting rooms.
There’s always competition between divisions at large companies.
Also these guys might not have gotten the memo yet, or they did get the memo and there was friction about someone using CBRE property to “compete” with a business unit that wasn’t public knowledge yet.
There are things they consider difficult. The building is responsible for all tenants in the building. Things like key card access to the building after hours, key card access to the parking structure, etc are all handled by the building. If the shared office space tenant is constantly asking management to revoke keys, issue new keys, etc, that becomes a pain point for them. In my experience, it was the key card access that was a huge problem. Also, each new tenant usually is expected to fill out some sort of credit/background check, and those cost money. Shared office space companies can have very high turn over, so each new sub-tenant would have to go through that process as well. The building management is going to want their company they trust to do it rather than having the shared space company handle it on their end. Sure, they can request the fees be re-reimbursed, but they still have to spend time/effort on it.
So imagine all of the things you have to do for a new lease. Multiply that by the numbers in a shared office space. People like doing the least amount possible. CBRE managed buildings prefer to have long term leases, so they only have to do this at the beginning of a lease, not constantly.
Assuming the sub-leasor wasn't trying being dishonest, they should remain the primary responsible party to the leasor. I work for a company and have never met the person owning the building, but if I wrecked the hallway the owner would quite correctly go and talk with my employer.
The only way I see this becoming an issue is if WeWork was being shifty about taking responsibility for damage and risk caused by their clients and if they were it wasn't so much "market disruption" as "we don't want to play by the rules but still want cake"
Maybe, but they are just "weird" about things outside of their comfort zone. I worked for a company in a CBRE building that had lawyers, financial planners, etc types of tenants. The company I worked for was a film/video post-production company. The obstacles the building put in place to the company to move in gave every clear indication that they really did not want that company as a tenant. For example, in the raised floor machine room, they wanted smoke detectors every 3 feet because of the "fire-hazard" VTR machines represent. All of the low-voltage video cabling for SDI video signals had to be run through EMT conduit. All low-voltage CAT-5 networking cabling had to be run through conduit as well. There were many more examples of the things that other tenants would not be asked to do. Also, a $1,000,000.00 escrow account had to be opened for the entire term of the lease. These are all sorts of things that make me think the building were just trying to find the point where the owner of the company was say it's not worth it. We've all been there with jobs that we don't really want, so we try to price ourselves out of the running with an outrageous bid.
Most of the items you cite are code requirements. Operators like CBRE maintain buildings to class A standards that don’t allow for any violations.
The $1M is escrow is standard and par for the course and a guarantee against credit risk. Many landlords actually require a letter of credit from banks so that if your company were to go bankrupt the money wouldn’t be subject to seizure by bankruptcy courts.
The existing commercial office space system seems very inefficient for small to medium-sized companies. You lease space, spend a ton renovating it to look "on-brand," then move a couple of years later. The next tenant renovates the space again to match their brand.
Each remodel comes out of a "tenant improvement budget" given by the landlord, but that has to be recouped in rent over the duration of the lease, so it's not really free money to the tenant.
Having offices that have already been remodeled to be nice enough, and just being able to lease a flexible number of desks could deliver huge savings - in time and cost to growing companies.
Wait, why? If you're a small-medium sized company that isn't in retail (or some other business where you, as a matter of course, service customers on premises) why would you divert a significant amount of money to renovations that match your brand?
If you need to meet with investors or potential employees and are that concerned about appearances then just do it offsite.
Every small company I've every worked for has renovated their new space.
Often, when the old tenants leave, the space is beat-up and unpresentable. Relative to the aggregate cost of rent over a couple of years, spending $10-20K to buff it out, put some walls in for meeting rooms and offices, etc... isn't a problematic spend.
Depends what class of building you're renting in. A Class B building might tidy up the place, but if you're springing for a Class A building, prestige is what you're buying into.
Yeah I would argue this is actually something that drives up WeWork's costs. If you're a smallish business, you'll typically find an office that's already got an acceptable look and leave it alone. But WeWork always renovates their space to a high standard, which is very expensive.
It's amazing what I'm hearing in this thread compared to all the gushing articles a couple years ago about how WeWork had sed "algorithms" to perfect the use of space for the modern worker.
I guess I should get used to the fact that so much journalism is just advertising.
I was talking to a friend the other day who told me about multiple recent grads from their PhD program joining tech companies that were willing to pay for a shared work space office for remote employees. One said it was significantly cheaper to expand their team with remote employees and offer to pay for WeWork spaces than to expand the physical office space they already had (new hires got to choose what they wanted to do).
It’s definitely a business model that fills a niche. And it clearly offers value. The problem is that when the economy tanks these sort of arrangements will be the first to go as the tech companies trim expenses and either relocate the employees, fire them, or force them to work from home. It seems at this point that WW has a great offering when everyone has money, but the second the economy turns they are going to be the ones holding the proverbial bag.
"Brokerage CBRE Group Inc. in October launched a business called Hana that will help landlords create their own flexible offices. Owners want to be a part of the rising demand for that type of space, said Andrew Kupiec, Hana’s CEO."
Good luck trying to create a nice product with a federation of people with zero product experience. You'll be training them / fighting the same battles over and over. And just wait until they bring in their family members who have great ideas.
It is straightforward to provide consistency with a franchise model, as many large well known brands demonstrate every day (Subway, Dunkin', Anytime Fitness [which is basically WeWork as a gym], any number of hotel brands, etc). If you don't meet the brand standards, you get the boot and lose your investment.
It’s my understanding that the Hana offering is run entirely by CBRE, much in the way CBRE will manage buildings as a service. I would assume it’s an offering for the owner/landlord where they (landlord/owner) would be hands off and there would be a split with CBRE.
What’s WeWork’s “product” again? Exposed brick and free beer? Seems like the only roadblock to successful emulation here is money and property — both of which CBRE has. You can hire someone for the interior design. They already split off a new brand with a fun, easy name.
WeWork's product is handling landlord and broker negotiations for you. They are giving more power to the tenant as WeWork is large enough that they often carry significantly more leverage into a negotiation.
Businesses love to throw money at a problem so it Just Works and they don’t have to think about it. This shouldn’t be surprising: a large percentage of the enterprise software industry, including most cloud computing, runs on this tendency. WeWork is just extending this idea into the realm of physical office space.
Office building landlord negotiations are rarely problematic. The issues come from (a) new landlords who don't know what they're doing; (b) new tenants who don't know what they're doing; (c) trying to actually find space that works.
WeWork doesn't give more power to the tenant. WeWork is going to be less flexible on terms for the tenants, because they're doing smaller, shorter-term deals. No space improvement, no reconfiguration, no nothing -- you want the space or not?
> WeWork forms a subsidiary to represent each lease deal, which means individual locations could fold without leaving the company itself with much risk. The parent company only guarantees the lease for about six to 12 months on a 15-year agreement, according to documents associated with WeWork’s inaugural bond offering.
So, they sign a 15-year lease but are only on the hook for the first year? How does that work? Sounds more like a year lease with an option to extend?
The subsidiary signs the 15-year lease, not WeWork.
So basically if the location turns out to be unprofitable, the subsidiary goes out of business or goes bankrupt and WeWork isn't stuck with the lease.
From the landlord's perspective, yes it is basically equivalent to a year lease with option to extend... not totally clear why the landlord would agree to that.
In this specific case a large sophisticated organization may be exploiting an unsophisticated organization, but really this is standard operating procedure for any franchise.
Must be nice to be an immortal corporation that can just spin off any debts you don't want to pay, while mere mortals with finite lifespans and education debt and medical debt and credit card debt cannot unless we die.
I would agree with that assessment but for the fact that while alive the parent's medical debt can't be forced upon family members. It's a weird debt and I agree it isn't quite the same as inheriting it but I also think it isn't the same a jointly assumed liability while the parent is alive. The family members presumably have no say in whether or not the parent assumes the medical debt.
Your comment seems disingenuous. What if I told you that piercing the corporate veil is regular and common when a single member LLC can't pay its debt, and an LLC isn't eligible for things humans need to improve their futures like student loans anyway?
You do know that it’s people who setup these subsidiaries right?
There is nothing preventing you from doing this as an individual as well. The hard part isn’t the subsidiary or LLC, it’s getting the counter party to enter into an agreement with an entity containing no assets or long term viability.
Wework Brooklyn #22 LLC signs the lease with the landlord and thus is responsible for the lease obligations. Wework LLC (proper) guarantees these lease payments for only 6- 12 months of the lease. After this time the only party responsible for the lease is the LLC that was formed.
Landlords are likely agreeing to this only because Wework would never be able to sign a lease with any owner if they defaulted on a location.
Which sets them up for WeWork subsidiaries to default on any building that's more than X months old and unprofitable. That's a terrible deal for the landlord, if the landlord priced it as a 15 year deal instead of a one year. Absolutely great for WeWork. Terrible for anyone who wants offices, since WeWork will sit on a large chunk of the market.
Agreed. If, and when, they default it would most likely make news in the real estate / tech sector. Something seems too good to be true here but so far they haven't closed any locations.
Why would someone from wework want to outline their lack of lease liability. I don't see how anything I commented was positive or negative, I stated some facts.
Uh oh, another overpriced company funded by Softbank. Softbank, remember, is funded by Saudi Arabia's sovereign wealth fund. They're also behind Uber. They seem to be the world's largest source of dumb money.
I wonder what the big customer lease deals with WeWork look like. They probably don't get the markup they do with little tenants.
As the recession deepens, WeWork will surely eventually implode. I can see it now: vast swathes of empty commercial real estate. If you thought ghost malls were bad, wait until you see ghost WeWorks.
Deepens? We're not in a recession, and we haven't been for nearly a decade.
It's true that, by historical standards, we're arguably overdue for a recession, but the word "recession" is precisely defined, and the US unambiguously does not meet the criteria for being in one.
>Deepens? We're not in a recession, and we haven't been for nearly a decade.
There is a non-negligible portion of people who have bought into the political narrative that “stock market volatility = recession”. It’s political in the sense that “the economy can’t possibly be good with the current leadership”. Don’t waste your breath arguing with it because it’s politics, not facts or rationality.
My limited understanding is that the start of a recession is only officially recognized in hindsight. That doesn't mean we are in one, but I don't think we can necessarily say that we're not.
Yes. The usual definition is "two down quarters for GDP". So there's a six month lag. The US hasn't had a down quarter yet this year. Q3 was pretty good. We'll know about Q4 in January.
Partially true. Softbank as a whole is not funded by Saudi Arabia. Softbank's "Vision Fund", which invests in many US tech companies is like 45% Saudi money ($45b of a total $100b fund). The Vision Fund is the fund that invested in WeWork, though.
At the end of the day WeWork is essentially a middle man. If the model catches on landlords can make WeWork irrelevant by just adapting and offering “WeWork” style coworking space thus it’s not clear what the end game of all this is. If it fails it fails. If it succeeds it’s super easy to copy and cut them out of the equation.
WeWork as a company is also becoming increasingly unfocused. They’re getting into everything from schools, daycare and all sorts of other stuff. That’s never a good sign. Do one thing and do it really well profitably. Anyone can do a lot of cool stuff while burning investor cash like crazy.
I don't agree that landlords can easily replicate WeWork. First of all WeWork has an incredible brand, and great processes/assets that let them run co-working spaces more profitably.
Amazon seems like a counter point to your focus point too.
I think you're drastically underestimating how hard it is to start a co-working space. Why would anyone want to work at your unheard of space instead of WeWork? How are you possibly going to attract people at even half their prices?
People just want a nice place to work at a decent price. There is no brand loyalty in this space. If someone has a nice product next door people will move. Same as Uber vs Lyft. Nobody cares what logo is on the car.
The way the brand and scale turns into a moat and/or pricing power is through lower customer acquisition costs than less notable competitors. If everybody who wants shared office space googles WeWork to find it, it's going to be an uphill battle for other operators to get noticed.
Brand loyalty is fickle. Back in the day you could get everything from the Sears catalog and now we all buy from Amazon as Sears trudges through bankruptcy.
The comparison to Amazon is a little misplaced, IMO.
Companies like Amazon and Google have more money than $deity and can afford to blow a few billion on non-core-business moonshots like self-driving cars and molten salt energy storage and space rockets.
WeWork does not have more money than $deity, so spinning out into less-related business is a sign of CoreBusinessNotQuiteCuttingTheMustardAnymore-itis.
I absolutely hate WeWork. Due to the nature of our work we have to meet with people there in various locations, the security on-site is laughable but at the same time they make you jump through all kinds of hoops such as photographing you face-first on entry, easily defeated by blocking the camera.
The facilities are noisy, distracting, totally unusable to discuss anything that is even remotely confidential and there is a reasonably high amount of theft by walk-ins that make off with people's laptops or phones.
Strong agree. My current company was in one for a few months before we got our own space, and it was one of the most miserable office experiences I've ever encountered. Almost everything about it sucked-
* Their network was grossly misconfigured and directed traffic to the least used access point, regardless of the distance. It was a regular morning ritual for people in my office to toggle their wifi on and off repeatedly until they got a usable connection.
* Network security is also a joke- they have a simple WPA2 shared password that never changes, can easily be brute forced, and is the same at all locations. They do have a proper WPA2 Enterprise setup for their employees, which means the issue isn't their equipment and that they understand the difference between the two.
* They basically have no rules about noise. Their contract refers to the local "communities" rules, but when I asked for them I was told they didn't have any. So when there was bad behavior (which there was plenty of) there was no recourse.
* It was the noisiest office space I've ever worked in. The glass dividers between rooms and open ventilation systems meant there was no insulation from noise at all- and tenants didn't seem to care about letting their entire floor know their business.
* There were only two or three phone rooms per floor, and it was always a fight to get them. People would try and reserve them by leaving their stuff in them before a call, which just amounted to all sorts of drama. Since there weren't enough to go around people would just talk in their offices adding to the noise.
* Allowing dogs is great, but there need to be some rules. One of our neighbors just let his dog walk around the whole floor, so we had to be super careful about what we left in the trash in our unit. He would also leave his dog locked up in his unit while he was getting lunch, and the dog would bark the whole time. People would also have their dogs race from one side of the building to the other. Since none of this was against the rules there was nothing to do about it other than move out.
Your WeWork experience is very much dictated by location. There are fantastic locations with great staff + high quality facilities, and there are poor quality locations with bad members, bad staff and bad facilities. Disruptive behaviour _is_ against the rules and staff _should_ take action and _do_ take action if you’re in a well managed location. All their locations should be well managed enough that you can trust the brand to be consistent but unfortunately that’s not true.
The lazy jerks running 6th and Market let one of the two elevators sit broken for months. Free 20 minute break mid-day to get downstairs and again to get back upstairs! Who doesn't want takeout to take over an hour every day! The wework folks renting 6 floors just acted like there was nothing at all they could do to get the building to have sufficient working elevators.
And the noise. Hard wood floors. No carpets. Glass walls. One woman wearing heels goes clack-clack-clack up and down the hall.
Bathrooms with no vent fans.
Running a remodel of the floor above us while we were supposed to be working in the office. So much noise you could feel the vibrations.
I only know one WeWork in Paris but I agree that the acoustics are terrible. Basically there's not soundproofing at all. Sure, everything looks great, but I would trade that for meeting rooms with less reverberation.
Some American things are funny like free beers but don't you dare smoke a cigarette on the rooftop. Or the communal spaces that are designed in a way that kind of force you to have lunch at your desk.
The photograph isn’t for security, it’s to send a notification to the person you’re visiting, they don’t have a problem with you choosing not to be photographed if you’re not comfortable with it. The notification includes your name and the picture because the wework member is expected to walk into the common area and find you, which is difficult if the wework member doesn’t know what you look like!
I’m a wework member (who will happily talk shit about wework as I have done in another comment) who made an account because I’m on my phone without access to my main and I had useful information to share. If I was shilling for WeWork I wouldn’t name my account after the subject.
They're not 'wework members' they are representatives of your customers aka the tenants. Somehow this problem does not appear in all the other reception areas of all the other companies in the whole bloody world. So no, it is not for the person you're visiting. Besides that, there is no consent trail for the images to begin with nor is there any indication of where they get sent, stored and who has access to them. It's security theater at best and a security risk at worst.
Besides that the access/egress system is so bad you might as well walk straight through without reporting your presence. WeSuck.
Just to counterpoint, I've been to a few (not many, but not nothing) office buildings that photograph you to put your picture on an "ID badge" that you have to have on you. I have no idea if this photo stays archived anywhere, or is only used for printing.
Only sharing because I see a lot of negative experiences and wanted to share a positive one.
I've worked out of a WeWork office through two different startups and would do so again.
For me it was the ideal way to save on costs with a small team before growing into our own place. It allowed us to forgo all of the generic office management crap and focus on our business.
WeWork offices all seem pretty different to me, so a lot probably depends on where you are.
Also in both cases I opted for the private office setup so noise wasn't an issue.
WeWork is on their way to collapsing. The company is cult like with founders who have a god complex. Softbank and Saudi funding have saved them from collapse.
When I was running a coworking space in Berlin back in the day WeWork were just getting started. I went to NYC on a holiday and decided to contact all the coworking spaces for networking purposes. Miguel McKelvey one of 2 cofounders of WeWork was the only person to get back to me. I found him exceptionally humble and approachable. Not sure where you got your impressions on the founders from?
Their business model reminds me of MoviePass in the sense that it appears unsustainable, and that their main plan is to grow fast until they have market power to throw around. At least the math for WeWork isn't so obviously flawed as Moviepass was. I'm just disappointed at how many companies use this playbook in the startup world. Everyone just does stupid crap in hopes of becoming the "dominant platform", at which point they can charge whatever they want and people will have to play along.
Or, think about it in a more positive way - companies like WeWork take money from investors, and pass it on to consumers, via subsidised pricing. I'm very happy to have cheaper office space, if only for a few years, until VC money dries up (although I have no idea if that is actually the case with WeWork).
"Sharing economy" with local temporary monopolies and the intermediaries giving everyone the short stick while aggresively reinvesting the transaction money they keep hostage. Can we get over it already? I WANT TO OWN.
WeWork and Uber seem to be two examples of companies that "look" successful purely on the basis of enormous amounts of VC subsidization. They lose hundreds of millions each quarter because they're under pricing their service to gain market share.
In order to get more funding rounds and ever-higher valuations, they're promising pie-in-the-sky visions of WeWork daycare and schools, or Uber-powered autonomous truck fleets. And when the water goes out of that tide, they quietly announce very 20th century-sounding initiatives like property brokering and sharing zip scooters and offering food delivery.
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[ 4.4 ms ] story [ 68.9 ms ] thread1. Jump on hot tech trend threatening to disrupt industry
2. pay way too much for customers
3. get lots of VC money and use VC money to pay way too much for more customers
4. grow gargantuan
5. transform into basically every other non-tech big player in the industry because zero marginal cost only works in few industries
Not saying that WeWork is doing that, but it's definitely a time-honored Silicon Valley approach. Just look at the recent faux pas from Robinhood with their "checking & savings" accounts that got them bitch slapped nearly instantaneously by regulators, forcing Robinhood to withdraw the announcement and update it to a "cash management" account with details to follow.
Same for companies like Amazon. Grow super fast and ignore tax laws regarding nexus so you don't pay sales tax. And run a massive loss for years on end until you can figure out how to subsidize your losses through another profitable venture which you hope to achieve. They did with their AWS/cloud business and that makes the company as a whole barely profitable. But subsidizing your massive retail business losses with your high cloud margins is supposedly illegal. Number of regulators anywhere to be found? Zero. And don't forget to have an advantage against all the third party sellers because you can undercut them since you also sell millions of products and don't face the platform/marketplace fees, equating to illegal competition. Must be nice to be a big player.
Amazon has to make those investments to continue the rocket ship growth that justifies the share price.
Once the growth stops, boom.
Need to point out that Amazon did not ignore tax laws regarding nexus. They took advantage of a Supreme Court decision on nexus laws (Quill) that resulted in them not having nexus in most states. They were forced to change their stance because at some point it was clear that they had surpassed the Quill factors that had earlier protected them.
Moreover, you have the order of subsidies wrong. Amazon subsidized AWS with its retail earnings. The reason Amazon didn't show profits for years was because it reinvested its gross sales income in building up AWS and other ventures.
But the other stuff about third party sellers, etc. is spot on.
They also bought a huge warehouse footprint, too.
You may be right about Quill. I don't know enough about it. But regardless, at some point it's clear they surpassed the guidelines of Quill and became liable and are to this day not complying with the law in my opinion.
1. Borrow short.
2. Lend long.
It works until it doesn't.
Normally, though, the people who do this are banks, so we regulate with capital requirements and protect smallholders with deposit insurance.
When the people doing it are a massively leveraged real estate investment pool, masquerading as a disruptive tech startup, it's a lot less clear what happens when the music stops...
(For those not intimate with the finance side: WeWork is making super-long-term commitments of big dollars, and then microchunking them into super-short-term commitments. This is like a bank making long-term big loans by aggregating short-term demand deposits. In both cases, as long as there's a ton of short-term players to work with, you're safe. When there's a "run on the bank" the short-timers all leave quickly, but the institution's long-term obligations can't be unwound, leading to insolvency.)
"WeWork forms a subsidiary to represent each lease deal, which means individual locations could fold without leaving the company itself with much risk."
So basically the institution's multiple long-term obligations can be handled by killing the leases that are the least profitable right?
I don't think the shared office space concept is a bad one, but landlords/building management companies will fight it for a long time. I'd imagine it to be an easier time for the shared office space companies to buy a building rather than trying to release a leased space.
CBRE Launches New Coworking Brand, Hana: https://allwork.space/2018/11/cbre-launches-new-coworking-br...
(note: I've never used Hana though I walked through the one in Palo Alto just out of curiosity, and it simply looked like a random co working space).
There’s always competition between divisions at large companies.
Also these guys might not have gotten the memo yet, or they did get the memo and there was friction about someone using CBRE property to “compete” with a business unit that wasn’t public knowledge yet.
So imagine all of the things you have to do for a new lease. Multiply that by the numbers in a shared office space. People like doing the least amount possible. CBRE managed buildings prefer to have long term leases, so they only have to do this at the beginning of a lease, not constantly.
The only way I see this becoming an issue is if WeWork was being shifty about taking responsibility for damage and risk caused by their clients and if they were it wasn't so much "market disruption" as "we don't want to play by the rules but still want cake"
The $1M is escrow is standard and par for the course and a guarantee against credit risk. Many landlords actually require a letter of credit from banks so that if your company were to go bankrupt the money wouldn’t be subject to seizure by bankruptcy courts.
Source: Work at similar landlord.
edit: spelling
Each remodel comes out of a "tenant improvement budget" given by the landlord, but that has to be recouped in rent over the duration of the lease, so it's not really free money to the tenant.
Having offices that have already been remodeled to be nice enough, and just being able to lease a flexible number of desks could deliver huge savings - in time and cost to growing companies.
Wait, why? If you're a small-medium sized company that isn't in retail (or some other business where you, as a matter of course, service customers on premises) why would you divert a significant amount of money to renovations that match your brand?
If you need to meet with investors or potential employees and are that concerned about appearances then just do it offsite.
Often, when the old tenants leave, the space is beat-up and unpresentable. Relative to the aggregate cost of rent over a couple of years, spending $10-20K to buff it out, put some walls in for meeting rooms and offices, etc... isn't a problematic spend.
I guess I should get used to the fact that so much journalism is just advertising.
Good luck trying to create a nice product with a federation of people with zero product experience. You'll be training them / fighting the same battles over and over. And just wait until they bring in their family members who have great ideas.
https://www.cbre.com/real-estate-services/directory/flexible...
Disclosure: I work for CBRE, but in a different line of business with no knowledge of Hana outside of what is explained by the above link.
WeWork doesn't give more power to the tenant. WeWork is going to be less flexible on terms for the tenants, because they're doing smaller, shorter-term deals. No space improvement, no reconfiguration, no nothing -- you want the space or not?
So, they sign a 15-year lease but are only on the hook for the first year? How does that work? Sounds more like a year lease with an option to extend?
So basically if the location turns out to be unprofitable, the subsidiary goes out of business or goes bankrupt and WeWork isn't stuck with the lease.
From the landlord's perspective, yes it is basically equivalent to a year lease with option to extend... not totally clear why the landlord would agree to that.
In this specific case a large sophisticated organization may be exploiting an unsophisticated organization, but really this is standard operating procedure for any franchise.
You can never involuntarily inherit debt in the US. You have to be a co-signer to begin with.
There is nothing preventing you from doing this as an individual as well. The hard part isn’t the subsidiary or LLC, it’s getting the counter party to enter into an agreement with an entity containing no assets or long term viability.
I mean by that theory I could open up 100s of Restaurant and close each of them that is not performing?
Landlords are likely agreeing to this only because Wework would never be able to sign a lease with any owner if they defaulted on a location.
They aren't, so they are.
Your comment seems to imply that the landowner has no choice.
If the landlord could find a better tenant, WeWork would have zero chance to rent any of it.
https://news.ycombinator.com/newsguidelines.html
I wonder what the big customer lease deals with WeWork look like. They probably don't get the markup they do with little tenants.
Deepens? We're not in a recession, and we haven't been for nearly a decade.
It's true that, by historical standards, we're arguably overdue for a recession, but the word "recession" is precisely defined, and the US unambiguously does not meet the criteria for being in one.
There is a non-negligible portion of people who have bought into the political narrative that “stock market volatility = recession”. It’s political in the sense that “the economy can’t possibly be good with the current leadership”. Don’t waste your breath arguing with it because it’s politics, not facts or rationality.
Are there really that many locations? I've seen a lot of malls, I've literally never seen a WeWork in person.
WeWork as a company is also becoming increasingly unfocused. They’re getting into everything from schools, daycare and all sorts of other stuff. That’s never a good sign. Do one thing and do it really well profitably. Anyone can do a lot of cool stuff while burning investor cash like crazy.
Amazon seems like a counter point to your focus point too.
To me, WeWork sounds more like a Moviepass type situation.
Companies like Amazon and Google have more money than $deity and can afford to blow a few billion on non-core-business moonshots like self-driving cars and molten salt energy storage and space rockets.
WeWork does not have more money than $deity, so spinning out into less-related business is a sign of CoreBusinessNotQuiteCuttingTheMustardAnymore-itis.
The facilities are noisy, distracting, totally unusable to discuss anything that is even remotely confidential and there is a reasonably high amount of theft by walk-ins that make off with people's laptops or phones.
The sooner they bugger off the better.
* Their network was grossly misconfigured and directed traffic to the least used access point, regardless of the distance. It was a regular morning ritual for people in my office to toggle their wifi on and off repeatedly until they got a usable connection.
* Network security is also a joke- they have a simple WPA2 shared password that never changes, can easily be brute forced, and is the same at all locations. They do have a proper WPA2 Enterprise setup for their employees, which means the issue isn't their equipment and that they understand the difference between the two.
* They basically have no rules about noise. Their contract refers to the local "communities" rules, but when I asked for them I was told they didn't have any. So when there was bad behavior (which there was plenty of) there was no recourse.
* It was the noisiest office space I've ever worked in. The glass dividers between rooms and open ventilation systems meant there was no insulation from noise at all- and tenants didn't seem to care about letting their entire floor know their business.
* There were only two or three phone rooms per floor, and it was always a fight to get them. People would try and reserve them by leaving their stuff in them before a call, which just amounted to all sorts of drama. Since there weren't enough to go around people would just talk in their offices adding to the noise.
* Allowing dogs is great, but there need to be some rules. One of our neighbors just let his dog walk around the whole floor, so we had to be super careful about what we left in the trash in our unit. He would also leave his dog locked up in his unit while he was getting lunch, and the dog would bark the whole time. People would also have their dogs race from one side of the building to the other. Since none of this was against the rules there was nothing to do about it other than move out.
The lazy jerks running 6th and Market let one of the two elevators sit broken for months. Free 20 minute break mid-day to get downstairs and again to get back upstairs! Who doesn't want takeout to take over an hour every day! The wework folks renting 6 floors just acted like there was nothing at all they could do to get the building to have sufficient working elevators.
And the noise. Hard wood floors. No carpets. Glass walls. One woman wearing heels goes clack-clack-clack up and down the hall.
Bathrooms with no vent fans.
Running a remodel of the floor above us while we were supposed to be working in the office. So much noise you could feel the vibrations.
Same fight for phone rooms.
It was utterly awful. But hey, free beer!
We moved out when employees threatened to quit.
Some American things are funny like free beers but don't you dare smoke a cigarette on the rooftop. Or the communal spaces that are designed in a way that kind of force you to have lunch at your desk.
Besides that the access/egress system is so bad you might as well walk straight through without reporting your presence. WeSuck.
I've worked out of a WeWork office through two different startups and would do so again.
For me it was the ideal way to save on costs with a small team before growing into our own place. It allowed us to forgo all of the generic office management crap and focus on our business.
WeWork offices all seem pretty different to me, so a lot probably depends on where you are.
Also in both cases I opted for the private office setup so noise wasn't an issue.
In order to get more funding rounds and ever-higher valuations, they're promising pie-in-the-sky visions of WeWork daycare and schools, or Uber-powered autonomous truck fleets. And when the water goes out of that tide, they quietly announce very 20th century-sounding initiatives like property brokering and sharing zip scooters and offering food delivery.