The company will likely become owned by Softbank (it already mostly is).
It can still become profitable by removing the bad leases/renegotiating, I believe after the bankruptcy filling it will be an okayish company, but I doubt that it will still be a public company.
Doubt Softbank will ever recover what they invested in there though
Is Softbank also a majority bondholder of WeWork? AFAIK the shareholders (ie mostly Softbank in this case) are last in line during bankruptcy, well after other creditors like employees, suppliers and bondholders.
Yes, they are a majority, so it's probably of their interest that the company doesn't cease to exist, as it would imply an even bigger loss.
I think it's very likely a takeover. Right now it costs nothing(~$100M) for SoftBank, but they'd rather let it go through bankruptcy as it will help the company to get rid of the bad part of WeWork.
I'm not an investor in WeWork ATM, but I wouldn't mind to own some stocks once this is sorted out.
Especially since they may be poised to significantly reduce their costs with renegotiating leases while the commercial real estate market is in tatters.
Not a majority bondholder no, they have some debt as well as equity, and unsurprisingly the debt structure is complex and has already had some changes. Should be an interesting battle.
They’re not the only company in that space, just the flashiest. Their competitors are generally less insolvent but have worse UX. I wonder if Regus will put in a bid to buy WeWork out of bankruptcy?
My experience in Regus coworking spaces has been fairly awful. Disorganized, dirty, my desks were wobbly, never got the key to my storage drawers, etc. If they’re a big player and they purchase WeWork, I’d consider the entire space worth avoiding.
That and with WeWork running around with the hype there was probably investors/shareholders demanding that they take a piece of the supposedly juicy market (that existed because the ilk's of Regus never made short-term feasible).
I experienced both positive and negative. When the on site staff was good, the experience was good. I think the model is sound but the key differentiator is operational excellence and hiring. This goes for any business though.
Regus might. Or they wait for liquidation and pick the juciest bits. WeWork is such a prime example of how VC money can fuck up everything, Regus did well but a lot of other companies in other industries competing with VC backed companies didn't survive while millions were burned selling dollars for dimes.
In my experience, the best short term rentals are the local places that are priced competitively with WeWork. Second best is WeWork and the absolute dog shit is Regus. I used them for a short period and they liked putting you in what was essentially a living room with no tv, no tables, and church chairs as an afterthought. WeWork always had pretty comfortable digs idiotic CEO notwithstanding.
> I wonder if Regus will put in a bid to buy WeWork out of bankruptcy?
Seems like it would be a bad move unless they can shed all of WeWork's unprofitable leases. What assets does WeWork have that are worth buying? The name? The app?
> Doubt Softbank will ever recover what they invested in there though
That’s virtually guaranteed. They’ve put over $17 billion into WeWork, and the entire company (which they only own a portion of) is currently valued at $121 million.
I’m not sure how much it’s value would have to rise for them to break even, but … it would have to be a lot. 300x? Something like that.
This is part of why I wonder if WeWork will actually be rescued into some smaller but sustainable business.
Softbank has already lost >99% of their investment - and VCs are infamous for being willing to sacrifice a sustainable business model for a shot at nearly impossible odds. What incentive does Softbank have to actually turning WeWork into a far less profitable going concern, vs. taking yet another wild swing at a thing?
It can, but it needs to be able to renegotiate their leases and break out of the bad leases.
The problem with WeWork is that Adam Neumann closed really bad leases (which are typically like decade long) which makes certain locations not profitable at all, no matter how WeWork provides a good service.
Once you remove the rotten stuff, they've got actually pretty good business, 75%+ occupancy rate and people who use WeWork actually like it.
It's also a memorable brand and that business model they have is actually good. But you need to "reshape" completely the company, and only through bankruptcy laws you could achieve it.
I do wonder (and truly mean wonder, because I have no clue), what percentage of the 75%+ occupancy is attributed to the bad leases.
Are their most used buildings "bad leases" and their good leases are sitting empty? i.e. are the most sought after / used locations are also the most costly to WeWork.
I'm sitting in a WeWork in Manhattan right now, which I would guess is one of the "bad" (meaning, WeWork overpaid) leases. It has fairly low occupancy--definitely less than 50%.
Feels like part of the culture problem in business of building things just to exit rich, lots of things to me appear that they could have been nice sustainable businesses (which in my mind net community and cultural health benefits we don't see with acquired or companies that go public and turn to being run like banks).
I wish more of the entrepreneurs here valued building something to last not to sell - but it's sort of baked into the silicon valley DNA it seems. Move fast and get acquired/IPO before the loans run out.
I share your frustration and agree. I think the last decade+ has been a lost decade for our industry - where we went from producing products people want that are highly profitable, to producing products of either dubious value or money-losing, or both.
We've gone from an industry of delivering real, tangible advancements (and the profits it entails) to an industry that largely delivers hot air, and whose primary money-making mechanisms is the pump-and-dump, and absconding with the winnings before the smoke clears.
Uber, WeWork, the "metaverse", pretty much the whole of crypto... the list goes on.
It's endlessly frustrating, especially because it demonstrates such a cynical view of technology. There's value to be produced! Real products that improve your lives, and make money doing it! We haven't even begun to run up against the limits of what technology can do for people!
It's doubly frustrating when certain high-profile people in our industry blame society's "techno-pessimism" for their own failures. They're the ones who funded a decade-long orgy of wasted money shoveled endlessly at an infinite sequence of companies that produced nothing of value. They're the ones who funded pump and dump after pump and dump - and now they're crying foul and claiming that the rest of us are the cynical ones.
It's all history, but it does sting somewhat to realize that so much VC went to the undeserving founder of WeWork, enriching him enormously while the eventual funding all bled away to landlords and banks - instead of other more deserving startups.
A lot of the cheerleading for WeWork was driven by distaste for Regus and the stodgy incumbents, very similar to the Uber/Airbnb hype re: taxis and hotels. Everyone thought the low prices and good service would last forever, even as their strategy was clearly to monopolize control of premium commercial real estate.
Now these companies have gone public, raised prices massively, we're right back to square one.
I've rented coworking space for about 6 years and evaluated WeWork in 2 cities. It was never a good value, so I've chosen smaller places with single locations.
There should be some scale due to bargaining position. But i dont think they should be tech company scaling. They can at least centralize corporate (it, hr, accounting, etc). But this is the mindset of a frugal business and not a vc funded business.
There's certainly some customers who benefit from having a provider with multiple locations in different metros, but I don't think it's enough to be a strong selling point.
In contrast, a small coworking space could be an offshoot of another local business; some people will build or rent more space than their office needs, and sublet the extra for coworking. Often, cost / square foot is lower when you have larger spaces, so if there's demand for smaller spaces, you can probably offset the cost of the larger space (and maybe it gets you into a building with a better location or amenities). And it provides you flexibility --- if your company is growing, you accept fewer coworking customers, etc.
But a dedicated coworking business has to cover the whole rent, and won't gain anything from flexibility to expand its workforce.
I can see a larger company wanting to manage a contract with just a single provider across multiple locations. But, at the individual level, it seems as if it would be primarily a local thing.
I have to believe that for most uses, the primary appeal of a coworking space for individuals at least is having an office outside of a cramped urban apartment/condo and having access to a conference room on-demand rather than having an office available wherever you're traveling to. (Maybe the conference room for some purposes.)
I did a lot of travel pre-COVID and I never felt the need for an office in whatever city I was visiting.
I really hope coworking spaces can stay / become locally owned endeavors run by small teams instead of huge chains. Like mom and pop office spaces.
I've used a lot of them and Wework was the most "clinical" and corporate of them. The small local ones tend to have awesome community, fun after work get together and special events, a little board game area, etc. All in all they actually feel like communities, not just desks.
Agreed. My local one is run by a member of the local community. Biscuits, wi-fi, good coffee, and a short walk from my home rather than a commute anywhere.
The only downside to this is for people who travel a lot, which admittedly is likely not too much of an issue for most. Or those who like a change of pace and not to be tied to one location. Though there are some local chains that own various spots in their home city which are nice.
I travel for a couple months at a time to different places and while WeWork certainly has a feel that many don't like much, its always a convenient and reliable option when it comes to getting access to someplace with good wifi, amenities etc.
I travel all around Latin America and Spain for the most part, with some trips to other places for relatively long stretches of time and haveing a wework membership in certain cities makes finding a good place to work from much more easy and convenient.
When I'm in a place without a wework I generally do go to a local place, but most large cities have wework available and its just less stress to have to always sign up with a new place, or have to negotiate rates if I'm not staying for a full month or so.
I met the founder of https://www.deskpass.com/ at one of these small local ones, and used it some while traveling. It might not have the extensive network of Wework, but at least in major US cities, I could always find something. Looks like there's a couple (only) in Spain too.
But it's an interesting model, at least. Many local credit unions are also part of a shared ATM network, for example, and often science museums will have reciprocal memberships across the world (via the ATC Travel Passport program).
But yeah, I hear you. It's the same reason Starbucks is popular everywhere... consistent reliability + availability is a big perk that locals have a hard time matching.
No one has mentioned this: once upon a time, a lawyer with capital would rent out more space than he needed, say, a floor with ten separate offices, all accessed by a single door. He rented nine of them to other lawyers, charged a fee for a shared receptionist, copy room, (not phones--everyone needed their own line) and tried to make sure that his lessees preferred different specialties so they could refer business to each other. It worked pretty well.
But nobody called it "co-working."
Lol, I thought that was the setup to a joke at first :) What do you call a hallway full of lawyers?
But no, that sounds interesting! I guess it's not that different from today's coworking spaces in that "someone with capital starts a shared office" way.
I do like the eclectic mix of people at the local ones, though. They weren't all devs or worked in tech. Made life more interesting that way.
It's common in quite a few industries. For example, it's not uncommon to see this type of setup in the hair salon, beautician, massage, etc. industry.
Health and fitness places likewise will sublet portions of a larger facility out to other businesses. e.g. the Yoga classes at your local big-gym etc.
Most big Asian grocery stores in the U.S. also have lots of small sublet but compatible businesses, so you can get a haircut, buy jewelry and makeup, get lunch, and leave with a coffee and a baked good...all from separate establishments.
My local (major chain) department store has a (major chain) coffee shop and a (major chain) pharmacy branch inside the store; in the parking lot are a (major chain) fast casual restaurant and a (major chain) fast food restaurant (of the same cuisine).
The thing about "co-working" is that you can lease a room for a few hours, or a week. And yes, people did this before WeWork too, but it was much harder before the internet.
I wonder if hotel chains could pivot into this space? A simple mechanism to stow (and lock) the bed upright, with a desk conversion. They could rent the room during the day as an office, then flip it down at night as a hotel room. Since many hotel guests check out early AM, and in many locations hotels are dead during the week, it could be a nice complement.
They wouldn't even necessarily need to rent out the private rooms (which would have higher housekeeping costs, and later check-ins, if they were dual-purposed as work areas) but maybe just a lobby-like or breakfast space or two. That helps the community too, so everyone's not just tucked away in their own little rooms.
However, probably a lot of small indie hotel locations are franchisees with some access to capital but probably limited participation in techie/hipster/young nomad circles (which is mostly what I see in coworking spaces). Usually those small local hotels, in my experience at least, are family-run and maybe not equipped to deal with either the infrastructure side (they almost all have shitty wifi, as a rule) or the customer service side (a constant stream of of people going in and out, not just during check-in and checkout... but then again, that is their bread and butter, so maybe?).
In my recent travels I did come across a cool outdoorsy chain though with more modern attitudes (repurposing old motels into fun community stays with regular rooms, hostel beds, camper van spaces, shared cafes and kitchens, etc.): https://www.logecamps.com/home Something like that could probably easily pivot, but then again, that's often a different demographic than the typical coworking space user. I dunno. These days they're all kinda blending together though :)
Still, all in all a cool idea. Wish I had the capital to start something like that!
I've thought about this type of multitasking before when I see, say, an icecream parlor or a coffee shop in a strip mall. The icecream parlor makes most of its money in the summer, the coffee shop makes most of its money 6am-1pm (I'm guessing). Why not have an AM coffee shop and PM fast-food joint? A summer ice-cream shop and a winter hot-chocolate/cookie/pastry store? All you would need cables and rigging to hoist the unused equipment up near the ceiling. Maybe a 15min turnover and your business is making money for another 8 hours instead of sitting there vacant. With counterweights, locks, and mechanical advantage, you wouldn't need any motors or control systems. I think even a gas line could safely be made to move up/down 6 feet each day. This would all be done by a specialty outfit, not ad-hoc by restaurant owners. All certified and up-to-code.
Not sure why it isn't working for you. It shows me the Day Rates when I do the search (they're not particularly cheap), perhaps lack of avaialbility in the area you are searching for?
commercial real estate has currently excess vacancies from the shrinking needs of classic corporates so it might be a good time for such member-ownership schemes to develop
An REI-like model of coworking spaces would be interesting. Member-owned (centrally), then professionally managed & staffed (at each location), with member privileges usable anywhere?
I dunno, I like the modern / clean feeling of wework. IME, the others are usually cluttered, not cleaned regularly and the kitchens are littered with random personal appliances/and dirty dishes in the sinks.
A chronically unprofitable company and attempted to IPO at an extremely inflated value and lost more than 50% of its valuation when investors raised those red flags with the founder exit scamming with hundreds of millions of dollars afterwards.
Going through the SPAC scam route finished them off with one more pump and dump on retail investors and unsurprisingly ending up bankrupt. Would never have happened in an environment with near zero interest rates and quantitative easing for decades and infinite money from the VCs.
First WeAreGoingBankrupt [0], then 28 days later, WeAreBroke [1] and now WeAreBankrupt.
In addition to the ticky tack scams he managed on his way out, his golden parachute was historic.
Neumann may have lost his company, but he didn’t leave empty-handed. He walked away with what many called a “golden parachute,” a package that was valued at nearly $2 billion. “Adam Neumann will essentially get a king’s ransom for grossly mismanaging the company on his way out,” Amy Borrus, deputy director of the Council of Institutional Investors, told the Washington Post. The New York Times called Neumann’s deal one of the greatest examples of someone failing upwards.
The punchline is he got funding to do it again - this time in residential real-estate[1]. Hard to reconcile stuff like this with the idea that SV is somehow meritocratic.
We used to joke back in investment banking and private equity that Softbank investments are steaming piles of shit we should stay away from. Perhaps a16z should be added to the gang too.
This could have some “interesting” effects on the already-painful commercial real estate market.
Already it’s brutal as 5/10 yr leaseholders are subletting at cutthroat rates. A WeWork bankruptcy would potentially put a lot more inventory back into the market.
On the flip side, great time to be a startup, you can get cheap short-term leases easily.
While related, commercial real estate ownership and leasing have two separate markets. I imagine WeWork's bankruptcy doesn't invalidate their [sub-]lease agreements (with actual occupants) and just transfers them to creditors. What kind of inventory do you mean will be put back into the market (own vs. lease)?
I’m just talking about the market rate for rent, which owners would be charging to tenants, and which has already been depressed by lots of tenants offering subleases since they are stuck with long leases they can’t use.
> I imagine WeWork's bankruptcy doesn't invalidate their [sub-]lease agreements (with actual occupants) and just transfers them to creditors
I’d be shocked if it works out that way. WeWork operates a highly curated experience, and at nowhere near full occupancy. Can the owner take over and provide the same service? (Don’t think most owners want to get in the business of operating a coworking space, even if it was profitable, which it currently looks like it is not). As a WeWork subscriber I would be surprised if you’d continue to pay for a space with someone else running it? Seems like “handing over some tenants” doesn’t really parse for this business.
Don’t know what % of WeWork is committed space as a sublease, but plenty of it is not (that is one of the USP of their offering).
I'm surprised a bankruptcy didn't happen earlier if it allows them to renegotiate leases. Another company I've long thought had way too much debt to assets took a big hit today as well. With current rates or higher interest rates, how many companies are going to be underwater in the near term?
Bankruptcy usually wipes out the shareholders and gives the company to the bondholders, but nowadays that's often the same group of people - not sure it happened in this case but Softbank could have bought majority of shares in WeWork, and then lent them money, so when they go bankrupt they still own the company.
End of the day the business itself filled a niche, but the TAM is smaller than a VC funded startup needs.. the pricing needs to be higher to survive, and there is no moat. Not a lot of magic to renting out real estate.
Really any half competent large landlord should be able to run their own brand of these, or offer it as one of the pricing levels.
It's also not even clear you need a global brand of this.
There's no name coworking spaces all over Brooklyn now.
If I want to use one when I'm elsewhere, then I'll use whatever they have...
There's not a big platform effect here.
> It's also not even clear you need a global brand of this.
For me, the cool thing was knowing that in a multitude of different cities, I could just walk into a WeWork, using the same app, same system I'm already familiar with and trusted at, and just get on with whatever I'm doing.
Kind of like being able to trust Uber in a new, unknown place. Or walking into a McDonald's anywhere in the world and knowing exactly what I'm getting.
For ~95% of my work travel, Starbucks solves this already for me though..
I guess if you’re in a line of work where you travel often, stay long, and the destinations are not where your employer has offices, like maybe sales, devrel, that kind of thing? Although friends I have in sales and devrel don’t normally stay more than a week in a city
Right but then it means WeWork had the wrong structure.
Uber is basically a middleman with independent contractors putting up the capital (car) and labor (driving).
McD is a franchise with independent business owners putting up the capital (restaurant location) and labor (employees).
So maybe WeWork 2.0 as a platform that allows CRE landlords to list spare space in any city globally makes some sense. WeWork puts up little to zero capital and just takes a cut.
WeWork 1.0 original sin was they were basically like those Airbnb sublet side hustlers. They signed multi-year leases for millions of square foot of space, and then tried to fill it with people paying for single seat per month at a time.
Essentially duration transformation for leases.
This works OK enough (well barely) when rates are low and return expectations match, but very bad when rates are high and you can get low risk high returns elsewhere.
Question for finance people in the know. WeWork stock is still trading at $1.15 a share. Why hasn't it gone lower? Equity investors will get nothing in a bankruptcy, so are these people who are buying at $1.15 really thinking there is some miracle by which WeWork won't go bankrupt and equity investors will make out, or is there some other scenario I'm unaware of where WeWork goes through Chapter 11 but somehow common shareholders aren't totally wiped out?
There is another scenario. Equity investors sometimes get something during a bankruptcy. This is what happened to Hertz. (IIRC Hertz was selling shares to retail investors during bankruptcy, the SEC put a stop to it, and then Hertz made a miraculous recovery and it turns out the SEC was really just preventing wholesome capital formation and a win for the little guys.)
Big popular companies nearing bankruptcy is ripe for a lot of volatility in the stock price due the retail meme behavior. If you time your entry and exit perfectly here your returns could be in many multiples of your initial investment. E.g. on sept 12 wework stock almost doubled in price in a single day of trading.
up til now I could see a customer saying "who cares" wrt WeWork's financial situation, the product can still be fine and useful.
but if you're effectively subleasing, and WeWork might not be able to pay their rent, suddenly that seems like a huge problem. is there going to be a giant padlock on the door when I come in to meet with clients tomorrow? Am I going to have to call the sheriff to sort out which property is mine and not covered by a lien against the tenant?
who even knows if these are realistic possibilities given WeWork's specific lease and contract with the subtenant, but if you suddenly have to worry about it, the product is actually worse.
Short term this isn't a big deal for current customers. Landlords would prefer to get the revenue you are supplying rather than lock you out of your office. You would be under no obligation to pay your wework membership fee if they locked you out.
Your point is very relevant to future customers though. If you are in the market for short term office space why would you chose the one that might shutdown in 3 months.
The business model was always completely flawed: lease long and rent out short.
It will always fail if there's a pandemic, WFH trend, hatred of commuting into CBDs, or everyday recession. Put all four together and it's dead man walking.
Just a pity that Adam Neumann made money from an obviously bad idea.
There are several WeWork competitors[1] that are doing just fine with the "lease long, rent short" model. They're just not valued as if they're a tech company like Google[2].
Fundamentally it seems like a pretty boring business of market forecasting and risk management. Not something that's going to yield 10X returns for a VC.
Why does everyone keep repeating that as if it was the worst idea ever?
I mean, there are lots of businesses doing exactly that. Banks, insurance companies, other real estate etc. It's just a matter of pricing and not taking more risk than you can afford.
Banks are backed and bailed out by governments when their risk management goes wrong, if they are big enough (TBTF). Private risk and profit, but public liability, often ultimately impinging on monetary expansion and inflation, because fiat currency central banks just print more money for the bailouts.
If the banks are small, they might be allowed to go bankrupt. But sometimes they are 'merged' into a bigger bank, under the auspices and supervision of the govt (fin sec regulator), often at a token 1 EUR/USD/GBP price (for the latest, see CSFB->UBS). In some cases, the shareholders and bondholders get to keep their money (!). This is not a real market.
At the moment, the Fed & Treasury are punishing the banks by offering high rates on short notes and 2-year bonds. You may have noticed your bank offers <1% on instant access deposits but the US Govt offers 4-5% (easily available at treasurydirect.gov). Money market accounts offer the same, minus fees. Banks cannot survive, so the Fed offers them free money, and interest on reserve accounts, so they are bailed-out by proxy, without anyone having to utter the word bailout.
Insurance companies are also bailed out, but only if they are in the financial re-insurance industry and TBTF (see AIG). Other insurers just go bankrupt, unless they are small-medium size, and can reinsure at somewhere like Lloyds of London, with unlimited liability and the skin-in-the-game of personal liability (not ltd protection).
Nassim Taleb can explain the fat-tail risk, and why failures will happen eventually.
Real estate, especially CRE, will go bankrupt very soon, if interest rates stay at this level any longer. Some of those failures will be cascaded from WeWork's bankruptcy. Watch this space...
None of the examples you give are viable business models without implicit or explicit govt backing. They are picking up pennies in front of the Juggernaut of fat-tail risk.
Well, yes and no. The above is true for a subset of banks in a subset of countries. But it is also not an argument that banking is somehow a bad business idea in general.
Banking is one of the oldest business models, and there are many banks that are hundreds of years old and has weathered numerous crises. That alone should settle the argument if banking is a valid business idea or a dumb one that is doomed to fail without government backing.
The banking business is risk management. Execution is everything. Compare Silicon Valley Bank with BoA. They aren't remotely similar in the risk exposure. Or compare Scandinavian banks with Italian. There's just no comparison. Regulation has kept the former in check, and is so well capitalized it will survive anything, and this is part of how to properly manage risk when, as you rightly say, the banks are too big to fail.
Taleb is interesting and thought provoking to some, but not remotely scientific. It is collection of anecdotes, not principles to base your entire society on. Plenty of banks work well and has done so for centennia.
Fed currently supporting US banks to the tune of ~$110bn, following failure of 3 medium-sized banks: SVB, Silvergate, Signature. Many/most US banks are technically bankrupt at MTM asset prices, because of losses on bonds, as the fed raises interest rates (ZIRP was not forever?). Some claim they will Hold To Maturity (HTM), others are grabbing Fed money with both hands to cover MTM losses:
Swiss banks - CS bankrupt, merged with UBS. German banks - DB and Commerzbank are both basket cases, with stock prices bouncing along the bottom, and only avoid bankruptcy because of the implicit ECB backing ( Whatever it takes ). Dodgy state-run French banks propped up by the bailout of Greece - no money went to Greece, it just went into an ECB account, then direct to creditors, mostly French banks!
Many EU sovereigns and banks and companies have been bailed out by ECB buying risky assets, even commercial bonds, etc. (Fed is also authorized to buy junk bonds, hence tight spreads v. triple-A paper).
UK banks collapsed in 2007-9, with run on Northern Rock. The banking system was effectively nationalized for a decade, and many banks merged into the TBTF incumbents. Recently, the BOE had to bail out pension funds because of MTM losses on bonds.
WeWork's model was completely backwards: they signed long term leases and then subleased the space short term.
Given the state of commercial real estate, there's a play in inverting the model: have the landlord pay you to run a coworking space in their building. You charge a base fee and a commission; landlord keeps the rest. If the landlord gets a tenant they can terminate the arrangement.
You might want to buy wework out of bankruptcy for brand name and subscriptions or not.
This aligns the incentives better. Wework's model is like a bank that lends long but borrows short (you can walk up and pull your money out at any time), but without the protections banks are given through regulation and insurance.
> have the landlord pay you to run a coworking space in their building.
This seems pretty sane to me. Or make the business franchise-based; the business provides branding, marketing, and training, franchisee/landlord hires staff, and handles supplies and maintenance.
All I want from a coworking space is a door that closes, a location within walking distance of my home, and a price point that is closer to a cup of coffee than a meal. WeWork obviously can't do this, but maybe the successor can.
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[ 3.2 ms ] story [ 208 ms ] threadIt can still become profitable by removing the bad leases/renegotiating, I believe after the bankruptcy filling it will be an okayish company, but I doubt that it will still be a public company.
Doubt Softbank will ever recover what they invested in there though
I think it's very likely a takeover. Right now it costs nothing(~$100M) for SoftBank, but they'd rather let it go through bankruptcy as it will help the company to get rid of the bad part of WeWork.
I'm not an investor in WeWork ATM, but I wouldn't mind to own some stocks once this is sorted out.
Seems like it would be a bad move unless they can shed all of WeWork's unprofitable leases. What assets does WeWork have that are worth buying? The name? The app?
That’s virtually guaranteed. They’ve put over $17 billion into WeWork, and the entire company (which they only own a portion of) is currently valued at $121 million.
I’m not sure how much it’s value would have to rise for them to break even, but … it would have to be a lot. 300x? Something like that.
Softbank has already lost >99% of their investment - and VCs are infamous for being willing to sacrifice a sustainable business model for a shot at nearly impossible odds. What incentive does Softbank have to actually turning WeWork into a far less profitable going concern, vs. taking yet another wild swing at a thing?
The problem with WeWork is that Adam Neumann closed really bad leases (which are typically like decade long) which makes certain locations not profitable at all, no matter how WeWork provides a good service.
Once you remove the rotten stuff, they've got actually pretty good business, 75%+ occupancy rate and people who use WeWork actually like it.
It's also a memorable brand and that business model they have is actually good. But you need to "reshape" completely the company, and only through bankruptcy laws you could achieve it.
Are their most used buildings "bad leases" and their good leases are sitting empty? i.e. are the most sought after / used locations are also the most costly to WeWork.
In the same sense as Juicero.
I wish more of the entrepreneurs here valued building something to last not to sell - but it's sort of baked into the silicon valley DNA it seems. Move fast and get acquired/IPO before the loans run out.
We've gone from an industry of delivering real, tangible advancements (and the profits it entails) to an industry that largely delivers hot air, and whose primary money-making mechanisms is the pump-and-dump, and absconding with the winnings before the smoke clears.
Uber, WeWork, the "metaverse", pretty much the whole of crypto... the list goes on.
It's endlessly frustrating, especially because it demonstrates such a cynical view of technology. There's value to be produced! Real products that improve your lives, and make money doing it! We haven't even begun to run up against the limits of what technology can do for people!
It's doubly frustrating when certain high-profile people in our industry blame society's "techno-pessimism" for their own failures. They're the ones who funded a decade-long orgy of wasted money shoveled endlessly at an infinite sequence of companies that produced nothing of value. They're the ones who funded pump and dump after pump and dump - and now they're crying foul and claiming that the rest of us are the cynical ones.
They're in the hole $20B (plus lease obligations), and best case scenario is that they make a couple hundred million per year.
That wouldn't even pay for interest on the debt in the ZIRP world.
An inverse Dropbox.
Now these companies have gone public, raised prices massively, we're right back to square one.
In contrast, a small coworking space could be an offshoot of another local business; some people will build or rent more space than their office needs, and sublet the extra for coworking. Often, cost / square foot is lower when you have larger spaces, so if there's demand for smaller spaces, you can probably offset the cost of the larger space (and maybe it gets you into a building with a better location or amenities). And it provides you flexibility --- if your company is growing, you accept fewer coworking customers, etc.
But a dedicated coworking business has to cover the whole rent, and won't gain anything from flexibility to expand its workforce.
I did a lot of travel pre-COVID and I never felt the need for an office in whatever city I was visiting.
The problem is with the size of that market, and how do you serve it. WeWork wasn't actually a valid experiment about any of those.
I've used a lot of them and Wework was the most "clinical" and corporate of them. The small local ones tend to have awesome community, fun after work get together and special events, a little board game area, etc. All in all they actually feel like communities, not just desks.
This is the way!
I travel for a couple months at a time to different places and while WeWork certainly has a feel that many don't like much, its always a convenient and reliable option when it comes to getting access to someplace with good wifi, amenities etc.
I travel all around Latin America and Spain for the most part, with some trips to other places for relatively long stretches of time and haveing a wework membership in certain cities makes finding a good place to work from much more easy and convenient.
When I'm in a place without a wework I generally do go to a local place, but most large cities have wework available and its just less stress to have to always sign up with a new place, or have to negotiate rates if I'm not staying for a full month or so.
But it's an interesting model, at least. Many local credit unions are also part of a shared ATM network, for example, and often science museums will have reciprocal memberships across the world (via the ATC Travel Passport program).
But yeah, I hear you. It's the same reason Starbucks is popular everywhere... consistent reliability + availability is a big perk that locals have a hard time matching.
If you haven't seen it before, it's a great way to find (and use) small local spaces. It's basically the Classpass of coworking.
But no, that sounds interesting! I guess it's not that different from today's coworking spaces in that "someone with capital starts a shared office" way.
I do like the eclectic mix of people at the local ones, though. They weren't all devs or worked in tech. Made life more interesting that way.
Health and fitness places likewise will sublet portions of a larger facility out to other businesses. e.g. the Yoga classes at your local big-gym etc.
Most big Asian grocery stores in the U.S. also have lots of small sublet but compatible businesses, so you can get a haircut, buy jewelry and makeup, get lunch, and leave with a coffee and a baked good...all from separate establishments.
They wouldn't even necessarily need to rent out the private rooms (which would have higher housekeeping costs, and later check-ins, if they were dual-purposed as work areas) but maybe just a lobby-like or breakfast space or two. That helps the community too, so everyone's not just tucked away in their own little rooms.
However, probably a lot of small indie hotel locations are franchisees with some access to capital but probably limited participation in techie/hipster/young nomad circles (which is mostly what I see in coworking spaces). Usually those small local hotels, in my experience at least, are family-run and maybe not equipped to deal with either the infrastructure side (they almost all have shitty wifi, as a rule) or the customer service side (a constant stream of of people going in and out, not just during check-in and checkout... but then again, that is their bread and butter, so maybe?).
In my recent travels I did come across a cool outdoorsy chain though with more modern attitudes (repurposing old motels into fun community stays with regular rooms, hostel beds, camper van spaces, shared cafes and kitchens, etc.): https://www.logecamps.com/home Something like that could probably easily pivot, but then again, that's often a different demographic than the typical coworking space user. I dunno. These days they're all kinda blending together though :)
Still, all in all a cool idea. Wish I had the capital to start something like that!
The Hilton one doesn't actually show any day rates when you search, just regular room nights.
The Marriott one shows no day rate availability in any city I checked.
Were these experiments they ran in the past but gave up on, or am I doing something wrong?
Going through the SPAC scam route finished them off with one more pump and dump on retail investors and unsurprisingly ending up bankrupt. Would never have happened in an environment with near zero interest rates and quantitative easing for decades and infinite money from the VCs.
First WeAreGoingBankrupt [0], then 28 days later, WeAreBroke [1] and now WeAreBankrupt.
[0] https://news.ycombinator.com/item?id=37750481
[1] https://news.ycombinator.com/item?id=38092599
Neumann may have lost his company, but he didn’t leave empty-handed. He walked away with what many called a “golden parachute,” a package that was valued at nearly $2 billion. “Adam Neumann will essentially get a king’s ransom for grossly mismanaging the company on his way out,” Amy Borrus, deputy director of the Council of Institutional Investors, told the Washington Post. The New York Times called Neumann’s deal one of the greatest examples of someone failing upwards.
https://time.com/6158804/wecrashed-true-story/
[1] https://en.wikipedia.org/wiki/Flow_(real_estate_company)
We used to joke back in investment banking and private equity that Softbank investments are steaming piles of shit we should stay away from. Perhaps a16z should be added to the gang too.
Already it’s brutal as 5/10 yr leaseholders are subletting at cutthroat rates. A WeWork bankruptcy would potentially put a lot more inventory back into the market.
On the flip side, great time to be a startup, you can get cheap short-term leases easily.
> I imagine WeWork's bankruptcy doesn't invalidate their [sub-]lease agreements (with actual occupants) and just transfers them to creditors
I’d be shocked if it works out that way. WeWork operates a highly curated experience, and at nowhere near full occupancy. Can the owner take over and provide the same service? (Don’t think most owners want to get in the business of operating a coworking space, even if it was profitable, which it currently looks like it is not). As a WeWork subscriber I would be surprised if you’d continue to pay for a space with someone else running it? Seems like “handing over some tenants” doesn’t really parse for this business.
Don’t know what % of WeWork is committed space as a sublease, but plenty of it is not (that is one of the USP of their offering).
End of the day the business itself filled a niche, but the TAM is smaller than a VC funded startup needs.. the pricing needs to be higher to survive, and there is no moat. Not a lot of magic to renting out real estate.
Really any half competent large landlord should be able to run their own brand of these, or offer it as one of the pricing levels.
It's also not even clear you need a global brand of this. There's no name coworking spaces all over Brooklyn now. If I want to use one when I'm elsewhere, then I'll use whatever they have... There's not a big platform effect here.
So what you're saying is... we need a massive VC-funded search function tool like Zillow for coworking spaces.
Kidding, kidding (I think?).
For me, the cool thing was knowing that in a multitude of different cities, I could just walk into a WeWork, using the same app, same system I'm already familiar with and trusted at, and just get on with whatever I'm doing.
Kind of like being able to trust Uber in a new, unknown place. Or walking into a McDonald's anywhere in the world and knowing exactly what I'm getting.
It's a shame it didn't work out.
I guess if you’re in a line of work where you travel often, stay long, and the destinations are not where your employer has offices, like maybe sales, devrel, that kind of thing? Although friends I have in sales and devrel don’t normally stay more than a week in a city
So maybe WeWork 2.0 as a platform that allows CRE landlords to list spare space in any city globally makes some sense. WeWork puts up little to zero capital and just takes a cut.
WeWork 1.0 original sin was they were basically like those Airbnb sublet side hustlers. They signed multi-year leases for millions of square foot of space, and then tried to fill it with people paying for single seat per month at a time.
Essentially duration transformation for leases.
This works OK enough (well barely) when rates are low and return expectations match, but very bad when rates are high and you can get low risk high returns elsewhere.
but if you're effectively subleasing, and WeWork might not be able to pay their rent, suddenly that seems like a huge problem. is there going to be a giant padlock on the door when I come in to meet with clients tomorrow? Am I going to have to call the sheriff to sort out which property is mine and not covered by a lien against the tenant?
who even knows if these are realistic possibilities given WeWork's specific lease and contract with the subtenant, but if you suddenly have to worry about it, the product is actually worse.
Your point is very relevant to future customers though. If you are in the market for short term office space why would you chose the one that might shutdown in 3 months.
It will always fail if there's a pandemic, WFH trend, hatred of commuting into CBDs, or everyday recession. Put all four together and it's dead man walking.
Just a pity that Adam Neumann made money from an obviously bad idea.
Fundamentally it seems like a pretty boring business of market forecasting and risk management. Not something that's going to yield 10X returns for a VC.
[1] https://www.cbsnews.com/news/ftx-bankruptcy-tweet-sam-bankma...
[2] https://www.forbes.com/sites/forbestechcouncil/2019/06/14/ho...
I think its a perfectly fine business model if you can get enough subscribers.
They could definitely raise their prices as the IMO the local competitors cost more and are not as well managed. (At least in Seattle)
Why does everyone keep repeating that as if it was the worst idea ever?
I mean, there are lots of businesses doing exactly that. Banks, insurance companies, other real estate etc. It's just a matter of pricing and not taking more risk than you can afford.
If the banks are small, they might be allowed to go bankrupt. But sometimes they are 'merged' into a bigger bank, under the auspices and supervision of the govt (fin sec regulator), often at a token 1 EUR/USD/GBP price (for the latest, see CSFB->UBS). In some cases, the shareholders and bondholders get to keep their money (!). This is not a real market.
At the moment, the Fed & Treasury are punishing the banks by offering high rates on short notes and 2-year bonds. You may have noticed your bank offers <1% on instant access deposits but the US Govt offers 4-5% (easily available at treasurydirect.gov). Money market accounts offer the same, minus fees. Banks cannot survive, so the Fed offers them free money, and interest on reserve accounts, so they are bailed-out by proxy, without anyone having to utter the word bailout.
Insurance companies are also bailed out, but only if they are in the financial re-insurance industry and TBTF (see AIG). Other insurers just go bankrupt, unless they are small-medium size, and can reinsure at somewhere like Lloyds of London, with unlimited liability and the skin-in-the-game of personal liability (not ltd protection).
Nassim Taleb can explain the fat-tail risk, and why failures will happen eventually.
Real estate, especially CRE, will go bankrupt very soon, if interest rates stay at this level any longer. Some of those failures will be cascaded from WeWork's bankruptcy. Watch this space...
None of the examples you give are viable business models without implicit or explicit govt backing. They are picking up pennies in front of the Juggernaut of fat-tail risk.
Banking is one of the oldest business models, and there are many banks that are hundreds of years old and has weathered numerous crises. That alone should settle the argument if banking is a valid business idea or a dumb one that is doomed to fail without government backing.
The banking business is risk management. Execution is everything. Compare Silicon Valley Bank with BoA. They aren't remotely similar in the risk exposure. Or compare Scandinavian banks with Italian. There's just no comparison. Regulation has kept the former in check, and is so well capitalized it will survive anything, and this is part of how to properly manage risk when, as you rightly say, the banks are too big to fail.
Taleb is interesting and thought provoking to some, but not remotely scientific. It is collection of anecdotes, not principles to base your entire society on. Plenty of banks work well and has done so for centennia.
https://fred.stlouisfed.org/series/H41RESPPALDKNWW
Spanish & Italian banks are infamous. The oldest bank, BMPS went down.
https://en.wikipedia.org/wiki/Banca_Monte_dei_Paschi_di_Sien...
Swiss banks - CS bankrupt, merged with UBS. German banks - DB and Commerzbank are both basket cases, with stock prices bouncing along the bottom, and only avoid bankruptcy because of the implicit ECB backing ( Whatever it takes ). Dodgy state-run French banks propped up by the bailout of Greece - no money went to Greece, it just went into an ECB account, then direct to creditors, mostly French banks!
Many EU sovereigns and banks and companies have been bailed out by ECB buying risky assets, even commercial bonds, etc. (Fed is also authorized to buy junk bonds, hence tight spreads v. triple-A paper).
UK banks collapsed in 2007-9, with run on Northern Rock. The banking system was effectively nationalized for a decade, and many banks merged into the TBTF incumbents. Recently, the BOE had to bail out pension funds because of MTM losses on bonds.
https://www.theguardian.com/business/2022/sep/28/bank-of-eng...
Given the state of commercial real estate, there's a play in inverting the model: have the landlord pay you to run a coworking space in their building. You charge a base fee and a commission; landlord keeps the rest. If the landlord gets a tenant they can terminate the arrangement.
You might want to buy wework out of bankruptcy for brand name and subscriptions or not.
This aligns the incentives better. Wework's model is like a bank that lends long but borrows short (you can walk up and pull your money out at any time), but without the protections banks are given through regulation and insurance.
This seems pretty sane to me. Or make the business franchise-based; the business provides branding, marketing, and training, franchisee/landlord hires staff, and handles supplies and maintenance.
>WeWork shares sink
Better let that sink in.