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    • Any experts in real estate investing here on Cake? I'd love to see a model of what their valuation might be today if they used the majority of their $12.6B in funding to acquire and develop real-estate over the past 11 years.

      I imagine they'd be a lot closer to that $50B in valuation they were originally hoping for. Given other companies they compete with it appears they should be more like a $5B - $10B company.

    • That’s a great question. The way I see it is they have long-term liabilities (leases of buildings) and short-term assets (tenants).

      They have to pay those leases even if their tenants thin out in a downturn. But they must have paid 💰💰💰 on leases during a boom time in the economy to become the largest leaseholder in cities like London and New York, as they brag about.

      This is not a new business model and to my knowledge all previous companies who’ve tried it went bankrupt because the economy is cyclical. Tenants flee in downturns and you are left paying on leases you agreed to in boom times.

      My understanding is rich commercial real estate guys, like one of my best friends, own their buildings. But you can’t grow as fast as WeWork by purchasing because it soaks up your cash in the short term.

      What do you think?

    • I wouldn't touch this one with a barge pole. The business model suggest they take in property under long term leases and provide them to customers over substantially shorter periods. This is a classic "borrow long, lend short" approach that rarely results in anything other than disaster.

      It is also a 100% leveraged business model - and this is generally to be avoided. I am surprised Softbank allowed itself to endorse this approach.

      From my perspective their is no equity value in the prospective stock as they do not own any physical property. If everything went south the stockholders would have no tangible net assets to call on. When a guide IPO valuation drops by half in a week, you know someone at one of the underwriting banks suspects that investors at large may be seeing this too, and they do not want to be left holding large amounts of the IPO issuance.

      As we enter a period of rumoured economic slowdown, will the occupancy rates of those leasehold properties fall? Could be. Will this affect WeWork's ability to service head lease rents? Could be. The comments of @Chris are spot on, also.

    • My understanding is rich commercial real estate guys, like one of my best friends, own their buildings. But you can’t grow as fast as WeWork by purchasing because it soaks up your cash in the short term.

      Makes sense to me. I think if you're building a real-estate empire with a 30 - 50 year view it's just so obvious you should buy the building, enjoy some cash flow while the renters pay the mortgage and then when it's paid off you're really making $$ with plenty of equity and cash flow to invest in the next one.

      Really rough math here (and i'm not a real-estate investor).

      If $12b was used as 30% down payment of building purchases that would be assets around $40b ($12b cash + $28b debt). Then if we assume that over the years the properties have started to be paid down + increased equity in the value of the building they probably owe less then the $28b in debt and have gained 20% more equity ~@$50b?

    • I also read that founder Adam Neumann has already cashed out $700 million pre-IPO. Not sure exactly how he did this - he may have sold his equity to Softbank, who are in for both debt and equity exposures. Again, how could this be allowed or endorsed? Cardinal rule broken.

    • This is all about return on invested capital. You make a lot more absolute profit if you own assets using sensible leverage. But you have to have to put your capital at risk first.

      The WeWork model posits a far lower absolute profit (as they only accrue a delta between head and sub lease payments) but since they are not putting in any risk capital, their return on their invested funds is, nevertheless, far higher. And without the capital at risk, of course.

      Its great when it works but hell on wheels when it doesn't.

    • At the risk of sounding cynical, a lot of the problem is collected around Wall St. The classic investment bank behaviour is to sell absolutely anything you believe you can get away with, and earn the underwriter fees without taking a realistic risk of having to actually underwrite.

      If they can pump the bubble and get another IPO away, then they do it.

      When shipping IPO's were all the rage, Wall St would have had you believe that this sector was a fool proof investment - and not just at that time, but tomorrow also (with the help of a lot of future-based statements). So, shipping IPOs are sold and sold and sold..........right up to the point where investors start to decide this not the nirvana they had been promised.

      At this point, and ignoring the irony of all the preceding future-based statements, Wall St up-anchors and moves away from shipping IPOs and re-focuses to whatever other asset class or industry sector that will sell. This cycle repeats ad infinitum.

      In the case of WeWork, Wall St thought they could catch the tech-stock wave and ride the frothy sentiment. And get another IPO away, for the usual fees. Hence a $40 bn valuation to begin with. It is not so much that Wall St thought WeWork was worth $40 bn - it is more that this is the price they believed would sell (for right or wrong). The minute it looked like potential investors has rumbled the essential flaw in the business plan, Wall St decide the valuation of $20 bn (or less) is more reasonable. Again, this has nothing to do with the banks' perception of value; only what they believe the stock will sell for to ensure they are not left with an underwriter allocation. After all, if you really were valuing the company, how can you explain that value halving in a week, with all other things being equal? You would have to suspect incompetence if this were the case, wouldn't you?

      Wall St is a clever place, to be sure. But when you boil it down in the case of IPO's, they are only offering what they think will sell. The minute it doesn't they will be onto something else. It says nothing about long term value.

    • Apparently they're now looking at going to market at $10B valuation...

      so basically they're now worth less then the investment they've taken in. What does that mean for the employees stock option value?

    • I’d like to know too. I’m assuming sophisticated investors have protections like anti dilution provisions that would squeeze employees, but I dunno.

    • The Information did a story this morning on WeWork's tenuous cash position.

      The cash projections underline the We Co.’s tenuous financial position as its CEO, Adam Neumann, faces possible ouster. Prospective public investors have been unreceptive to WeWork’s plans to tap the public markets for more money, forcing the company to slash its proposed valuation and then delay the IPO altogether. If Neumann is pushed out, it is unlikely WeWork will go public this year, but the company could raise more money privately. A new CEO may have an easier time raising money from investors—and would also likely take action to cut costs to give WeWork more time to raise cash. 

      If you don't mind giving up your email address, here's free access to the whole article, which is pretty fascinating:

    • Found this article from Vice fascinating. A first hand experience of working remotely from a shared office at WeWork:

      The final few sentences felt like a nail in the coffin for getting that "community feeling":

      Honestly, I could have gotten it for free at a local library or for the price of a $5 cold brew at a café near my apartment. Sharing a space with other remote employees working alone did not build camaraderie or community so much as it underscored how isolating it can be to work alone all the time, and how badly I wanted to be around other people again. At the end of the last day I spent at “my” WeWork, I slipped a couple of branded mugs in my backpack and walked out briskly without saying goodbye to anyone.

      Maybe this is a one-off experience, so I'd love to hear from others who've actually worked remotely at WeWork offices. Did you get a community feeling there, have you made any meaningful connections or friends?

    • It just goes to show that "remote" working of any sort (whether at home, or in a serviced office space) is not for everyone. I have worked independently and from a home office for over 10 years and find it entirely suits me because I can focus 100% on what I am doing, which most often involves fine detail - either numerical (building or interrogating financial models) or legal (negotiating financing documentation). For me, that level of focus is what enables me to get things done properly in an environment that does not forgive error or complacency.

      However, this does not mean I am isolated. I get into the City on a regular basis to check on with people in my network - in fact, I plan my working week to allow this.

      I think the secret is in acknowledging that keeping in touch with colleagues, competitors and so forth, is part of anyone's workstream. When you are located in a bustling office, you do not consciously appreciate this as the people are "just there". By the same token, when some people find themselves working remotely, they forget or fail to recognise that social contact is part of what they do. Consequently, whilst they will allocate due time to finishing off that presentation for a prospective client, they do not allocate time to getting out to see people.

      For me, it works. When my schedule say "focus", I can do that to the best of my ability. When my schedule says "mingle", I get the train into the City and meet people for coffee, or whatever. Going to industry seminars or conferences works equally well.

      Working remotely is not a binary state; it can be the best of all possible worlds. It just needs a different perspective on time management.

    • I've never worked from a WeWork. I work from home and imagine a similar experience. In my mind, co-working spaces give the illusion of community, but rather they are the furthest from it. Just a stream of professionals coming and going. Though, it seems like WeWork is great for corporations looking to provide desks to traveling employees or to build-out satellite offices.

    • I'd love to hear from others who've actually worked remotely at WeWork offices

      At my last company we had a tiny office in the back of a lawyer's office building at the end of Van Ness in the Marina. Really nice family. They were willing to rent to us when we had no credit history and the business was less then one month old and we were all 25 or younger not sure what they were thinking honestly... they had a 500 square foot office (closet) for us in the back. Not sure if they ever found someone willing to rent it after us but it was perfect for a bootstrapped startup with a fuzzy business plan.

      After almost 5 years there we finally felt comfortable spending more than $1,200 a month on rent and splurged for a four person fishbowl office in the new 535 mission street building that went up next to the Sales Force tower. We had to call in a favor from a friend of a friend at WeWork to get the last open space they had, they sold out almost six floors right after opening.

      To this day it's still the nicest WeWork I've personally seen. When we moved in it was the first time in 8 years in SF where I felt like I was part of the tech scene and maybe we'd made it.

      All glass windows, tall ceilings, important looking security folks downstairs, they gave us fancy badges that beeped when we wanted to access the elevators, bike parking in the basement and a really fancy WeWork lobby on the 14th floor that always impressed our guests with 3-4 receptionists waiting when the elevators opened up, huge leather Restoration Hardware couches, ping pong tables, multiple beers and fancy coffee on tap that even @Vilen would drink. and tons of light, all glass windows everywhere.

      I hated having visitors at our last office, at our new WeWork we invited everyone including the company that acquired us. We'd book huge conference rooms with all glass views looking towards the bay and the new Transbay terminal that was being constructed. Our eventual acquirers loved the space and I knew it made a really good first impression, they probably took us more seriously...

      From a lean, bootstrapped business perspective I also really liked that we could cancel with one month's notice (unlike our previous minimum 1-2 year commitment) and they were willing to take our credit card for the security deposit (points!).

      We never really got to know the companies next to us. It's kind of weird because it was a fishbowl, I sat within 50 feet of probably 50+ humans for hours a day, knew what they looked like and never spoke to them ever. At one point our neighbors put up big white boards between our glass windows to block our view into theirs, I kind of liked it when they did that. I didn't always want to know that people could be watching me all day from either side.

      I would say that we (my two partners) never met most of the people around us because we didn't go to the happy hours or meet ups or those WeWork camping retreats. After building a business for several years (and there were a lot of companies on our floor we didn't really understand what they were doing) we just wanted to work hard during the day and go home to workout and relax. All the other perks that were suggested in the end didn't mean much to us.

      Still very thankful for that WeWork space. They had us as tenants for about 24 months in their glass house that is WeWork.

    • The news about WeWork keeps flowing fast & furiously and I haven't been able to make sense of it. Some reports say they will run out of money next month, some say the 2nd quarter of next year, some say Softbank's problem solver will save it with layoffs, bank debt and asset sales like the $65 million private jet they own.

      And then there are reports of the lavish lifestyles and all the mansions of the founding couple. It just seems incredible that one of the nation's hottest startups of just a few months ago is now getting talked about this way.

    • Seems to me a strategy is for Softbank to let this go to bankruptcy or basically close to it and then put money into it. I don't think WeWork should die but it's not a high growth opportunity.

      Based on my very loose recall of the S-1 of rental revenue vs lease expenses it should generate about $300MM in gross income right now... maybe it can generate a small profit but I think you could argue the business is worth $1.5B, 1x revenue, maybe Softbank puts in another $1.5B for another 50% stake at $3B post.

      Not sure the upside revenue on the current locations, perhaps with current facilities they can do $2B and generate 20% margins, so 2021 they might be worth 5x $400MM with steady growth upside from there?

      Unfortunately all the early employees will basically get wiped out and the founders will as well although they should. (I wonder if Adam Neumann ends up close to broke after he liquidates the buildings he borrowed against his stock to buy?)

      Perhaps of the $1.5B Softbank puts in they could allocate 20% of that to go towards employee bonuses especially to those who have been at the company and had their entire stakes wiped out that were probably worth millions before.

      (1) Cut all expenses except those to operate the current facilities

      (2) cut head count down to only those directly involved with the actual wework offices (minimal tech, marketing, etc etc)

      (3) maximize occupancy in current locations and generate positive cash flow. Cut locations that can't turn a profit, consolidate customers into nearby locations

      (4) Once cash flow positive start investing in buying real-estate to do build outs in strongest markets (NYC, SF etc)

      Just some napkin math and thoughts.

    • I don't think WeWork should die but it's not a high growth opportunity

      The Planet Money podcast from NPR did a show called Unicorn Cowboy (referring to Masayoshi Son, Softbank founder), last week that talked about Softbank's investing strategy:

      [Softbank's] notion was, hey, let's take the average venture capital financing, and let's increase it dramatically, and we're going to give the companies we invest in an unfair advantage.

      It seems like bailing them out from bankruptcy continues that philosophy. That would be the unfair advantage other VC firms would not offer.