
WeWork revenue, and losses, surge in first release of results - adventured
https://www.reuters.com/article/us-wework-results/wework-revenue-and-losses-surge-in-first-release-of-results-idUSKBN1KU2KI
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JackFr
I can't help but think there's some real estate play that everyone is missing.

They buy long term leases and sell short term leases, which they can mark up
for 1) the optionality provided with a short term lease 2) the optionality to
rent just as much as you need 3) additional amenities provided 4) and
potentially to respond to local market changes (which aren't reflected in the
long term lease.)

That's actually pretty straight forward, and it remains to be seen if it's
profitable.

And yet, I feel I'm missing something. That there is some sneaky real estate
arbitrage (or maybe a tax effect) that turns this from risky to genius.

Or maybe I'm just hoping there is.

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EugeneOZ
Maybe difference in prices of long term and short term leasing is profitable
enough for this model?

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fipple
It’s not even price difference — before WeWork, the stodgy Regus was the only
place to get Class A space on a short term basis.

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rjbwork
I wouldn't exactly call WeWork class A. It's a glass filled cramped place. I
much prefer our Regus office compared to the day I spent testing WeWork. Too
much visual and auditory distraction.

There's something to say for stodgy.

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hobofan
Here in Berlin (in the newer buildings) they also rent out whole floors. I
would say that at least those fall under class A.

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blumomo
Here in Berlin I wouldn't call WeWork with their out-of-order elevators,
constant ongoing construction works which block the 2 remaining elevators,
plenty of construction noises, failing power provision and broken door handles
a class A place to work at.

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cylinder
Yep I was the first tenant at a WeWork flagship and would never go back.

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valuearb
They have 84% occupancy, but revenues are still less than 40% of costs?
Whatever they are doing ain’t working.

Especially when “WeWork said it has reduced capital expenditures through steps
like a 20 percent cut in the cost per desk, or space one member occupies.”
That sounds like a typical end of life trend for failing startups, reduce the
value and quality of your product to desperately try to stem losses.

I work remotely for a startup and can get reimbursed for coworking space if we
want it, but I’ve never been tempted. Why work in a noisy, distraction filled
shared space when I can be far more productive working at home alone, with
zero commute?

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icelancer
>> I work remotely for a startup and can get reimbursed for coworking space if
we want it, but I’ve never been tempted. Why work in a noisy, distraction
filled shared space when I can be far more productive working at home alone,
with zero commute?

These perks are meant for people with families.

~~~
patrickaljord
I have a family of four and work from home. When you work remotely you can buy
outside of expensive big cities where you can get bigger spaces cheaper.

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icelancer
I have a family of four, work from home sometimes, but find it hard to have
kids respecting your workspace because you're "home" after all, so why not
barge in? My wife has trouble with boundaries too on that issue. It's a normal
problem for people who don't "get" IT/WFH. You're home so.... we can bother
you, right?

Lots of people have these problems. It's super common because the idea of
working from home and being unavailable is inherently pretty odd for those who
don't quite get how context-switching is an extreme productivity killer.

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jedberg
It will be interesting to see what happens to WeWork's revenue when VC funding
starts to dry up. From what I can tell, a majority of their income is simply a
wealth transfer from VCs to WeWork via startups. As the startups get less
funding, it will be interesting to see if WeWork can draw enough customers.

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calpaterson
Here in London, I know there are a lot of non-VC businesses using WeWork
offices including the normal people who occupy a lot of offices, like banks.

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joshuatalb
Agree. I work out of the London Moorgate WeWork sometimes and as you said, a
lot of the companies in there are banks. For example, Citi Bank occupy a large
space on my floor.

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evgen
Lots of banking there is seems. It feels to me like floor 3 of the building
has more quant firms and recruiter teams than actual start-ups.

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wjnc
Not a single mention on the valuation of their properties, the regular metrics
regarding real estate (initial yields, WALT - not sure if that's directly
applicable though) and their cashflow projections. For real estate there are
many measures that seek to disambiguate things like "costs come upfront".

And remember, for real estate several billions is quite small potatoes. Fifty
or less not too large office buildings sets you back a billion. The market (at
least prime European that I see) is overly competitive right now with markets
accepting gross yields of 4% and funds making target yields by increasing
leverage. Interest rates come up, valuations come down, unless you've got the
cashflow locked in via long leases. That last part of the game, I think WeWork
will lack. They surf the economic cycle, instead of evening it out long
leases.

Edit: in reading other comments they are not owning buildings but doing term
swaps. In that case they are on the receiving end of a whole lot of risk. 84%
occupancy is fine, but in this market that is not too high. Most commercial
funds will be a lot higher right now and they have the incentives on
investments better aligned with longer contracts. How WeWork thinks to weather
an economic downturn beats me.

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speedplane
At least in NYC, many commercial leases are 20 or 30 years. I imagine WeWork
gets similar terms. In highly appreciating markets (London, NYC) towards the
end of such a long lease (the last ten years or so), the lessee is paying well
under market rate, and the lease becomes an asset rather than a liability. So
if office real estate continues an upward trajectory for a decade or so, they
can easily weather a downturn if it occurs in the later part of their lease
term.

If it happens in the next 3-5 years, it’ll probably be catastrophic for them.

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fullshark
The language here indicates they think they are growing a "platform". I guess
i don't really get how a global network of WeWork sites will add value to
their clientele. Are they expecting people to want to join WeWork over a local
competitor because they know if they go to city X for business there will be a
WeWork office available for them? Is that really worth a lot to their clients
that they will pay a premium for it?

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AndrewKemendo
_Are they expecting people to want to join WeWork over a local competitor
because they know if they go to city X for business there will be a WeWork
office available for them?_

Yes, that's one of their primary, explicit selling points.

 _Is that really worth a lot to their clients that they will pay a premium for
it?_

Yes, that's one of the major reasons people use WeWork instead of local office
space rentals.

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MarkMc
>> Is that really worth a lot to their clients that they will pay a premium
for it?

> Yes, that's one of the major reasons people use WeWork instead of local
> office space rentals.

Perhaps another reason is that WeWork charges fees which are too low to cover
all their expenses, and local competitors do not.

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cncrnd
WeWork is just a gamble on real estate. There are probably instruments with
very similar upside and risk as WeWork.

VCs, probably not familiar with the world of real estate, aren't able to see
this. They think they're investing in something new, but it's really the same
old stuff in a new package that they're paying a premium for.

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jacquesm
They could start to save some money by getting rid of their photo system at
the entry. Not that it works, you can just bypass it by holding your hand in
front of the lens.

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Tempest1981
If you have a team of, say, 5 people, can you reserve a nook/area to be
together?

Or is it like movie theater, where it isn't polite for 1 early person to hold
5 seats?

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the_mitsuhiko
I find it interesting that WeWork managed to market itself as being different
than regus when it's in reality just a slightly different version of Regus.

