5 ms·

I think the model is rather: a) buy long-term leases at low price b) sell short-term leases at high price The problem with this model is that when demand for r

by nebolo 7y ago

I think the model is rather: a) buy long-term leases at low price b) sell short-term leases at high price The problem with this model is that when demand for real estate falls (e.g. because of economic cycles, trends/tastes, etc.) the revenues will evaporate and the costs will remain.

JackFr 7y ago
It's like the old joke: If you can't pay back a $1 million loan, you have a problem. If you can't pay back your $1 billion loan, the bank has a problem. If WeWork can't pay the lease on 29,000 square feet of office space, WeWork has a problem. If they can't pay the lease on 2.9 million square feet of office space, the owners have a problem.
- DesiLurker 7y ago
  that is true only when WeWork may be in danger of filing bankruptcy, otherwise contract law prevails.
  - 55555 7y ago
    I think also more true when they rent from a single owner.
  - CPLX 7y ago
    My understanding is that they spin up separate entities to sign leases, and have cancellation clauses. It seems nuts landlords would agree to that but it’s come up a few times in prior threads.
    - DavidHm 7y ago
      There's a bit of longer-term reputation damage which is significant in an industry dominated by companies who tend to think over the span of decades rather than quarters. One fairly big serviced offices company pulled the "separate entities" trick in one of the previous recessions, and some of the major landlords in that country still to this day, more than a decade later, refuse to do business with them.
BrandonM 7y ago
An HN submission 4 months ago¹ reported that WeWork forms a separate subsidiary for each lease agreement. So at least when they're not the owner, they've conveniently arranged to not be on the hook if a particular location or region doesn't work out. ¹ https://news.ycombinator.com/item?id=18714962 https://news.ycombinator.com/item?id=18714962
- mr_custard 7y ago
  Also this: https://wolfstreet.com/2019/03/25/how-can-a-company-with-1-8-billion-in-revenue-lose-1-9-billion-wework-shows-how/ https://wolfstreet.com/2019/03/25/how-can-a-company-with-1-8...

by nebolo 7y ago

JackFr 7y ago

It's like the old joke: If you can't pay back a $1 million loan, you have a problem. If you can't pay back your $1 billion loan, the bank has a problem. If WeWork can't pay the lease on 29,000 square feet of office space, WeWork has a problem. If they can't pay the lease on 2.9 million square feet of office space, the owners have a problem.

DesiLurker 7y ago
that is true only when WeWork may be in danger of filing bankruptcy, otherwise contract law prevails.
- 55555 7y ago
  I think also more true when they rent from a single owner.
- CPLX 7y ago
  My understanding is that they spin up separate entities to sign leases, and have cancellation clauses. It seems nuts landlords would agree to that but it’s come up a few times in prior threads.
  - DavidHm 7y ago
    There's a bit of longer-term reputation damage which is significant in an industry dominated by companies who tend to think over the span of decades rather than quarters. One fairly big serviced offices company pulled the "separate entities" trick in one of the previous recessions, and some of the major landlords in that country still to this day, more than a decade later, refuse to do business with them.

BrandonM 7y ago

An HN submission 4 months ago¹ reported that WeWork forms a separate subsidiary for each lease agreement. So at least when they're not the owner, they've conveniently arranged to not be on the hook if a particular location or region doesn't work out. ¹ https://news.ycombinator.com/item?id=18714962 https://news.ycombinator.com/item?id=18714962

mr_custard 7y ago
Also this: https://wolfstreet.com/2019/03/25/how-can-a-company-with-1-8-billion-in-revenue-lose-1-9-billion-wework-shows-how/ https://wolfstreet.com/2019/03/25/how-can-a-company-with-1-8...