4 ms·

As someone else has pointed out, not owning the real estate is part of the reason for the high valuation. A good franchise business will force the franchisee t

As someone else has pointed out, not owning the real estate is part of the reason for the high valuation. A good franchise business will force the franchisee to buy the real estate and give the franchise the opportunity to buy the real estate at a fixed cost (either fixed outright or a multiple of revenue for the location), effectively giving them no downside on capital depreciation on the site (i.e. the value of the site going down) or the ongoing dilaps costs. They only have upside: they can buy the site if it's doing really well. And meanwhile, you're buying your training, goods, services, and paying a portion of your revenues to the franchise. WeWork is like a franchise which has no interest in owning your real estate. They and others have realised the opportunity to take advantage of a couple of factors in the macro (more fluidity in working working lives -- telecommuting, flexible work --, startups, low interest rates meaning units can be vacant and on balance sheet without too much pain for an owner) and build a smart offering around that: got an empty building OR bored of the overheads and headaches of managing an office space yourself? We'll lease it from you for a fixed price and then take any upside. You get smoothed cashflow and a fixed yield, and we get whatever upside we can make. They don't have any of the overheads, complexity, costs, or risks of owning the real estate. The IP and brand they're building (brand is an important factor here!) are not wedded to geography. Shoreditch isn't cool for startups any more? WeWork is gone.

sonofaplum 8y ago
But they also don't have franchise fees, or a captive market of franchisees to sell goods and training too. WeWork ARE the franchisees in this comparison.
sonnyblarney 8y ago
Owning the real estate is exactly why McDonald's is valuable :) but there are odd terms. But it doesn't answer the existential question as to their valuation. I don't see how WW has any systematic advantages at all. Nobody really cares if offices are in WW or some copycat clone. Many companies are wearing of paying heavy premiums for such offices and want out as soon as they can. Real estate is an old business. There is no 'new' here. Dressing up places, making them cool and selling at a premium is not new. I just don't see where the magic sauce in this business is.
- secabeen 8y ago
  I wonder too, but I do see some possibilities: 1) The brand has value. Sure, making an empty space into a co-working space is not that hard. However, how do you market that? How do you get potential workers to know about your space, and choose to work there? If WeWork or Impact Hub are the known brands, people will search there first, and never find you. 2) They may also be exploiting information asymmetry between the high-cost and low-cost areas. If a company in NYC or SF is used to paying $50/sqft/mo ($500/mo for just 10sqft) for space alone plus utilities, etc., they may not really balk at $500/mo for the co-working space used by a remote employee. Sure, those companies know they're getting fleeced compared to regular costs in those cities, but they may also not care, as it's not worth it to economize for just a few employees, and when it gets to many, they just negotiate a bulk deal with WeWork.
  - sonnyblarney 8y ago
    I think the brand surely has value, but not $30Billion worth of value. It's like a clothing line brand or something, i.e. you might trust it more, might be willing to open offices remotely there just because your familiar with it. There is no 'asymmetry' in commercial real-estate really ... prices are well known and watched in every town. Do a little running around in any town and you get a pretty good idea very quickly. Also, they are loosing a huge ball of money. The BI article hints at 'dot-com bubble trouble' and I believe it for this one ... the economics look bad and it could crash. If this goes, and say, Tesla pops ... it could be really bad because the 'crypto coin' thing is essentially a bubble of sort (by that I mean fuelled by speculation) and that could come crashing down very easily and quickly as well. There is also an AI bubble (AI is here to stay, but companies/valuations are whack) that needs a correction. So long as the US economy stays good ... maybe all of this will hold, but some douche-bags are going to just make 'one lie too far' and things will get gummed up for a lot of otherwise good companies.
    - empath75 8y ago
      Add uber to that list.
jonknee 8y ago
> They don't have any of the overheads, complexity, costs, or risks of owning the real estate. They spend massive sums of money to build out other people's buildings and typically enter triple net leases which means they do indeed have the overhead, complexity and costs of owning real estate. Even more complex really because they have a long term lease and need to constantly keep it filled with short term tenants.

sonofaplum 8y ago

But they also don't have franchise fees, or a captive market of franchisees to sell goods and training too. WeWork ARE the franchisees in this comparison.

sonnyblarney 8y ago

Owning the real estate is exactly why McDonald's is valuable :) but there are odd terms. But it doesn't answer the existential question as to their valuation. I don't see how WW has any systematic advantages at all. Nobody really cares if offices are in WW or some copycat clone. Many companies are wearing of paying heavy premiums for such offices and want out as soon as they can. Real estate is an old business. There is no 'new' here. Dressing up places, making them cool and selling at a premium is not new. I just don't see where the magic sauce in this business is.

secabeen 8y ago
I wonder too, but I do see some possibilities: 1) The brand has value. Sure, making an empty space into a co-working space is not that hard. However, how do you market that? How do you get potential workers to know about your space, and choose to work there? If WeWork or Impact Hub are the known brands, people will search there first, and never find you. 2) They may also be exploiting information asymmetry between the high-cost and low-cost areas. If a company in NYC or SF is used to paying $50/sqft/mo ($500/mo for just 10sqft) for space alone plus utilities, etc., they may not really balk at $500/mo for the co-working space used by a remote employee. Sure, those companies know they're getting fleeced compared to regular costs in those cities, but they may also not care, as it's not worth it to economize for just a few employees, and when it gets to many, they just negotiate a bulk deal with WeWork.
- sonnyblarney 8y ago
  I think the brand surely has value, but not $30Billion worth of value. It's like a clothing line brand or something, i.e. you might trust it more, might be willing to open offices remotely there just because your familiar with it. There is no 'asymmetry' in commercial real-estate really ... prices are well known and watched in every town. Do a little running around in any town and you get a pretty good idea very quickly. Also, they are loosing a huge ball of money. The BI article hints at 'dot-com bubble trouble' and I believe it for this one ... the economics look bad and it could crash. If this goes, and say, Tesla pops ... it could be really bad because the 'crypto coin' thing is essentially a bubble of sort (by that I mean fuelled by speculation) and that could come crashing down very easily and quickly as well. There is also an AI bubble (AI is here to stay, but companies/valuations are whack) that needs a correction. So long as the US economy stays good ... maybe all of this will hold, but some douche-bags are going to just make 'one lie too far' and things will get gummed up for a lot of otherwise good companies.
  - empath75 8y ago
    Add uber to that list.

jonknee 8y ago

> They don't have any of the overheads, complexity, costs, or risks of owning the real estate. They spend massive sums of money to build out other people's buildings and typically enter triple net leases which means they do indeed have the overhead, complexity and costs of owning real estate. Even more complex really because they have a long term lease and need to constantly keep it filled with short term tenants.