6 ms·

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

by JackFr 8y ago

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.

EugeneOZ 8y ago
Maybe difference in prices of long term and short term leasing is profitable enough for this model?
- fipple 8y ago
  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.
  - rjbwork 8y ago
    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.
    - hobofan 8y ago
      Here in Berlin (in the newer buildings) they also rent out whole floors. I would say that at least those fall under class A.
      - blumomo 8y ago
        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.
        cylinder 8y ago
        Yep I was the first tenant at a WeWork flagship and would never go back.
chibg10 8y ago
To me, WeWork seems like a business model that works great when the economy is growing and terribly when the economy is shrinking. I assume the the draw of selling a 10-20 year lease is that it mitigates the business cycle risk for the property owner (there are other advantages but this would seem to be the main one). This allows the building owner to cut prices for the long-term lease relative to a short-term one. Thus, when the economy is booming and businesses need space, WeWork looks fantastic--real estate arbitrage! ... And then when the economy goes into a recession, WeWork is stuck with a long-term lease that you can't exit and a dearth of subtenants that destroys your revenue stream. WeWork has only experienced the former on its short life so far. I'm interested to see how it manages the latter.

by JackFr 8y ago

EugeneOZ 8y ago

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

fipple 8y ago
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.
- rjbwork 8y ago
  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.
  - hobofan 8y ago
    Here in Berlin (in the newer buildings) they also rent out whole floors. I would say that at least those fall under class A.
    - blumomo 8y ago
      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.
      - cylinder 8y ago
        Yep I was the first tenant at a WeWork flagship and would never go back.

chibg10 8y ago

To me, WeWork seems like a business model that works great when the economy is growing and terribly when the economy is shrinking. I assume the the draw of selling a 10-20 year lease is that it mitigates the business cycle risk for the property owner (there are other advantages but this would seem to be the main one). This allows the building owner to cut prices for the long-term lease relative to a short-term one. Thus, when the economy is booming and businesses need space, WeWork looks fantastic--real estate arbitrage! ... And then when the economy goes into a recession, WeWork is stuck with a long-term lease that you can't exit and a dearth of subtenants that destroys your revenue stream. WeWork has only experienced the former on its short life so far. I'm interested to see how it manages the latter.