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What I don't understand about these companies that are filing with massive losses is how they plan to survive a mild recession. They're losing tons of cash duri

by iooi 7y ago

What I don't understand about these companies that are filing with massive losses is how they plan to survive a mild recession. They're losing tons of cash during great economic conditions. What happens during a recession, when suddenly it's cheaper for tenants to break their leases?

pie420 7y ago
they break their leases, fire half their staff, and rent a small room from WeWork to put their remaining staff. I'm mostly joking, but I'm sure a lot of these companies believe that they can grow and exist in a recessionary economy. We'll see if that's true.
mtkd 7y ago
There is an argument the model they run is counter-cyclical -- some FDs would rather pay more monthly for a service they can quickly scale up/down against revenue in region vs 5 or 10yr commitments -- time may show revenues grow in a poor economy
fullshark 7y ago
> suddenly it's cheaper for tenants to break their leases? Isn't that also maybe good for WeWork? The following could happen: 1. WeWork will close down some sites 2. Threaten to close more and shake down their landlords for better lease conditions (since there's fewer people looking to rent corporate real estate) 3. Other companies will look to close down their own satellite offices and transfer workers to WeWork sites for cost savings. That's the bullish case for WeWork in a recession, I don't think it's absurd.
- Traster 7y ago
  This gets the dynamic wrong though - WeWork has long term contracts with their suppliers and short term contracts with their customers. So what actually happens in a recession: 1. Businesses cancel their WeWork spaces because they're laying people off with 0-6 months notice. 2. WeWork has to eat the cost of low-occupancy buildings until their leases are up for renewal - which could be 5, 10 years down the line. 3. As the market heats back up WeWork change charge a lot for the office leases they established cheaply during the recession giving them low cost, high value rental spaces. Notice how at stage 2 you're going to have a few years where you've got a drop in revenue but high fixed costs? Normal office rental companies plan for this because of the cyclical nature of the market. The question you've got to answer is can WeWork weather that storm - and I would've though it obvious that it's in a bad position since right now they have $6.6Bn cash and lose $2Bn a year. Also I've got to challenge you on this: >3. Other companies will look to close down their own satellite offices and transfer workers to WeWork sites for cost savings. I think this is just utterly implausible. Companies don't shut down their satellite offices to move workers into smaller more expensive per head offices. What is far more likely to happen is that they cut head count and use the spare office space in their head office to close down satellite offices and move them to headquarters and close down small offices and move them to regional offices. That effect will reduce demand for WeWork, not increase it. Take Intel as an example of this: When they wanted to reduce head count the first step was to shut down failing projects and fire under performing employees. Their second step was then to use the spare space in their large offices to shut down small offices and consolidate into their big offices. All their big offices are offices they own or have extremely long term rents on, all the offices they didn't were much smaller and much more likely to be rental spaces - which is why it saved money to shut them down in the first place.
rossdavidh 7y ago
"...how they plan to survive a mild recession." You're assuming they are? I mean, they are personally of course, but who says they care about the long term of their company? They may not plan to be around for it.

by iooi 7y ago

pie420 7y ago

they break their leases, fire half their staff, and rent a small room from WeWork to put their remaining staff. I'm mostly joking, but I'm sure a lot of these companies believe that they can grow and exist in a recessionary economy. We'll see if that's true.

mtkd 7y ago

There is an argument the model they run is counter-cyclical -- some FDs would rather pay more monthly for a service they can quickly scale up/down against revenue in region vs 5 or 10yr commitments -- time may show revenues grow in a poor economy

fullshark 7y ago

> suddenly it's cheaper for tenants to break their leases? Isn't that also maybe good for WeWork? The following could happen: 1. WeWork will close down some sites 2. Threaten to close more and shake down their landlords for better lease conditions (since there's fewer people looking to rent corporate real estate) 3. Other companies will look to close down their own satellite offices and transfer workers to WeWork sites for cost savings. That's the bullish case for WeWork in a recession, I don't think it's absurd.

Traster 7y ago
This gets the dynamic wrong though - WeWork has long term contracts with their suppliers and short term contracts with their customers. So what actually happens in a recession: 1. Businesses cancel their WeWork spaces because they're laying people off with 0-6 months notice. 2. WeWork has to eat the cost of low-occupancy buildings until their leases are up for renewal - which could be 5, 10 years down the line. 3. As the market heats back up WeWork change charge a lot for the office leases they established cheaply during the recession giving them low cost, high value rental spaces. Notice how at stage 2 you're going to have a few years where you've got a drop in revenue but high fixed costs? Normal office rental companies plan for this because of the cyclical nature of the market. The question you've got to answer is can WeWork weather that storm - and I would've though it obvious that it's in a bad position since right now they have $6.6Bn cash and lose $2Bn a year. Also I've got to challenge you on this: >3. Other companies will look to close down their own satellite offices and transfer workers to WeWork sites for cost savings. I think this is just utterly implausible. Companies don't shut down their satellite offices to move workers into smaller more expensive per head offices. What is far more likely to happen is that they cut head count and use the spare office space in their head office to close down satellite offices and move them to headquarters and close down small offices and move them to regional offices. That effect will reduce demand for WeWork, not increase it. Take Intel as an example of this: When they wanted to reduce head count the first step was to shut down failing projects and fire under performing employees. Their second step was then to use the spare space in their large offices to shut down small offices and consolidate into their big offices. All their big offices are offices they own or have extremely long term rents on, all the offices they didn't were much smaller and much more likely to be rental spaces - which is why it saved money to shut them down in the first place.

rossdavidh 7y ago

"...how they plan to survive a mild recession." You're assuming they are? I mean, they are personally of course, but who says they care about the long term of their company? They may not plan to be around for it.