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Can anyone knowledgeable talk about what happens in a severe business downturn with We? They have most likely setup separate LLCs for each building’s 10-15 yr l

Can anyone knowledgeable talk about what happens in a severe business downturn with We? They have most likely setup separate LLCs for each building’s 10-15 yr lease. Do the LLCs isolate We enough so that LLCs can declare bankruptcy and the building owners or banks or creditors don’t go after the mothership We?

JumpCrisscross 7y ago
> Can anyone knowledgeable talk about what happens in a severe business downturn with We? No. This is a known unknown. On one hand, contracts get cancelled and WeWork defaults. On the other hand, WeWork’s aggregated buying power lets it renegotiate leases, passing the pain to landlords.
- goatinaboat 7y ago
  True story: I once worked for a company that rented 3 of 4 floors in a building. The top floor was empty, and we were expanding, and we wanted it, and it should have been easy. It took years. The property company would rather that floor to be empty earning no rent, than to cut a deal on it. And they won, the company paid their price and signed the long lease they wanted. Property companies don’t blink. They will not cut WeWork any slack.
  - hnik 7y ago
    This is sometimes the case. Other times renting the last few units brings in significant cash flow as it increases the NOI disproportionately to leasing the initial units. For example you’re probably not hiring more custodial staff and you’re probably able to make draws from your debt as you’ve increased property value by being fully stabilized
- paulsutter 7y ago
  My experience in downturns (2000, 2008) says that landlords consider leases a crucial part of their hedging strategy and they have zero willingness to renegotiate. In 2000 I knew someone who called all their major vendors for datacenter space, etc, and threatened that if the landlords didn't cut the cost, he would go bankrupt. The response from 100% was "go ahead". To do otherwise would be philanthropy on their part. > WeWork’s aggregated buying power lets it renegotiate leases, passing the pain to landlords.
  - avinium 7y ago
    I worked in commercial property for some time, which allowed me to understand why certain things happen that seem irrational from the outside. Everything in real estate is driven by the valuation. This dictates lending terms, tenant acquisition, sales & marketing strategy, everything. But valuations, fundamentally, are just numbers that an independent advisor plucks out of thin air. It's a difficult job that ends up being a mishmash of guesswork of what things could be rented for, and how much they will appreciate over the coming years, and tangible numbers around what other "comparable" properties are selling/renting for right now. This isn't as nonsensical as it sounds. After all, an untenanted building clearly isn't "worthless". Now owners have every incentive to push this valuation up. Actual yield (i.e. how much rent you are actually receiving at any given point in time) limits your flexibility to do so. It's difficult to convince the valuer that your space could be rented for $1000 psqm when it's already being rented out at $800 psqm. Absurdly, it's much easier to convince a valuer that untenanted space could be rented at $1000 psqm. There's no direct evidence to the contrary, so the smoke and mirrors story is much more convincing. This is why commercial landlords will almost always lose a tenant before dropping rents. The latter will crystallise a reduction in yield which immediately affects the property's valuation (and thus their sale prospects or leverage ratio). It was incredibly eye-opening to see how much unreality goes on in real estate.
    - tonyarkles 7y ago
      Especially if the previous tenant was paying that $1000. You’ve got concrete evidence that it was rented for $1000... why would you want to add concrete evidence that its current market value is only $800?!

JumpCrisscross 7y ago

> Can anyone knowledgeable talk about what happens in a severe business downturn with We? No. This is a known unknown. On one hand, contracts get cancelled and WeWork defaults. On the other hand, WeWork’s aggregated buying power lets it renegotiate leases, passing the pain to landlords.

goatinaboat 7y ago
True story: I once worked for a company that rented 3 of 4 floors in a building. The top floor was empty, and we were expanding, and we wanted it, and it should have been easy. It took years. The property company would rather that floor to be empty earning no rent, than to cut a deal on it. And they won, the company paid their price and signed the long lease they wanted. Property companies don’t blink. They will not cut WeWork any slack.
- hnik 7y ago
  This is sometimes the case. Other times renting the last few units brings in significant cash flow as it increases the NOI disproportionately to leasing the initial units. For example you’re probably not hiring more custodial staff and you’re probably able to make draws from your debt as you’ve increased property value by being fully stabilized
paulsutter 7y ago
My experience in downturns (2000, 2008) says that landlords consider leases a crucial part of their hedging strategy and they have zero willingness to renegotiate. In 2000 I knew someone who called all their major vendors for datacenter space, etc, and threatened that if the landlords didn't cut the cost, he would go bankrupt. The response from 100% was "go ahead". To do otherwise would be philanthropy on their part. > WeWork’s aggregated buying power lets it renegotiate leases, passing the pain to landlords.
- avinium 7y ago
  I worked in commercial property for some time, which allowed me to understand why certain things happen that seem irrational from the outside. Everything in real estate is driven by the valuation. This dictates lending terms, tenant acquisition, sales & marketing strategy, everything. But valuations, fundamentally, are just numbers that an independent advisor plucks out of thin air. It's a difficult job that ends up being a mishmash of guesswork of what things could be rented for, and how much they will appreciate over the coming years, and tangible numbers around what other "comparable" properties are selling/renting for right now. This isn't as nonsensical as it sounds. After all, an untenanted building clearly isn't "worthless". Now owners have every incentive to push this valuation up. Actual yield (i.e. how much rent you are actually receiving at any given point in time) limits your flexibility to do so. It's difficult to convince the valuer that your space could be rented for $1000 psqm when it's already being rented out at $800 psqm. Absurdly, it's much easier to convince a valuer that untenanted space could be rented at $1000 psqm. There's no direct evidence to the contrary, so the smoke and mirrors story is much more convincing. This is why commercial landlords will almost always lose a tenant before dropping rents. The latter will crystallise a reduction in yield which immediately affects the property's valuation (and thus their sale prospects or leverage ratio). It was incredibly eye-opening to see how much unreality goes on in real estate.
  - tonyarkles 7y ago
    Especially if the previous tenant was paying that $1000. You’ve got concrete evidence that it was rented for $1000... why would you want to add concrete evidence that its current market value is only $800?!