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In comparison to nearly any other tenant, they are quite large and also structured quite differently. Other large tenants put similar pressure on tenants, with

In comparison to nearly any other tenant, they are quite large and also structured quite differently. Other large tenants put similar pressure on tenants, with the clearest example I can think of being anchor grocery stores in strip malls. The issue is not that landlords can't relet the space, but in the additional cost and the lost revenue of doing so. WeWork has large blocks of space, and in many cities, multiple locations within a single submarket or adjacent ones. If WeWork decides to go dark, that's a significant block of space coming to market, which will drive down market rates. Landlords know this. The other challenge is that there may not be a prospective tenant willing to take the amount of space that WeWork has, meaning a lot of CapEx to split up the space just to make it marketable. WeWork's buildouts are expensive, and they likely will not work for many tenants, so there will likely be significant costs to the landlord to get new tenants into the space. There's also a good chance that the spaces WeWork leases may have been hard to lease in the first place. There are reasons why you'd want to take another tenant as opposed to WeWork if you're going to be getting the same facerate for the space. >There is nothing WeWork is doing that a small Landlord cannot Yes and No. For an individual WeWork location, your correct. At that level, it's more of an operational concern which the landlord could potentially take over. However, you need tenants and those tenants are attracted to WeWork, not the landlord itself. WeWork has the brand that brings in the leases, not the landlord. We've yet to see what happens when a WeWork location goes dark. Yes, the landlord could just take over the day to day and cut out the middle man. But it's not clear how the tenants themselves would respond to that. The other side is that landlords don't want to operate and manage these short term leases. It's the reason why there was Regus before and why WeWork took off. The thing is that Regus wasn't really a desired tenant. WeWork has been a darling, but the tides could change quickly.

bluGill 7y ago
Many of those pressures also apply to WeWork staying in the same place. For WeWork to leave a lot of space behind that means they are taking a lot of space elsewhere (or going out of business) Of course they can leave one space behind no problem, but that happens all the time. (though less valuable places may run into problems it was the same problem they had before). Large tenants leave all the time, it is a cost of business: you factor that into the lease terms. If WeWork goes out of buisness that changes things, but those renting from WeWork need to do something, some will talk to the building owner about getting a lease on their current space, so it won't be as bad as you state (it won't be good either). This same can happen if WeWork decides to move: those who are using WeWork space may decide that the location is important and see about remaining in "their" space. It will be interesting to see what happens.
- polygotdomain 7y ago
  I don't think it's about WeWork leaving like a normal tenant, but simply shutting down a given location. >Large tenants leave all the time, it is a cost of business: you factor that into the lease terms. Big tenants leaving is something that takes a lot of effort to manage. If a tenant is potentially giving back 100k sqft at the end of the lease a landlord is going to be getting in front of that years in advance by determining renewal probability, engaging with brokers to find tenants that might be in the market, and possibly actively marketing the space even while the tenant is still occupying the space. Even with that lead time, that space still might be vacant for 6 months to a year, and that's in decent market. This is all because larger tenants don't move at the same pace medium or smaller tenants do. As far as being factored into the leases, the way WeWork structures their leases is such that the break even point for a the landlord is farther into the future that most of their typical leases. This is mostly due to the significant build out work that WeWork does their best to get the landlords to subsidize, and the amount of free rent they ask for on the front end. Therefore, if WeWork goes dark before year 5 of their lease, then the landlord has likely lost money on that lease. When it comes to the landlord taking over the short term rentals, some probably will, some maybe won't. Who knows if the tenants will be interested in that or whether the landlords will make enough money for it to be worth their while, but these kinds of short term rentals are not the kind of business landlords want to be in.

bluGill 7y ago

Many of those pressures also apply to WeWork staying in the same place. For WeWork to leave a lot of space behind that means they are taking a lot of space elsewhere (or going out of business) Of course they can leave one space behind no problem, but that happens all the time. (though less valuable places may run into problems it was the same problem they had before). Large tenants leave all the time, it is a cost of business: you factor that into the lease terms. If WeWork goes out of buisness that changes things, but those renting from WeWork need to do something, some will talk to the building owner about getting a lease on their current space, so it won't be as bad as you state (it won't be good either). This same can happen if WeWork decides to move: those who are using WeWork space may decide that the location is important and see about remaining in "their" space. It will be interesting to see what happens.

polygotdomain 7y ago
I don't think it's about WeWork leaving like a normal tenant, but simply shutting down a given location. >Large tenants leave all the time, it is a cost of business: you factor that into the lease terms. Big tenants leaving is something that takes a lot of effort to manage. If a tenant is potentially giving back 100k sqft at the end of the lease a landlord is going to be getting in front of that years in advance by determining renewal probability, engaging with brokers to find tenants that might be in the market, and possibly actively marketing the space even while the tenant is still occupying the space. Even with that lead time, that space still might be vacant for 6 months to a year, and that's in decent market. This is all because larger tenants don't move at the same pace medium or smaller tenants do. As far as being factored into the leases, the way WeWork structures their leases is such that the break even point for a the landlord is farther into the future that most of their typical leases. This is mostly due to the significant build out work that WeWork does their best to get the landlords to subsidize, and the amount of free rent they ask for on the front end. Therefore, if WeWork goes dark before year 5 of their lease, then the landlord has likely lost money on that lease. When it comes to the landlord taking over the short term rentals, some probably will, some maybe won't. Who knows if the tenants will be interested in that or whether the landlords will make enough money for it to be worth their while, but these kinds of short term rentals are not the kind of business landlords want to be in.