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SoftBank Backs Away from Part of Planned WeWork Bailout
- cnst 7y agoA non-paywall source: http://archive.is/uRXE6 http://archive.is/uRXE6. This doesn't seem to have any effects for anyone other than investors; so, this is probably not really relevant for HN as there's hardly anything in the story for us to discuss.
- samizdis 7y agoThat notwithstanding, rather decent of you to post the non-paywalled link. Thank you.
- hn_throwaway_99 7y ago> This doesn't seem to have any effects for anyone other than investors; so, this is probably not really relevant for HN as there's hardly anything in the story for us to discuss. Uhh, yeah, because we always only discuss stories that are personally relevant to us...
- erichurkman 7y agoPlenty of WeWork employees are on HN (or former employees, or those that exercised stock options or through WeWork's many acquisitions), plus there are a lot of folks that use WeWork's spaces here.
- tanseydavid 7y agoI consider this article "something that gratifies my intellectual curiosity."
- lalaland1125 7y agohttps://github.com/iamadamdev/bypass-paywalls-firefox https://github.com/iamadamdev/bypass-paywalls-firefox is a better solution.
- zozimus 7y agoThanks for your helpfulness, and many people other than investors will also read this as well
- Animats 7y ago"The development won’t affect the $5 billion lifeline SoftBank agreed to give WeWork directly—cash the startup badly needed then as it ran out of runway, and which it is likely to continue to need as the worsening coronavirus outbreak empties out its desks." Er, yes. WeWork is dead until there is a COVID-19 vaccine. Tightly packing random people is out for now.
- godzillabrennus 7y agoLargest corporate tenant in New York City. We are just starting to see the first wave of this crash.
- wayoutthere 7y agoEven after we start to recover; how many companies are going to keep as much floor space as they had before? Remote work is here to stay. This is going to turn into a global commercial real estate crash in 6 months, no doubt.
- toomuchtodo 7y agoFantastic. Finally some sanity about disintermediating work from locality. Sidenote: Carl Icahn is currently shorting commercial RE, so I think you're right.
- wayoutthere 7y agoParadoxically, I think that the post-crash recovery will be a great opportunity for WeWork (if they survive). My guess is that many companies will outright close most of their branch offices, shifting people / teams that want or need to be in an office to coworking spaces. This movement will also have reductive effects on carbon emissions, so despite the coming carnage in commercial real estate, it's the right direction. Hopefully a lot of that square footage can be converted to residential, because there is still an affordable housing shortage...
- nostromo 7y ago> A notice sent to WeWork shareholders Tuesday said that SoftBank believes regulatory probes into the startup’s business [...] give it an out under the deal struck last fall to purchase $3 billion of WeWork shares from existing investors. > That will include Adam Neumann, former chief executive of WeWork parent We Co., who had the right to sell up to $970 million in stock as part of the October deal that led to his ouster from the company’s board. Wow.
- toomuchtodo 7y agoCool get out of jail free card for nuking Neumann’s parachute. Whomever put that idea forward earned their fee.
- gxqoz 7y agoI'm having a hard time following these two paragraphs. Is it saying that SoftBank invested $3 billion into WeWork which, among other things, funded Neumann's $970 million exit? And they now think they can recover that $3 billion and then deprive Neumann of at least some of that $970 million?
- x0x0 7y agoSoftbank invested $1.5b, loaned up to $5b, and agreed to purchase $3b from existing shareholders. The last is apparently being... renogotiated.
- deleted 7y ago[deleted]
- dforrestwilson 7y agoGood excuse now that they see that commercial real estate is about to get nuked.
- robertkrahn01 7y agoI really liked the "WeCrashed" podcast [1,2], it traces the rise and fall of WeWork and is well produced. [1] https://podcasts.apple.com/podcast/wecrashed-the-rise-and-fall-of-wework/id1494781373 https://podcasts.apple.com/podcast/wecrashed-the-rise-and-fa... [2] https://wondery.com/shows/we-crashed/ https://wondery.com/shows/we-crashed/
- anonymouswacker 7y agoIt is definitely worth a listen. Short episodes and very good story.
- neonate 7y agohttps://archive.md/uRXE6 https://archive.md/uRXE6
- gamesetmath 7y agoGood. Let that PoS burn.
- TheFiend7 7y agoForgive my ignorance, but why is WeWork a PoS? I don't have much awareness on the situation.
- toomuchtodo 7y agoPonzi scheme that took advantage of SoftBank, who is further attempting to prop it up to recoup something other than 0 from the investment.
- fastball 7y ago> took advantage of SoftBank Citation needed? SoftBank isn't some mom&pop shop that cant afford a lawyer to do due diligence.
- toomuchtodo 7y agoThat’s fair. SoftBank acted like an unsophisticated investor and goaded Neumann on, so it really is a codependent VC train wreck.
- empath75 7y agoThey surely didn’t. Softbank just thought they could take it public before people realized it was garbage.
- Lazare 7y agoIt's a long story, but: First, sometimes people build (or buy) office buildings, and then lease the space in them to companies. Office buildings (and the land they're built on) tend to be very expensive, so landlords tend to be levered (ie, they borrow money to build/buy them), and they like to sign long term leases to try and lock in revenue so they know they can cover their loan payments. Companies like flexibility (who knows how many staff you'll actually have in 36 months?), so they don't like that, but what are you going to do? Being a landlord is a big business, and profitable enough, on average. In the US, there are a lot of large REIT (Real Estate Investment Trusts) that do this. Second, some people had the bright idea of getting some office buildings in hot markets, and renting space in them flexibly - short term, no lengthy contracts, with the ability to grab more (or less) space as tenants need it. This is risky for the landlords, so they have to charge more rent to make up for it; to soften the blow they try and spruce up the buildings, offer services, and otherwise try and compete on things other than price (since they'll never be as cheap as just leasing a floor of a skyscraper for 5 years). This is also a big business, although it traditionally hasn't been super profitable. The biggest player in this space was traditionally been IWG (also known as Regus or Spaces in some markets I believe), which had 3000+ buildings in 1000 cities, ~600k desks, and was worth, as of last year before stuff went weird, around $4B with $0.5B of profits on $3.5B in revenue. That's not an amazing valuation considering! Basically 1x earnings, or 8x profits. Then again, a business like IWG is always going to be vulnerable to a downturn; the customers can stop paying, but you still have to pay off your loans. In any case, big, multi-billion dollar business, it's been around since 1989, it's doing fine. So are all their many competitors. Then WeWork popped up. WeWork's big idea was to do exactly what IWG was doing, but to somehow be a little cooler, and explain very loudly to anyone who was listening that they were a tech company, and should be valued like a tech company (ie, at a crazy high multiple of earnings), and also spouted a lot of weird stuff about wanting to change the world, and to be the first "physical social network", and just generally spun a lot of guff, but ultimately they bought (or in some cases, leased) buildings, sliced them up into offices and desks, and rented them short term, which is what IWG does. SoftBank listened and, inexplicably, believed WeWork. They pumped an eyewatering amount of money into WeWork. They spent it trying to grow to match IWG, but they never made it; at one point about six months ago they had about $2B in revenue, were losing $2B a year, and were being valued (by SoftBank, if no one else) at almost $50B. Growth is valuable, yhs, but if IWG is worth $3.5B, and WeWork $50B, then presumably WeWork is going to grow to be 15 times the size of IWG...except IWG (again) has been around since 1989 and seems to be in a pretty mature market. Where's the growth coming from? (WeWork's answer was "everywhere", and they started a bunch of spinffos, like WeGrow (a school), WeLive (apartments), and some other weirder ones. None worked out.) Anyhow, $2B of revenue is a lot less than $3.5B. And negative $2B is a LOT less profit than $0.5B. And yet, $50B is a lot more than $4B! What gives? Answer: It was all just a borderline scam. SoftBank gave a stupid amount of money to WeWork, and they basically piled it into a bonfire and lit it on fire. There was no secret tech; no cunning plans. Some have suggested that WeWork spaces tend to be nicer than equivalent IWG properties (famously they offered free beer, and I think in one case in London they paid to have a live band just perfoming in the lobby of a building all day?), but that was all being funded by SoftBank's money faucet. When the money ended, so did all the parks that separated them from IWG (and their competitors). Now they're just another company offering flexible office space. Meanwhile WeWork's CEO/founder (Neumann) was engaged in a lot of dodgy things. For example, he would borrow money from WeWork, buy office buildings, then re-sell them to WeWork. In another case, he decided to change WeWork's name from "WeWork" to "We", but it so happened someone owned the trademark to We, which just so happened to be....Neumann! So he sold them the trademark. (That last one got so much negative attention they eventually rolled it back.) TL;DR: WeWork is a boring company that rents office space. The founder briefly convinced SoftBank they were going to change how we live our lives, got a massive investment, wasted most of it, siphoned off hundreds of millions of dollars, and then got kicked out of the company.
- JumpCrisscross 7y ago> The development won’t affect the $5 billion lifeline SoftBank agreed to give WeWork directly—cash the startup badly needed then as it ran out of runway, and which it is likely to continue to need as the worsening coronavirus outbreak empties out its desks. Some of that money, including $1.5 billion in fresh equity, already has been invested. Still extending and pretending?
- buboard 7y agobut it's too big to fail
- streetcat1 7y agoIf it's not in your bank account, it does not exist.
- sjtgraham 7y agoSoftBank is finished as a VC investor. You'd have to be an idiot or have no other option (adverse selection) to take their money.
- jakearmitage 7y agolol. What makes you think that?
- gbronner 7y agoThis one is sure to wind up in Matt Levine's column tomorrow. The current owners of a large chunk of WeWork stock are going to have to sue Softbank to force them to complete the deal. For all we know, Softbank is experiencing liquidity problems, and would rather welsh on their portfolio company principals than endanger their own investors. I'm curious what Adam will finally get after all of this, other than an incredible ride.
- kevin_thibedeau 7y agoHe still has a wave pool.
- jazzkingrt 7y agoGreat timing! Current conditions are WeWork's nightmare scenario. WeWork's raison-d'etre is short term leasing. Leaseholders will end those leases if everyone is working from home. Add to that that an economic recession was always going to be the real test of WeWork's ability to keep up with its huge long-term leases.
- sjtgraham 7y agoArguably it's in the interest of the landlords to make this work. If WeWork goes under there will be a ton of void commercial space. It's a question of how many lease payments to forgive before it makes sense (and is actually viable) to repossess the buildings and replacement tenants.
- swiley 7y agoThere’s going to be a lot of empty space. The land owners did it to themselves pushing for tighter building codes and zoning. No one built, rent went up, the economy got more fragile because people on the bottom had absolutely nowhere to go. Now they’re going to pay for it (except the ones that saw this coming, I know the building I live in just got sold a few days ago...) I’ve been saying for years that the housing market is irrational and that most of the US should be building more. Not that my opinion means anything but I also wasn’t the only person saying this.
- redis_mlc 7y agoThis thread is about commercial real estate, not residential. And certainly not about your apartment building.
- raverbashing 7y agoIf it's on "interest of the landlords" to make it work, then it will fail. And they will end up with the bill.
- kragen 7y agoI guess if anybody's going to bail out the criminals at WeWork, then, it'll be the landlords.
- pl0x 7y agoWeWork has been screwing members who try to leave out of their security deposit. Could this be why?