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I certainly don't get it. You're paying out $X in leases and getting $Y for the sub-leases. Volume doesn't help when you're selling $5 bills for $2.50. And n
by tyingq 5y ago
I certainly don't get it. You're paying out $X in leases and getting $Y for the sub-leases. Volume doesn't help when you're selling $5 bills for $2.50. And nobody is paying $6 for the $5 bill some time in the future.
- JCM9 5y agoIt’s an old business model (Regis was doing this for years). If done well it can work, but is not without risk. This business model gets destroyed during downturns or the extremes of a pandemic since they’re left holding long leases that nobody wants when the customers simply walk away. Knotel imploded quickly once the pandemic hit. WeWork locations were arguably much nicer than your typical “coworking” offering at the time, but doing well in this business requires tight cost controls and meticulous attention to the details of managing the business. WeWork’s corporate culture was effectively the opposite of those things. If the company, in its current form, can get its costs under control and streamline operations then it could survive and be profitable long term… but at the end of the day this is a boring real estate arbitrage business and ultimately a market commodity.
- secondaryacct 5y agoThe balance is probably hard to find: to get into the insane risk of locking the best locations in the expectation later your market shares will allow you to price them right requires cowboy management, while making any money in real estate scalping at large scale require ultra boring micro accountancy. So regus cant do it, they want to make money more safely, and WeWork cant do it, they wanted to change the world (sigh).
- dustintrex 5y agoLast I checked Regus (and WeWork!) have actually done quite well in the pandemic, because lots of companies are letting long-term leases expire and leasing flexible short-term space like Regus/WW instead.
- tyingq 5y agoWeWork was overpaying (outbidding others by 20% in some cases) and undercharging for quite some time.
- gruez 5y ago> Volume doesn't help when you're selling $5 bills for $2.50. Were they really leasing places for less than they were worth? I thought the problem was more that they were spending outrageous amounts of money on overhead, and taking on massive amount of risk because they had long term commitments on their lease, but their tenants could drop at any time.
- compiler-guy 5y ago_Billion Dollar Loser_ documents that many, or perhaps most, of their buildings were leased for more than the sum of the individual rents they could collect on the spaces they made available. This is particularly true in non American markets where the coworking model didn’t work well.
- HWR_14 5y agoThose were also problems. But they were scaling and so I think they didn't mind losing money per square foot.
- dustintrex 5y agoThe obvious problem being that whereas the marginal costs of scaling a webapp to an extra million users are trivial, the marginal costs of scaling out an extra million sq ft of office space are extremely high.
- HWR_14 5y agoOh yes, it was a dumb idea (although they planned to recoup the cost from bigger tenants in a way that was less dumb than it sounds). But that was the "poor business model" part of WeWork. I think, even if they were profitable, the risk they were assuming was prohibitive. And the self-dealing by the CEO would have prevented me from investing in them in any way.
- asda_ 5y agoI guess they believed at some point they would get enough marketshare/brand recognition/corporate clients with longer contracts, that $Y > $X.
- dhosek 5y agohttps://youtu.be/CXDxNCzUspM https://youtu.be/CXDxNCzUspM