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WeWork shares sink on reports of imminent plans for bankruptcy filing
- thiago_fm 3y agoThe company will likely become owned by Softbank (it already mostly is). It can still become profitable by removing the bad leases/renegotiating, I believe after the bankruptcy filling it will be an okayish company, but I doubt that it will still be a public company. Doubt Softbank will ever recover what they invested in there though
- WJW 3y agoIs Softbank also a majority bondholder of WeWork? AFAIK the shareholders (ie mostly Softbank in this case) are last in line during bankruptcy, well after other creditors like employees, suppliers and bondholders.
- thiago_fm 3y agoYes, they are a majority, so it's probably of their interest that the company doesn't cease to exist, as it would imply an even bigger loss. I think it's very likely a takeover. Right now it costs nothing(~$100M) for SoftBank, but they'd rather let it go through bankruptcy as it will help the company to get rid of the bad part of WeWork. I'm not an investor in WeWork ATM, but I wouldn't mind to own some stocks once this is sorted out.
- d0gsg0w00f 3y agoEspecially since they may be poised to significantly reduce their costs with renegotiating leases while the commercial real estate market is in tatters.
- justincormack 3y agoNot a majority bondholder no, they have some debt as well as equity, and unsurprisingly the debt structure is complex and has already had some changes. Should be an interesting battle.
- pseingatl 3y agoJust out of curiosity, assuming no bankruptcy, why would a company convert equity to debt?
- hnreport 3y agoI’d argue God saved wework. Leasing temporary/limited capacity office space is going to be the future and wework fills that.
- jkaplowitz 3y agoThey’re not the only company in that space, just the flashiest. Their competitors are generally less insolvent but have worse UX. I wonder if Regus will put in a bid to buy WeWork out of bankruptcy?
- steve_adams_86 3y agoMy experience in Regus coworking spaces has been fairly awful. Disorganized, dirty, my desks were wobbly, never got the key to my storage drawers, etc. If they’re a big player and they purchase WeWork, I’d consider the entire space worth avoiding.
- pseingatl 3y agoThey're not focused on individuals. Their focus is larger companies and long term relationships. The "co-working" factor isn't there at all.
- steve_adams_86 3y agoThat explains my experience. I wonder if they pivoted to coworking in my area due to the pandemic and having too much unrented space.
- whizzter 3y agoThat and with WeWork running around with the hype there was probably investors/shareholders demanding that they take a piece of the supposedly juicy market (that existed because the ilk's of Regus never made short-term feasible).
- d0gsg0w00f 3y ago
- yashap 3y ago> Doubt Softbank will ever recover what they invested in there though That’s virtually guaranteed. They’ve put over $17 billion into WeWork, and the entire company (which they only own a portion of) is currently valued at $121 million. I’m not sure how much it’s value would have to rise for them to break even, but … it would have to be a lot. 300x? Something like that.
- potatolicious 3y agoThis is part of why I wonder if WeWork will actually be rescued into some smaller but sustainable business. Softbank has already lost >99% of their investment - and VCs are infamous for being willing to sacrifice a sustainable business model for a shot at nearly impossible odds. What incentive does Softbank have to actually turning WeWork into a far less profitable going concern, vs. taking yet another wild swing at a thing?
- thiago_fm 3y agoIt can, but it needs to be able to renegotiate their leases and break out of the bad leases. The problem with WeWork is that Adam Neumann closed really bad leases (which are typically like decade long) which makes certain locations not profitable at all, no matter how WeWork provides a good service. Once you remove the rotten stuff, they've got actually pretty good business, 75%+ occupancy rate and people who use WeWork actually like it. It's also a memorable brand and that business model they have is actually good. But you need to "reshape" completely the company, and only through bankruptcy laws you could achieve it.
- flutas 3y agoI do wonder (and truly mean wonder, because I have no clue), what percentage of the 75%+ occupancy is attributed to the bad leases. Are their most used buildings "bad leases" and their good leases are sitting empty? i.e. are the most sought after / used locations are also the most costly to WeWork.
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- ttul 3y agoIt's all history, but it does sting somewhat to realize that so much VC went to the undeserving founder of WeWork, enriching him enormously while the eventual funding all bled away to landlords and banks - instead of other more deserving startups.
- Marazan 3y agoTime to dig out all the past comments about how WeWork sceptics were idiots who didn't understand the genius of their offering. An inverse Dropbox.
- strikelaserclaw 3y agoJust because it wasn't executed well, it doesn't mean it wasn't a good idea. I think coworking spaces are a great idea.
- rchaud 3y agoA lot of the cheerleading for WeWork was driven by distaste for Regus and the stodgy incumbents, very similar to the Uber/Airbnb hype re: taxis and hotels. Everyone thought the low prices and good service would last forever, even as their strategy was clearly to monopolize control of premium commercial real estate. Now these companies have gone public, raised prices massively, we're right back to square one.
- nilespotter 3y agoI've rented coworking space for about 6 years and evaluated WeWork in 2 cities. It was never a good value, so I've chosen smaller places with single locations.
- Gys 3y agoSeems co work spaces do not really profit from scaling into more locations? Or maybe just a few local ones.
- ecshafer 3y agoThere should be some scale due to bargaining position. But i dont think they should be tech company scaling. They can at least centralize corporate (it, hr, accounting, etc). But this is the mindset of a frugal business and not a vc funded business.
- toast0 3y agoThere's certainly some customers who benefit from having a provider with multiple locations in different metros, but I don't think it's enough to be a strong selling point. In contrast, a small coworking space could be an offshoot of another local business; some people will build or rent more space than their office needs, and sublet the extra for coworking. Often, cost / square foot is lower when you have larger spaces, so if there's demand for smaller spaces, you can probably offset the cost of the larger space (and maybe it gets you into a building with a better location or amenities). And it provides you flexibility --- if your company is growing, you accept fewer coworking customers, etc. But a dedicated coworking business has to cover the whole rent, and won't gain anything from flexibility to expand its workforce.
- ghaff 3y agoI can see a larger company wanting to manage a contract with just a single provider across multiple locations. But, at the individual level, it seems as if it would be primarily a local thing.
- ghaff 3y ago
- solardev 3y agoI really hope coworking spaces can stay / become locally owned endeavors run by small teams instead of huge chains. Like mom and pop office spaces. I've used a lot of them and Wework was the most "clinical" and corporate of them. The small local ones tend to have awesome community, fun after work get together and special events, a little board game area, etc. All in all they actually feel like communities, not just desks.
- maxehmookau 3y agoAgreed. My local one is run by a member of the local community. Biscuits, wi-fi, good coffee, and a short walk from my home rather than a commute anywhere. This is the way!
- ackbar03 3y agoThat's cause they were burning VC money
- zactato 3y agoBiscuits (UK) as in Cookies (USA) ?
- maxehmookau 3y agoBiscuits, UK!
- Jcampuzano2 3y agoThe only downside to this is for people who travel a lot, which admittedly is likely not too much of an issue for most. Or those who like a change of pace and not to be tied to one location. Though there are some local chains that own various spots in their home city which are nice. I travel for a couple months at a time to different places and while WeWork certainly has a feel that many don't like much, its always a convenient and reliable option when it comes to getting access to someplace with good wifi, amenities etc. I travel all around Latin America and Spain for the most part, with some trips to other places for relatively long stretches of time and haveing a wework membership in certain cities makes finding a good place to work from much more easy and convenient. When I'm in a place without a wework I generally do go to a local place, but most large cities have wework available and its just less stress to have to always sign up with a new place, or have to negotiate rates if I'm not staying for a full month or so.
- rvz 3y agoA chronically unprofitable company and attempted to IPO at an extremely inflated value and lost more than 50% of its valuation when investors raised those red flags with the founder exit scamming with hundreds of millions of dollars afterwards. Going through the SPAC scam route finished them off with one more pump and dump on retail investors and unsurprisingly ending up bankrupt. Would never have happened in an environment with near zero interest rates and quantitative easing for decades and infinite money from the VCs. First WeAreGoingBankrupt [0], then 28 days later, WeAreBroke [1] and now WeAreBankrupt. [0] https://news.ycombinator.com/item?id=37750481 https://news.ycombinator.com/item?id=37750481 [1] https://news.ycombinator.com/item?id=38092599 https://news.ycombinator.com/item?id=38092599
- kingTug 3y agoIn addition to the ticky tack scams he managed on his way out, his golden parachute was historic. Neumann may have lost his company, but he didn’t leave empty-handed. He walked away with what many called a “golden parachute,” a package that was valued at nearly $2 billion. “Adam Neumann will essentially get a king’s ransom for grossly mismanaging the company on his way out,” Amy Borrus, deputy director of the Council of Institutional Investors, told the Washington Post. The New York Times called Neumann’s deal one of the greatest examples of someone failing upwards. https://time.com/6158804/wecrashed-true-story/ https://time.com/6158804/wecrashed-true-story/
- AlexandrB 3y agoThe punchline is he got funding to do it again - this time in residential real-estate[1]. Hard to reconcile stuff like this with the idea that SV is somehow meritocratic. [1] https://en.wikipedia.org/wiki/Flow_(real_estate_company) https://en.wikipedia.org/wiki/Flow_(real_estate_company)
- fakedang 3y agoFunnily enough, with the exact same play book. We used to joke back in investment banking and private equity that Softbank investments are steaming piles of shit we should stay away from. Perhaps a16z should be added to the gang too.
- theptip 3y agoThis could have some “interesting” effects on the already-painful commercial real estate market. Already it’s brutal as 5/10 yr leaseholders are subletting at cutthroat rates. A WeWork bankruptcy would potentially put a lot more inventory back into the market. On the flip side, great time to be a startup, you can get cheap short-term leases easily.
- pesfandiar 3y agoWhile related, commercial real estate ownership and leasing have two separate markets. I imagine WeWork's bankruptcy doesn't invalidate their [sub-]lease agreements (with actual occupants) and just transfers them to creditors. What kind of inventory do you mean will be put back into the market (own vs. lease)?
- theptip 3y agoI’m just talking about the market rate for rent, which owners would be charging to tenants, and which has already been depressed by lots of tenants offering subleases since they are stuck with long leases they can’t use. > I imagine WeWork's bankruptcy doesn't invalidate their [sub-]lease agreements (with actual occupants) and just transfers them to creditors I’d be shocked if it works out that way. WeWork operates a highly curated experience, and at nowhere near full occupancy. Can the owner take over and provide the same service? (Don’t think most owners want to get in the business of operating a coworking space, even if it was profitable, which it currently looks like it is not). As a WeWork subscriber I would be surprised if you’d continue to pay for a space with someone else running it? Seems like “handing over some tenants” doesn’t really parse for this business. Don’t know what % of WeWork is committed space as a sublease, but plenty of it is not (that is one of the USP of their offering).
- danvoell 3y agoI'm surprised a bankruptcy didn't happen earlier if it allows them to renegotiate leases. Another company I've long thought had way too much debt to assets took a big hit today as well. With current rates or higher interest rates, how many companies are going to be underwater in the near term?
- bombcar 3y agoBankruptcy usually wipes out the shareholders and gives the company to the bondholders, but nowadays that's often the same group of people - not sure it happened in this case but Softbank could have bought majority of shares in WeWork, and then lent them money, so when they go bankrupt they still own the company.
- steveBK123 3y agoWeird story start to finish. End of the day the business itself filled a niche, but the TAM is smaller than a VC funded startup needs.. the pricing needs to be higher to survive, and there is no moat. Not a lot of magic to renting out real estate. Really any half competent large landlord should be able to run their own brand of these, or offer it as one of the pricing levels. It's also not even clear you need a global brand of this. There's no name coworking spaces all over Brooklyn now. If I want to use one when I'm elsewhere, then I'll use whatever they have... There's not a big platform effect here.
- sharkweek 3y ago> If I want to use one when I'm elsewhere, then I'll use whatever they have... There's not a big platform effect here. So what you're saying is... we need a massive VC-funded search function tool like Zillow for coworking spaces. Kidding, kidding (I think?).
- pocketarc 3y ago> It's also not even clear you need a global brand of this. For me, the cool thing was knowing that in a multitude of different cities, I could just walk into a WeWork, using the same app, same system I'm already familiar with and trusted at, and just get on with whatever I'm doing. Kind of like being able to trust Uber in a new, unknown place. Or walking into a McDonald's anywhere in the world and knowing exactly what I'm getting. It's a shame it didn't work out.
- jakewins 3y agoFor ~95% of my work travel, Starbucks solves this already for me though.. I guess if you’re in a line of work where you travel often, stay long, and the destinations are not where your employer has offices, like maybe sales, devrel, that kind of thing? Although friends I have in sales and devrel don’t normally stay more than a week in a city
- steveBK123 3y agoRight but then it means WeWork had the wrong structure. Uber is basically a middleman with independent contractors putting up the capital (car) and labor (driving). McD is a franchise with independent business owners putting up the capital (restaurant location) and labor (employees). So maybe WeWork 2.0 as a platform that allows CRE landlords to list spare space in any city globally makes some sense. WeWork puts up little to zero capital and just takes a cut. WeWork 1.0 original sin was they were basically like those Airbnb sublet side hustlers. They signed multi-year leases for millions of square foot of space, and then tried to fill it with people paying for single seat per month at a time. Essentially duration transformation for leases. This works OK enough (well barely) when rates are low and return expectations match, but very bad when rates are high and you can get low risk high returns elsewhere.
- hn_throwaway_99 3y agoQuestion for finance people in the know. WeWork stock is still trading at $1.15 a share. Why hasn't it gone lower? Equity investors will get nothing in a bankruptcy, so are these people who are buying at $1.15 really thinking there is some miracle by which WeWork won't go bankrupt and equity investors will make out, or is there some other scenario I'm unaware of where WeWork goes through Chapter 11 but somehow common shareholders aren't totally wiped out?
- shawndrost 3y agoThere is another scenario. Equity investors sometimes get something during a bankruptcy. This is what happened to Hertz. (IIRC Hertz was selling shares to retail investors during bankruptcy, the SEC put a stop to it, and then Hertz made a miraculous recovery and it turns out the SEC was really just preventing wholesome capital formation and a win for the little guys.)
- kjkjadksj 3y agoBig popular companies nearing bankruptcy is ripe for a lot of volatility in the stock price due the retail meme behavior. If you time your entry and exit perfectly here your returns could be in many multiples of your initial investment. E.g. on sept 12 wework stock almost doubled in price in a single day of trading.
- currymj 3y agoup til now I could see a customer saying "who cares" wrt WeWork's financial situation, the product can still be fine and useful. but if you're effectively subleasing, and WeWork might not be able to pay their rent, suddenly that seems like a huge problem. is there going to be a giant padlock on the door when I come in to meet with clients tomorrow? Am I going to have to call the sheriff to sort out which property is mine and not covered by a lien against the tenant? who even knows if these are realistic possibilities given WeWork's specific lease and contract with the subtenant, but if you suddenly have to worry about it, the product is actually worse.
- gumby 3y agoI had not thought of this issue, thanks!
- gitfan86 3y agoShort term this isn't a big deal for current customers. Landlords would prefer to get the revenue you are supplying rather than lock you out of your office. You would be under no obligation to pay your wework membership fee if they locked you out. Your point is very relevant to future customers though. If you are in the market for short term office space why would you chose the one that might shutdown in 3 months.
- mikhailfranco 3y agoThe business model was always completely flawed: lease long and rent out short. It will always fail if there's a pandemic, WFH trend, hatred of commuting into CBDs, or everyday recession. Put all four together and it's dead man walking. Just a pity that Adam Neumann made money from an obviously bad idea.
- AlexandrB 3y agoThere are several WeWork competitors[1] that are doing just fine with the "lease long, rent short" model. They're just not valued as if they're a tech company like Google[2]. Fundamentally it seems like a pretty boring business of market forecasting and risk management. Not something that's going to yield 10X returns for a VC. [1] https://www.cbsnews.com/news/ftx-bankruptcy-tweet-sam-bankman-fried/ https://www.cbsnews.com/news/ftx-bankruptcy-tweet-sam-bankma... [2] https://www.forbes.com/sites/forbestechcouncil/2019/06/14/how-did-wework-beat-regus/?sh=1908377b4303 https://www.forbes.com/sites/forbestechcouncil/2019/06/14/ho...
- turtlebits 3y agoRent out short but overprovision as all the renters won't be there at the same time. I think its a perfectly fine business model if you can get enough subscribers. They could definitely raise their prices as the IMO the local competitors cost more and are not as well managed. (At least in Seattle)
- xorcist 3y ago> lease long and rent out short Why does everyone keep repeating that as if it was the worst idea ever? I mean, there are lots of businesses doing exactly that. Banks, insurance companies, other real estate etc. It's just a matter of pricing and not taking more risk than you can afford.
- mikhailfranco 3y agoBanks are backed and bailed out by governments when their risk management goes wrong, if they are big enough (TBTF). Private risk and profit, but public liability, often ultimately impinging on monetary expansion and inflation, because fiat currency central banks just print more money for the bailouts. If the banks are small, they might be allowed to go bankrupt. But sometimes they are 'merged' into a bigger bank, under the auspices and supervision of the govt (fin sec regulator), often at a token 1 EUR/USD/GBP price (for the latest, see CSFB->UBS). In some cases, the shareholders and bondholders get to keep their money (!). This is not a real market. At the moment, the Fed & Treasury are punishing the banks by offering high rates on short notes and 2-year bonds. You may have noticed your bank offers <1% on instant access deposits but the US Govt offers 4-5% (easily available at treasurydirect.gov). Money market accounts offer the same, minus fees. Banks cannot survive, so the Fed offers them free money, and interest on reserve accounts, so they are bailed-out by proxy, without anyone having to utter the word bailout. Insurance companies are also bailed out, but only if they are in the financial re-insurance industry and TBTF (see AIG). Other insurers just go bankrupt, unless they are small-medium size, and can reinsure at somewhere like Lloyds of London, with unlimited liability and the skin-in-the-game of personal liability (not ltd protection). Nassim Taleb can explain the fat-tail risk, and why failures will happen eventually. Real estate, especially CRE, will go bankrupt very soon, if interest rates stay at this level any longer. Some of those failures will be cascaded from WeWork's bankruptcy. Watch this space... None of the examples you give are viable business models without implicit or explicit govt backing. They are picking up pennies in front of the Juggernaut of fat-tail risk.
- gumby 3y agoWeWork's model was completely backwards: they signed long term leases and then subleased the space short term. Given the state of commercial real estate, there's a play in inverting the model: have the landlord pay you to run a coworking space in their building. You charge a base fee and a commission; landlord keeps the rest. If the landlord gets a tenant they can terminate the arrangement. You might want to buy wework out of bankruptcy for brand name and subscriptions or not. This aligns the incentives better. Wework's model is like a bank that lends long but borrows short (you can walk up and pull your money out at any time), but without the protections banks are given through regulation and insurance.
- denton-scratch 3y ago> have the landlord pay you to run a coworking space in their building. This seems pretty sane to me. Or make the business franchise-based; the business provides branding, marketing, and training, franchisee/landlord hires staff, and handles supplies and maintenance.
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- xeckr 3y agoI initially read "shares" as the verb, not the noun. >WeWork shares sink Better let that sink in.
- phendrenad2 3y agoAll I want from a coworking space is a door that closes, a location within walking distance of my home, and a price point that is closer to a cup of coffee than a meal. WeWork obviously can't do this, but maybe the successor can.
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