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I've always wondered why WeWork didn't operate more on a "franchise" model. Lots of property management companies have empty space that will be empty for a yea

I've always wondered why WeWork didn't operate more on a "franchise" model. Lots of property management companies have empty space that will be empty for a year or two, and the WeWork system is useful to install against, along with its brand, so these management companies should be able to "install" a WeWork for a year or whatever while their space is vacant, to help offset the lost revenue from leases. Shifting the revenue to a franchise model seems like it solves the majority of their lease issues, and still lets them be useful, even in smaller markets. Their value, IMO, is in the "seamless" experience. Knowing I can paratroop into a city and will have a space to work that's of a consistent quality is great, someone sell me that!

pclmulqdq 3y ago
Adam Neumann is literally the landlord on most of their best-located places. That's why. WeWork gave his real estate company loans to buy buildings to then rent back to WeWork.
- djbusby 3y ago
  What? That seems...odd?
  - intvocoder 3y ago
    It’s odd, but he convinced Vision Fund to go along with this. It’s a clever grift, if it’s legal.
    - junofan 3y ago
      It’s not self dealing if you really love the building I guess. To be fair it was a matter of time before somebody loaded them up with debt and wiped equity. Might as well do it yourself.
      - JumpCrisscross 3y ago
        > It’s not self dealing if you really love the building It’s not self dealing if everyone is on the same page. Neumann didn’t hide any of this. From SoftBank. From the public.
        gizmo 3y ago
        If a company tanks right after being listed on the public markets -- that is, right after insiders got an opportunity to dump their shares on less informed investors -- most likely a serious financial crime has taken place. A real business doesn't go from a 47bn market cap to zero in ~2 years. It's not sufficient to make generic disclosures to investors that there are substantial risks and that you have an unproven business model and such. If it looks, talks, and walks like a pump & dump scheme it probably is.
        kawhah 3y ago
        It's totally still self dealing. It just avoids being fraud.
  - libraryatnight 3y ago
    I had to look myself, from wikipedia: "As CEO, Neumann, on multiple occasions purchased buildings and then leased the space back to WeWork.[60] Observers noted this as a potential conflict of interest and one that would not be allowed if WeWork were a public company.[61] During his tenure as CEO of WeWork, Neumann also purchased US$90 million worth of residences, including a 60-acre (24 ha) estate in Westchester County, New York, a 6,000-square-foot (560 m2) condominium near Gramercy Park, two homes in The Hamptons, and a US$21 million mansion in Corte Madera, California.[16] Neumann launched Flow, a residential real estate startup funded by the venture capital firm Andreessen Horowitz, in August 2022." (https://en.wikipedia.org/wiki/Adam_Neumann https://en.wikipedia.org/wiki/Adam_Neumann)" This guy is just a greed engine at full steam!
    - Vipsy 3y ago
      Its astonishing that Adam Newumann was able to raise hundreds of millions for Flow after all he did at WeWork. At this point you wonder, if VCs are also complacent in these scams. Are they together in scamming the LPs?
      - lolbase 3y ago
        a16z viewed Neumann very positively, to the point that they asked potential CEOs what they thought of Neumann, and the "correct" answer was to be empathetic that he took a huge swing of the bat.
        Cookingboy 3y ago
        If that's true, then it's kinda gross tbh. What's their advice to Neumann this time? "I hope you are more discreet this time so your scam lasts long enough for us to exit"???
        lolbase 3y ago
        This article elaborates on it: https://www.businessinsider.com/interview-venture-capital-job-andreessen-horowitz-avoid-overconfidence-respect-entrepreneur https://www.businessinsider.com/interview-venture-capital-jo... > A candidate who displayed empathy for the entrepreneur would answer the question about Neumann with something like the following, Horowitz said: "He did an unbelievable thing in that he built something that almost nobody has done, which is he built a consumer brand in commercial real estate." The person might add, "He told that story so beautifully that he was able to raise a gigantic amount of money and fund this incredible growing operation."
  - ssnistfajen 3y ago
    This was a big part of the controversy that scuttled their 2019 IPO plan and ousted Neumann from WeWork leadership, along with the toxic workplace accusations and other...volatile things associated with Neumann.
    - smegsicle 3y ago
      [flagged]
- CGamesPlay 3y ago
  If this is true, will WeWork's creditors be suing him?
  - vishnugupta 3y ago
    It's not as if he was doing it under the wraps or something. He did it in full public glare so creditors (and equity investors) knew exactly what they were getting into.
    - dmix 3y ago
      If that's the case and he isn't under legal risk then he hit a damn gray hat gold mine. A fool and his money. Idk if it was worth his reputation and company being completely destroyed but many people have risked their (literal) freedom for much much less.
      - vishnugupta 3y ago
        Yeah; he seems to have done well for himself. https://www.businessinsider.in/wework-ceo-adam-neumann-has-reportedly-made-millions-of-dollars-by-leasing-office-space-to-his-own-company/articleshow/67564850.cms https://www.businessinsider.in/wework-ceo-adam-neumann-has-r...
      - xen0 3y ago
        I don't think his reputation is so tarnished that he can't get other investors to continue to give him money.
  - quickthrower2 3y ago
    How does this work. So he owes money under some terms to Wework. Probably that secured debt can be sold off? And the proceeds of that they get? Unless it was a 0% fixed interest only for 100 years or something crazy. Feels like a better scenario than that money spent on parties or a datadog bill.
- rainbowzootsuit 3y ago
  This is similar to what Eddie Lampert did to Sears' stores. > 200 Sears locations were sold to a REIT and leased back to the retailer. https://therealdeal.com/national/2021/10/21/the-man-who-raided-sears-for-its-real-estate-riches/ https://therealdeal.com/national/2021/10/21/the-man-who-raid...
  - Scoundreller 3y ago
    Seritage is funny since the REIT is public, but Warren Buffett's Berkshire owns much (most? all?) of the secured debt. BH will get paid first at a good rate at relatively low risk, while public investors really take a (highly leveraged) chance (and have been getting hosed after initially being drawn in by a high yield). I understand they're currently liquidating it, TBD if the common stock investors see anything left after BH gets paid back (and then preferred stock holders, currently trading pretty close to par) edit: REIT has been converted into a C-Corp, possibly to carry-forward losses better as it becomes not-a-Sears-property owner? https://therealdeal.com/new-york/2022/07/08/seritage-growth-properties-looks-to-sell-off-all-assets/ https://therealdeal.com/new-york/2022/07/08/seritage-growth-...
  - refurb 3y ago
    It’s not that odd. It frees up a ton of cash.
  - chollida1 3y ago
    That's not really comparable at all. Most retailers, banks, and companies realized that owning realestate is not part of their core competency. Canadian tire rolled their realestate into a REIT and then rents the locations back. There's no double dealing or anything nefarious about it. Heck there is a huge company called Brookfield that has made a living out of buying commercial realestate from companies and renting it back to them while spining the realestate out into a REIT. That's just smart business for the company who gets money upfront and a stable knowing rental price.
    - angus-prune 3y ago
      I agree it's common and not underhanded. But it's not always smart business. Most commercial tenants are still resonsibile for maintenance, which is the primary ongoing expertise. It can be a useful way to free up capital, but only useful if it's used to expand the business and deliver a greater return. Too often it's used to artificially increase the share price or pay out dividend. In these cases the company commits to never ending rent payments for no actual benefit. There are whole bunch of businesses who have bucked this MBA trend, kept their freeholds and have ended up with a more resilient business better able to weather a change of economic circumstances.
- AdamN 3y ago
  He also asserted ownership of the trademark on 'We' and licensed it to the company for 'We Work' :-)
  - nvm0n2 3y ago
    Adam is that you? :)
    - AdamN 3y ago
      Different Adam ...
  - angus-prune 3y ago
    Iirc, following the entirely justified backlash he had to back down from that and surrendered the trademark to the wework.
- deleted 3y ago
  [deleted]
apendleton 3y ago
It seems like for that to work, you'd need to be mostly reliant on day-pass-type customers rather than longer-term ones -- if I were looking for a permanent arrangement to house a small team, say, I'm not sure I'd want to sign with someplace I knew was only going to last until they found a permanent tenant. But I think the day-pass people, in practice, are a pretty small percentage of total revenue.
mumblemumble 3y ago
Regus has been selling that for ages and ages. They have more locations in more cities in more countries, too. If they're not as well-known, I'm guessing it's because they're just a boring old real estate company and not a SoftBank-fueled moon rocket.
- ecshafer 3y ago
  Does Regus sell that? I just did a search for a coworking space on Regus website and it matches my earlier experience: they want me to get a quote and talk 1:1 with an advisor. Wework I can just pay for a 1 day pass at a location purely online. So its so much easier to use when traveling or if you need adhoc coworking.
  - dazc 3y ago
    You can do that with Regus. I wouldn't recommend personally since receiving random invoices for places I have never visited.
  - mumblemumble 3y ago
    I guess it's a little hard to find from their home page because the top search widget thingy is for longer-term reservations, but if you scroll down and choose the "coworking" tab, there's a tile for coworking day passes with a link you can click for the reservation page.
  - aodin 3y ago
    Yes, there are hot desk memberships on their coworking page [1], including single day purchases. They're underneath the giant "get a quote" call to action, however, which is indicative of their priorities. [1] https://www.regus.com/en-us/coworking https://www.regus.com/en-us/coworking
    - karlshea 3y ago
      Well, they’re also not bankrupt so maybe those are the right priorities. Edit: haha j/k they also went bankrupt.
steveBK123 3y ago
Exactly - I had raised the question in another WeWork post. Sort of the Uber model.. BYORE. Could allow CRE landlords to fill space temporarily, much the way pop up shops, sample says, food halls and halloween stores do.. Much better business model to just take a cut of a fee than take on all the lease risk for a startup.
- overtomanu 3y ago
  like AirBnB for work..
- dicriseg 3y ago
  Was that what Breather tried to do?
fasthands9 3y ago
It still seems likely that they were offering more than they were charging. If the cost to convert is $200,000 and the cost to operate is $200,000 a year - but they can only realistically bring in $200,000 - then no one is going to buy that model. It worked when investors didn't care about losses because the losses were hidden as technology investments that they thought would get smaller with scale.
BerislavLopac 3y ago
My favourite example of this model is Hubble: https://hubblehq.com/ https://hubblehq.com/
happytiger 3y ago
Because you can’t get a tech company valuation on that model. That’s their entire innovation: getting a tech valuation on real estate.
vishnugupta 3y ago
WeWork India is in a way franchise. They seem to be doing quite well.
httpz 3y ago
What's interesting is McDonald's HQ owns the real estate of many McDonald's locations and takes rent from the franchisee. This way they can guarantee a steady stream of income regardless of their food sales. I'm not sure how this would've worked out for WeWork.
- winkeltripel 3y ago
  McDonalds also refinanced that real estate after opening the store, to build up liquidity for the next location.
  - dylan604 3y ago
    At this point, isn't GE a financial company more than an engineering/electrics company?
    - throwaway2037 3y ago
      That was true until the Global Financial Crisis in 2008. Now, they use their finance arm to help customers finance very large purchases. This is common in heavy industry.
      - dylan604 3y ago
        Isn't that precisely how it started? Then, they realized they had so much they could open that financing to more than just large industrial clients. Did they just scale it back to their original intent?
- bandrami 3y ago
  I've seen a good business study that argues McDonalds is a real estate company with food products as a loss-leader.
  - okeuro49 3y ago
    This was the plot of the film "The Founder" on the founding of McDonalds. https://m.imdb.com/title/tt4276820/ https://m.imdb.com/title/tt4276820/
mrtksn 3y ago
I was expecting it to turn into some kind of AirBnB model where people rent out a room as an office. A good desk, a good chair and a good connection in a house sounds rentable to me, many people could have rented a room in their house during the working hours to those who don’t have a spare room to turn into an office.
retrocryptid 3y ago
They had plenty of VC cash. They didn't need to franchise.
mattgibson 3y ago
The reason for this is that the rent they would pay will fluctuate with the market. If a city grows and an area becomes more expensive, the landlord captures the uplift by raising the rent and WeWork would operate on a thin margin. On the other hand, if they buy the property, then (if its with leverage) the mortage should be relatively stable as surrounding rents rise making it cheaper. After the mortgage is paid off there is no rent to pay at all and 100% of the location value is captured as profit. Also, the value of the property goes on the balance sheet, giving you back most of the cash paid on the mortgage (or the upfront cash price), so little loss.
monocasa 3y ago
Before the pandemic, commerical real estate was seen as a very low risk store of wealth. At the time of the construction of WeWork's business model, actually being on the deeds would have been seen as reducing the risk profile (by not being beholden to variability/increases of renting). At the time, private capital would have seen being on the deed as a low risk benefit to the business plan. Obviously how we think about commercial real estate, particularly 'downtown' office space has changed heavily, and it seems like wework for whatever reason was unable to pivot. It's arguably very difficult to move the direction of that much capital on w you've made the opposite argument and are already holding the bag.
quadcore 3y ago
I've always wondered why WeWork didn't operate more on a "franchise" model Thats a good question. I wonder if security (hidden cameras and network and stuff) could be a reason.
kawhah 3y ago
That model would make sense if you have interesting ideas/culture/tech but are capital constrained. WeWork's problem was the exact opposite - they had an excess of capital and nothing to spend it on except for buying buildings and taking out long-term leases.
agentcoops 3y ago
I think part of the misunderstanding of WeWork even within Silicon Valley/tech is what a diminishing part of their business the "coworking spaces" actually were. WeWork gets a lot of hate both inside and outside Silicon Valley, but I worked a lot with their team before the failed IPO and my strong sense is most of the blame for the process that lead to today rests entirely with senior management and not even the core business. I'd be curious to know how this trajectory played out past the IPO blunder, but at the time they were already focused on the "enterprise" model of being the best place for a large firm to go to source/spin-up offices around the world (where in some sense you could understand the coworking spaces as dogfooding their own systems of vendor/space management for quickly spinning up and operating office space around the world). I.e. rather than either having to maintain profitability at a global network of coworking spaces or whatever franchise model you become the outsourced office team for the world's largest/high growth firms, who want to focus on their core competence not sourcing furniture vendors in China. Rather than partaking in the joy of mocking WeWork's obvious hubris leading to their downfall, I think the interesting question, especially in this time of high interest rates, is what this bankruptcy signals for the future of "tech-accelerated" firms that want to primarily focus on the real world not software (ie without marginal cost of 0) -- who want to achieve the exponential scale of software yet who have to operate with the margin/cost structure constraint of a traditional firm. Tesla/SpaceX are of course the big success here, but I doubt we'll see anything equivalent until interest rates are back to 0...
- sgt101 3y ago
  > Tesla/SpaceX are of course the big success here, but I doubt we'll see anything equivalent until interest rates are back to 0... I guess it's all about where and when you draw the boundaries, Mush has just managed to lose $20bn on "X" so the Tesla/SpaceX empire may not be counted as a big success for ever.
- oldtownroad 3y ago
  The problem is more fundamental. As with Uber, WeWork is an evolution of a simple and well understood business model… but layered with some high-tech fantasy about being able to change the fundamentals of the universe. WeWork could have succeeded with the franchise model you describe or the focus on being a flexible leasing option for enterprise… but we wouldn’t have heard of them, that wouldn’t be the WeWork we ever knew. WeWork only became big because of the mythology, otherwise it would just be a nicer Regus… which existed before WeWork and will exist long after. WeWork’s core business was mythology, like Uber, and every other “technology” business from the 2010s. You can peel back all the bullshit and say that their “core business” was good but it was all the bullshit that made WeWork, WeWork.
TheRealDunkirk 3y ago
> Shifting the revenue to a franchise model seems like it solves the majority of their lease issues, and still lets them be useful, even in smaller markets. The beauty of this idea is that they could make some money while all of this settles out, and then it would pave the way for another PE to come along and start rolling up all of the most profitable locations until they re-consume all the properties again.
smoe 3y ago
They might be doing that in some countries. Last week I heard from a friend working at a WeWork in Bogotá, that they don’t think it will affect them, because the location is run by Softbank using the WeWork brand. Don’t know if that is true.
travis_kalanick 3y ago
https://www.morning.fr/ https://www.morning.fr/ in France does that, using buildings that are scheduled to be destroyed or "repurposed" in 12-24 months. They convert them in offices and rent office space until the landlord carry on with their initial projects.

pclmulqdq 3y ago

Adam Neumann is literally the landlord on most of their best-located places. That's why. WeWork gave his real estate company loans to buy buildings to then rent back to WeWork.

djbusby 3y ago
What? That seems...odd?
- intvocoder 3y ago
  It’s odd, but he convinced Vision Fund to go along with this. It’s a clever grift, if it’s legal.
  - junofan 3y ago
    It’s not self dealing if you really love the building I guess. To be fair it was a matter of time before somebody loaded them up with debt and wiped equity. Might as well do it yourself.
    - JumpCrisscross 3y ago
      > It’s not self dealing if you really love the building It’s not self dealing if everyone is on the same page. Neumann didn’t hide any of this. From SoftBank. From the public.
      - gizmo 3y ago
        If a company tanks right after being listed on the public markets -- that is, right after insiders got an opportunity to dump their shares on less informed investors -- most likely a serious financial crime has taken place. A real business doesn't go from a 47bn market cap to zero in ~2 years. It's not sufficient to make generic disclosures to investors that there are substantial risks and that you have an unproven business model and such. If it looks, talks, and walks like a pump & dump scheme it probably is.
      - kawhah 3y ago
        It's totally still self dealing. It just avoids being fraud.
- libraryatnight 3y ago
  I had to look myself, from wikipedia: "As CEO, Neumann, on multiple occasions purchased buildings and then leased the space back to WeWork.[60] Observers noted this as a potential conflict of interest and one that would not be allowed if WeWork were a public company.[61] During his tenure as CEO of WeWork, Neumann also purchased US$90 million worth of residences, including a 60-acre (24 ha) estate in Westchester County, New York, a 6,000-square-foot (560 m2) condominium near Gramercy Park, two homes in The Hamptons, and a US$21 million mansion in Corte Madera, California.[16] Neumann launched Flow, a residential real estate startup funded by the venture capital firm Andreessen Horowitz, in August 2022." (https://en.wikipedia.org/wiki/Adam_Neumann https://en.wikipedia.org/wiki/Adam_Neumann)" This guy is just a greed engine at full steam!
  - Vipsy 3y ago
    Its astonishing that Adam Newumann was able to raise hundreds of millions for Flow after all he did at WeWork. At this point you wonder, if VCs are also complacent in these scams. Are they together in scamming the LPs?
    - lolbase 3y ago
      a16z viewed Neumann very positively, to the point that they asked potential CEOs what they thought of Neumann, and the "correct" answer was to be empathetic that he took a huge swing of the bat.
      - Cookingboy 3y ago
        If that's true, then it's kinda gross tbh. What's their advice to Neumann this time? "I hope you are more discreet this time so your scam lasts long enough for us to exit"???
        lolbase 3y ago
        This article elaborates on it: https://www.businessinsider.com/interview-venture-capital-job-andreessen-horowitz-avoid-overconfidence-respect-entrepreneur https://www.businessinsider.com/interview-venture-capital-jo... > A candidate who displayed empathy for the entrepreneur would answer the question about Neumann with something like the following, Horowitz said: "He did an unbelievable thing in that he built something that almost nobody has done, which is he built a consumer brand in commercial real estate." The person might add, "He told that story so beautifully that he was able to raise a gigantic amount of money and fund this incredible growing operation."
- ssnistfajen 3y ago
  This was a big part of the controversy that scuttled their 2019 IPO plan and ousted Neumann from WeWork leadership, along with the toxic workplace accusations and other...volatile things associated with Neumann.
  - smegsicle 3y ago
    [flagged]
CGamesPlay 3y ago
If this is true, will WeWork's creditors be suing him?
- vishnugupta 3y ago
  It's not as if he was doing it under the wraps or something. He did it in full public glare so creditors (and equity investors) knew exactly what they were getting into.
  - dmix 3y ago
    If that's the case and he isn't under legal risk then he hit a damn gray hat gold mine. A fool and his money. Idk if it was worth his reputation and company being completely destroyed but many people have risked their (literal) freedom for much much less.
    - vishnugupta 3y ago
      Yeah; he seems to have done well for himself. https://www.businessinsider.in/wework-ceo-adam-neumann-has-reportedly-made-millions-of-dollars-by-leasing-office-space-to-his-own-company/articleshow/67564850.cms https://www.businessinsider.in/wework-ceo-adam-neumann-has-r...
    - xen0 3y ago
      I don't think his reputation is so tarnished that he can't get other investors to continue to give him money.
- quickthrower2 3y ago
  How does this work. So he owes money under some terms to Wework. Probably that secured debt can be sold off? And the proceeds of that they get? Unless it was a 0% fixed interest only for 100 years or something crazy. Feels like a better scenario than that money spent on parties or a datadog bill.
rainbowzootsuit 3y ago
This is similar to what Eddie Lampert did to Sears' stores. > 200 Sears locations were sold to a REIT and leased back to the retailer. https://therealdeal.com/national/2021/10/21/the-man-who-raided-sears-for-its-real-estate-riches/ https://therealdeal.com/national/2021/10/21/the-man-who-raid...
- Scoundreller 3y ago
  Seritage is funny since the REIT is public, but Warren Buffett's Berkshire owns much (most? all?) of the secured debt. BH will get paid first at a good rate at relatively low risk, while public investors really take a (highly leveraged) chance (and have been getting hosed after initially being drawn in by a high yield). I understand they're currently liquidating it, TBD if the common stock investors see anything left after BH gets paid back (and then preferred stock holders, currently trading pretty close to par) edit: REIT has been converted into a C-Corp, possibly to carry-forward losses better as it becomes not-a-Sears-property owner? https://therealdeal.com/new-york/2022/07/08/seritage-growth-properties-looks-to-sell-off-all-assets/ https://therealdeal.com/new-york/2022/07/08/seritage-growth-...
- refurb 3y ago
  It’s not that odd. It frees up a ton of cash.
- chollida1 3y ago
  That's not really comparable at all. Most retailers, banks, and companies realized that owning realestate is not part of their core competency. Canadian tire rolled their realestate into a REIT and then rents the locations back. There's no double dealing or anything nefarious about it. Heck there is a huge company called Brookfield that has made a living out of buying commercial realestate from companies and renting it back to them while spining the realestate out into a REIT. That's just smart business for the company who gets money upfront and a stable knowing rental price.
  - angus-prune 3y ago
    I agree it's common and not underhanded. But it's not always smart business. Most commercial tenants are still resonsibile for maintenance, which is the primary ongoing expertise. It can be a useful way to free up capital, but only useful if it's used to expand the business and deliver a greater return. Too often it's used to artificially increase the share price or pay out dividend. In these cases the company commits to never ending rent payments for no actual benefit. There are whole bunch of businesses who have bucked this MBA trend, kept their freeholds and have ended up with a more resilient business better able to weather a change of economic circumstances.
AdamN 3y ago
He also asserted ownership of the trademark on 'We' and licensed it to the company for 'We Work' :-)
- nvm0n2 3y ago
  Adam is that you? :)
  - AdamN 3y ago
    Different Adam ...
- angus-prune 3y ago
  Iirc, following the entirely justified backlash he had to back down from that and surrendered the trademark to the wework.
deleted 3y ago
[deleted]

apendleton 3y ago

It seems like for that to work, you'd need to be mostly reliant on day-pass-type customers rather than longer-term ones -- if I were looking for a permanent arrangement to house a small team, say, I'm not sure I'd want to sign with someplace I knew was only going to last until they found a permanent tenant. But I think the day-pass people, in practice, are a pretty small percentage of total revenue.

mumblemumble 3y ago

Regus has been selling that for ages and ages. They have more locations in more cities in more countries, too. If they're not as well-known, I'm guessing it's because they're just a boring old real estate company and not a SoftBank-fueled moon rocket.

ecshafer 3y ago
Does Regus sell that? I just did a search for a coworking space on Regus website and it matches my earlier experience: they want me to get a quote and talk 1:1 with an advisor. Wework I can just pay for a 1 day pass at a location purely online. So its so much easier to use when traveling or if you need adhoc coworking.
- dazc 3y ago
  You can do that with Regus. I wouldn't recommend personally since receiving random invoices for places I have never visited.
- mumblemumble 3y ago
  I guess it's a little hard to find from their home page because the top search widget thingy is for longer-term reservations, but if you scroll down and choose the "coworking" tab, there's a tile for coworking day passes with a link you can click for the reservation page.
- aodin 3y ago
  Yes, there are hot desk memberships on their coworking page [1], including single day purchases. They're underneath the giant "get a quote" call to action, however, which is indicative of their priorities. [1] https://www.regus.com/en-us/coworking https://www.regus.com/en-us/coworking
  - karlshea 3y ago
    Well, they’re also not bankrupt so maybe those are the right priorities. Edit: haha j/k they also went bankrupt.

steveBK123 3y ago

Exactly - I had raised the question in another WeWork post. Sort of the Uber model.. BYORE. Could allow CRE landlords to fill space temporarily, much the way pop up shops, sample says, food halls and halloween stores do.. Much better business model to just take a cut of a fee than take on all the lease risk for a startup.

overtomanu 3y ago
like AirBnB for work..
dicriseg 3y ago
Was that what Breather tried to do?

fasthands9 3y ago

It still seems likely that they were offering more than they were charging. If the cost to convert is $200,000 and the cost to operate is $200,000 a year - but they can only realistically bring in $200,000 - then no one is going to buy that model. It worked when investors didn't care about losses because the losses were hidden as technology investments that they thought would get smaller with scale.

BerislavLopac 3y ago

My favourite example of this model is Hubble: https://hubblehq.com/ https://hubblehq.com/

happytiger 3y ago

Because you can’t get a tech company valuation on that model. That’s their entire innovation: getting a tech valuation on real estate.

vishnugupta 3y ago

WeWork India is in a way franchise. They seem to be doing quite well.

httpz 3y ago

What's interesting is McDonald's HQ owns the real estate of many McDonald's locations and takes rent from the franchisee. This way they can guarantee a steady stream of income regardless of their food sales. I'm not sure how this would've worked out for WeWork.

winkeltripel 3y ago
McDonalds also refinanced that real estate after opening the store, to build up liquidity for the next location.
- dylan604 3y ago
  At this point, isn't GE a financial company more than an engineering/electrics company?
  - throwaway2037 3y ago
    That was true until the Global Financial Crisis in 2008. Now, they use their finance arm to help customers finance very large purchases. This is common in heavy industry.
    - dylan604 3y ago
      Isn't that precisely how it started? Then, they realized they had so much they could open that financing to more than just large industrial clients. Did they just scale it back to their original intent?
bandrami 3y ago
I've seen a good business study that argues McDonalds is a real estate company with food products as a loss-leader.
- okeuro49 3y ago
  This was the plot of the film "The Founder" on the founding of McDonalds. https://m.imdb.com/title/tt4276820/ https://m.imdb.com/title/tt4276820/

mrtksn 3y ago

I was expecting it to turn into some kind of AirBnB model where people rent out a room as an office. A good desk, a good chair and a good connection in a house sounds rentable to me, many people could have rented a room in their house during the working hours to those who don’t have a spare room to turn into an office.

retrocryptid 3y ago

They had plenty of VC cash. They didn't need to franchise.

mattgibson 3y ago

The reason for this is that the rent they would pay will fluctuate with the market. If a city grows and an area becomes more expensive, the landlord captures the uplift by raising the rent and WeWork would operate on a thin margin. On the other hand, if they buy the property, then (if its with leverage) the mortage should be relatively stable as surrounding rents rise making it cheaper. After the mortgage is paid off there is no rent to pay at all and 100% of the location value is captured as profit. Also, the value of the property goes on the balance sheet, giving you back most of the cash paid on the mortgage (or the upfront cash price), so little loss.

monocasa 3y ago

Before the pandemic, commerical real estate was seen as a very low risk store of wealth. At the time of the construction of WeWork's business model, actually being on the deeds would have been seen as reducing the risk profile (by not being beholden to variability/increases of renting). At the time, private capital would have seen being on the deed as a low risk benefit to the business plan. Obviously how we think about commercial real estate, particularly 'downtown' office space has changed heavily, and it seems like wework for whatever reason was unable to pivot. It's arguably very difficult to move the direction of that much capital on w you've made the opposite argument and are already holding the bag.

quadcore 3y ago

I've always wondered why WeWork didn't operate more on a "franchise" model Thats a good question. I wonder if security (hidden cameras and network and stuff) could be a reason.

kawhah 3y ago

That model would make sense if you have interesting ideas/culture/tech but are capital constrained. WeWork's problem was the exact opposite - they had an excess of capital and nothing to spend it on except for buying buildings and taking out long-term leases.

agentcoops 3y ago

I think part of the misunderstanding of WeWork even within Silicon Valley/tech is what a diminishing part of their business the "coworking spaces" actually were. WeWork gets a lot of hate both inside and outside Silicon Valley, but I worked a lot with their team before the failed IPO and my strong sense is most of the blame for the process that lead to today rests entirely with senior management and not even the core business. I'd be curious to know how this trajectory played out past the IPO blunder, but at the time they were already focused on the "enterprise" model of being the best place for a large firm to go to source/spin-up offices around the world (where in some sense you could understand the coworking spaces as dogfooding their own systems of vendor/space management for quickly spinning up and operating office space around the world). I.e. rather than either having to maintain profitability at a global network of coworking spaces or whatever franchise model you become the outsourced office team for the world's largest/high growth firms, who want to focus on their core competence not sourcing furniture vendors in China. Rather than partaking in the joy of mocking WeWork's obvious hubris leading to their downfall, I think the interesting question, especially in this time of high interest rates, is what this bankruptcy signals for the future of "tech-accelerated" firms that want to primarily focus on the real world not software (ie without marginal cost of 0) -- who want to achieve the exponential scale of software yet who have to operate with the margin/cost structure constraint of a traditional firm. Tesla/SpaceX are of course the big success here, but I doubt we'll see anything equivalent until interest rates are back to 0...

sgt101 3y ago
> Tesla/SpaceX are of course the big success here, but I doubt we'll see anything equivalent until interest rates are back to 0... I guess it's all about where and when you draw the boundaries, Mush has just managed to lose $20bn on "X" so the Tesla/SpaceX empire may not be counted as a big success for ever.
oldtownroad 3y ago
The problem is more fundamental. As with Uber, WeWork is an evolution of a simple and well understood business model… but layered with some high-tech fantasy about being able to change the fundamentals of the universe. WeWork could have succeeded with the franchise model you describe or the focus on being a flexible leasing option for enterprise… but we wouldn’t have heard of them, that wouldn’t be the WeWork we ever knew. WeWork only became big because of the mythology, otherwise it would just be a nicer Regus… which existed before WeWork and will exist long after. WeWork’s core business was mythology, like Uber, and every other “technology” business from the 2010s. You can peel back all the bullshit and say that their “core business” was good but it was all the bullshit that made WeWork, WeWork.

TheRealDunkirk 3y ago

> Shifting the revenue to a franchise model seems like it solves the majority of their lease issues, and still lets them be useful, even in smaller markets. The beauty of this idea is that they could make some money while all of this settles out, and then it would pave the way for another PE to come along and start rolling up all of the most profitable locations until they re-consume all the properties again.

smoe 3y ago

They might be doing that in some countries. Last week I heard from a friend working at a WeWork in Bogotá, that they don’t think it will affect them, because the location is run by Softbank using the WeWork brand. Don’t know if that is true.

travis_kalanick 3y ago

https://www.morning.fr/ https://www.morning.fr/ in France does that, using buildings that are scheduled to be destroyed or "repurposed" in 12-24 months. They convert them in offices and rent office space until the landlord carry on with their initial projects.