Comment by vegannet | Hacker News Reader

Comment by vegannet | Hacker News Reader

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The reason WeWork is great is because investors are subsidising our memberships, just like Uber is cheap because investors are shovelling in cash. WeWork has the potential for profitability if you take away the ridiculousness but the ridiculousness _is_ WeWork: co-working spaces have existed for years, companies like IWG (Regus) offer the same as WeWork and they're profitable... because they don't have a full time bar staff, a live DJ and a skateboard ramp in their lobby. Yes, the new flagship WeWork in London has a skateboard ramp and live DJ in the lobby. When WeWork fails (and their spaces are scooped up by the mature players in the market) the ridiculousness will disappear and we'll be left the same space that has been available all along.

I like WeWork, WeWork has value, but ping-pong and baristas don't make for 10x valuations.

The superfluous perks are a red herring, they’re not why WeWork doesn’t work. Regus filed for bankruptcy after the dotcom collapse for similar reasons WeWork is struggling: taking a bunch of long term leases and re-leasing them out as short term leases to economically vulnerable businesses is a recipe for disaster.

Why is it? If there is a steady supply of economically vulnerable businesses and you charge a relative markup?

Because they have long-term liabilities with short-term income agreements. If there's market downturn, all those companies that were their customers disappear. But the bank doesn't disappear and We still owes them their monthly mortgage payment.

Everyone keeps parroting this same statement because they don’t really understand how commercial real estate works. First of all, there are many creative ways to exit a commercial lease. I won’t go into it, but do some research. Landlords would rather have a paying tenant in the space than go chase a bankrupt company in court. Second, they are charging several times the PSF rate they are paying to the landlords, which acts as a hedge against volatility. You pay a higher interest rate for higher risk credit - this is basically analogous. Third, there’s nothing stopping them from subleasing the space to larger, lower risk tenants if the market calls for it.

Source: I work in commercial real estate.

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