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Comment by eldavido | Hacker News Reader

Is this informed by any data or facts whatsoever?

Last time I checked, WeWork was a going concern with 600,000 customers more or less happy with their service. What would tank them? Are their lease obligations too large and can't be renegotiated?

This entire thing is blown so far out of proportion. Like Tesla, it seems like a company that mostly makes products people like, whose equity is extremely hard to value. Maybe WeWork is worth $40 billion, maybe it's more like Regus and worth $4. This only affects you if you're a shareholder. As a WeWork customer, I absolutely couldn't care less about any of this nonsense.

I'm reminded of a classic finance quote: "If I owe you $100, I have a problem. If I owe you $100 million, you have a problem." This summarizes the dynamic between WeWork and its landlords right now.

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"WeWork was a going concern with 600,000 customers more or less happy with their service."

This may have been true in December 2019, but with a global patchwork "stay at home" regulations in place, I suspect co-work spaces (especially of the open floor plan variety) are devoid of paying customers. That presumes they're even allowed to be open right now.

I don't remember offhand what the average WeWork customer generates in revenue or if the bulk of those customers are month-to-month vs. mid- to long-term contracts. If the former I don't see why those customers would continue to pay for space and services they don't have the ability to use.

I know a lot of people, including myself, who have cancelled membership to WeWork due to Coronavirus.

I intend to join again when we're allowed to leave our houses.

They were basically insolvent when the extra Softbank cash failed and the IPO failed. And that was before COVID-19.

But you make a good point: They owe so much in leases they have huge negotiating power, and with COVID-19 they probably have even more since nobody's renting space right now.

Having a lease is not the same as “owing the bank money” to go with the loan analogy. Yes it’s painful for landlords but the landlords have options. If they kicked WeWork out they’re not just out the money in the way a bank is if a borrower defaults. There’s some short term pain but if WeWork has long leases at some point it benefits the landlords to just kick them out and move on.

Landlords have mortgages to pay. Bondholders hold those notes. There is very little slack in the system for this scale of default.

Some landlords have mortgages to pay.

How many WW properties are still owned by Adam Neumann?

This whole thing frustrates me so much. It's like people are just spouting off random opinions not substantiated by any data or real-world experience...at all.

I just looked it up. WeWork has 848 locations globally. These locations aren't in houses...they're in gargantuan, tall office buildings, worth tens/hundreds of millions of dollars each. If Adam Neumann is a billionaire, AND if he has most of his wealth in commercial real estate (I'm sure he doesn't), he might own...5-10 of these. The rest are owned by REITs like Simon Property Group, Thor Equities, CB Richard Ellis (CBRE), Jones Lang LaSalle (JLL), and others.

I think you’re missing the point. There was a huge controversy a while back where it appeared as though Adam Neumann was fleecing the company - personally trademarking the “We” brand and selling it back to the company, buying up certain office space and leasing it back to WeWork.

Yes it is. It is exactly the same thing. A landlord is an unsecured creditor just like a lender with a loan that isn't backed by pledged collateral. In general, any unsecured creditor, whether bank, landlord, etc can sue or take other legal action to recover what they're owed. Though they might not win.

What the common discourse around this situation misses is how the landlords are very much on the hook if WeWork blows up. Especially given the broader economic contraction, there is no scenario where the landlords will force WeWork into destruction/non-operation. WeWork might file for chapter 11 bankruptcy and there's going to be some losses, but the odds of this business simply saying, sorry guys, we're closed, pack up your shit and go home, are effectively zero.

If you have some time, read a few books about how huge debt crises get resolved. It's fascinating. My friend Drew is a huge "bankruptcy geek" and eats this shit up.

A good starter book: "This Time It's Different", often referred to as "Rheinhart and Rogoff" by the authors names. https://www.amazon.com/This-Time-Different-Centuries-Financi... - great overview of how many nation-state debt crises got resolved. In general, most parties end up taking a haircut (not a total loss) and everyone gets on with their life.

Sears and Radio Shack are interesting cases from the corporate (not government) world. There are entire specialist law firms and financing companies that deal just with distressed debt.

What's crazy to me is how much this stuff repeats. Argentina has been a basket case almost nonstop for the last 20 years and yet, people still lend to them. Why anyone would continue to do this over and over befuddles, but just goes to show how crazy things can be.

Debt: The First 5000 years is also a great read on the topic.

https://www.amazon.com/Debt-Updated-Expanded-First-Years/dp/...

My understanding is that WeWork's customers are on short term, easily cancelled leases, while WeWork's own leases are long term. In a downturn for office space, that is a recipe for disaster, and it's not like WeWork was particularly stable before the current crisis.

As opposed to Tesla, WeWork's product is fairly fungible, so if general price levels for office space collapse, they don't have much of a moat to lock in customers.

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