Some background
WeWork recently announced it had losses totaling 1.9 Billion in 2018.
Comparably, Uber lost 1.8 Billion ($2.2B in 2017!) and Lyft lost $1B respectively last year.
WeWork has $6.6B in cash, raised $700M from a bond sale last year,and has strong interest from capital markets for continued investments.
The first thing you think of when you hear “WeWork”…
VC backed Frat House with free coffee and beer!
... However, corporate customers like Amazon, Microsoft and Pepsico make up a third of their customer base. Seems Fortune 500 likes flexible, plug and play solutions as well.
WeWork’s biggest threats
Economic downturn: WeWork has yet to go through a bad economy having been in business only 8 years.
Risky structure: They have long-term obligations and short-term contracts with clients. Think Lehman Brothers.
Amazon: Amazon leases 200K+ feet from WeWork. We assume Amazon is using the space to staff up while their new towers are constructed. Who backfills the 11+ floors Amazon vacates?
If the WeWork bubble pops…
· Landlords will feel pain… WeWork is the second largest tenant in Seattle at close to 2 million square feet – this would hurt.
· Tenants would find relief… Over 2 Million Square feet of very cool space could become available with Landlords eager to backfill. This would not be the worst thing in the world for Seattle companies.
· The world would keep spinning… Unlike the debt crisis of 2008, WeWork’s potential failure does not impact the masses…
A Final Thought:
There is a disconnect in our office market. Traditional Landlords do not offer flexible, creative office solutions, which is what most tenants demand. WeWork succeeds because they cater to this need and have done it bigger, faster and better than competitors have.
If the market decelerates and tenant demand pivots, WeWork’s current structure may fail. However, they have proven they can react fast.
I do not believe WeWork is a bubble. I think they are here to stay and will adjust their services to accommodate demand.
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