It’s going to make a hell of a bang…..

Wework has 527,000 members in 528 locations across 27 countries, having expanded rapidly since it was founded in New York nine years ago. It is the largest corporate occupier of office space in London and New York.

…..when it hits the floor.

And it’s probably going to, isn’t it?

Yes, from the comments:

New business model: rent office space with free booze on tap to journos. What could possibly go wrong?

25 thoughts on “It’s going to make a hell of a bang…..”

  1. Interviewed there once: seemed a very “enforced young” place, where the slightly under par wages were to be compensated for via free parties and concert tickets. They won’t allow you to buy meat meals on expenses either.

    But in the end, it’s just Regus with knobs on. Not worth the cash

  2. It’s not a fraud. It’s a classic problem of maturity mismatch though.

    Rent whole office buildings on long term contracts at cheap rates.

    Sublet on short term contracts to small, often single-desk, tenants at high rates, for the space taken.

    Make profit on the difference.

    The issue comes when there is a downturn and the sub-tenant occupancy dips. Wework still needs to pay rent, but may not be receiving enough.

    Go bust.

    This is very similar to the phenomenon that puts banks at risk of bank runs, incidentally.

    The problem for wework is that the less they want to bear this risk, the less profit they will make. It’s not impossible to manage, but it’s questionable whether sufficient economics exists at a point of sufficient risk management.

    I’m convinced there is ongoing demand for their product, but other landlords, the ones who actually own the buildings and have better long-term funding structures like equity, are learning how to do the business. Because it’s not hard. So there will be plenty of competition; my company uses space in a wework clone run by a big traditional landlord.

    Treating it as a tech company, as many do, is stupid. That difference in perception is why the IPO failed

  3. If you read up on their alleged accounting practices (“community-adjusted EBITDA” just as one example) then it seems to be pretty close to a fraud.

  4. @BiB: the Zerohedge writer quickly gets to the word “fraud” and almost as quickly to “ponzi” which is American for a pyramid scheme.

    He makes it clear that in his view the founder of the company is a twerp whose claims are of dubious accuracy.

    Oblong thinks that it’s a great big dud. There’s no logical reason why it can’t all three.

  5. If it doesn’t explode, presumably that will be because it has mutated into a much lower-risk version of landlording with an accompanying far lower valuation. And the investors will be properly burnt.

    How likely is it for that transformation to happen? Even if it’s better for the company and its investors than inevitably going bust would be, it doesn’t seem to be what anyone (management or investors) seems to have been betting on, or incentived to try?

  6. It has the whiff of Kids Company to me.
    A charismatic central figure like that nice woman Batmanghelidjh .
    Spout virtuous rubbish about new paradigms in methodology and other bullshit bingo terms.
    Make lots of connections with well established figures to burnish your credentials and give political cover.
    Employ all sorts of financial shenanigans to obfuscate the real flows of cash in the company whilst making sure that the people at the top ( and their relatives!) are well renumerated and insulated if (or when) things go to pot.
    Who in their right mind would invest in such a company after doing due diligance?

  7. OK, this is completely off-topic, but as google has failed me I thought someone here might remember. What was the formal name of the index-linked pay policy for govt employees under the Heath regime in the 70s? If you can give me the formula too (it was a fixed ratio with assessment every month) that will be helpful. Just a reminder of those awful days when you found prices in the afternoon were more than in the same store that same morning.

    Or Tim can of course scour this post from existence..

  8. “Who in their right mind would invest in such a company?”

    No one except the one dude at SoftBank who has chucked in billions…………..

  9. I pretty much agree with many things zerohedge says about the company (not all – for example occupancy is not a disaster) but none of it makes it a fraud, in the strict sense of the term. They are hyper-promotional to the point of immorality, and use very aggressive accounting, but – so far at least – they have met disclosure standards and not technically lied about anything.

    No idea what Softbank’s Masa sees in it all. But if you read some of his presentations I think he’s a bit nuts anyway.

  10. This amused;


    “Also, full disclosure: The Register has WeWork offices in London, code-named Vulture Central, and in San Francisco, code-named Vulture West. We use WeWork because, at least in the case of California, our normal bog-standard office rent doubled overnight with no extra benefits. WeWork at the time was cheaper, and it lured us with stuff like booze, coffee and tea, faster internet, big meeting rooms for visitors, modern decor, and so on.”

    “In return for your rental money (which, to be fair, compares favorably with boring old non-tech-just-an-office-space-biz Regus) you get a 4’ wide desk, the aforementioned coffee and a selection of sawdust in gossamer bags labelled “tea”, and the infamous booze. In our London location, this consists of self-service lager, ale, and cider taps, and if you’re lucky, a second lager. In Vulture West, it’s some kind of homeopathic IPA via a tap that is unlocked at 9am and locked again in time for 5pm. Presumably, this is to cut costs, by discouraging people from staying in the evening to drink all the beer, whereas it unfortunately encourages day drinking and, well, nw you know were all the typoes come frm

    In Vulture Central, if the barrels of beer run dry, they’re not changed until the following day, making WeWork a disappointing choice for pre-match bevvies unless you hit it early and hard, something Vulture Central has absolutely no knowledge of (nor could we possibly explain its $5,200 loss per customer; even pints of beer in London and Cali aren’t that expensive.)”

  11. I’ve always assumed that anything with the We-Something moniker, just like the i-Something and others of that 90’s/noughties naming fad, came with an implied Idiot Tax. Whether this was on the consumer side or investor side is pretty much irrelevant.

    Can’t really be fraud when you loudly telegraph that idiot tax in the name alone..

  12. “In return for your rental money (which, to be fair, compares favorably with boring old non-tech-just-an-office-space-biz Regus)”

    It’s a build-to-flip internet underpants gnome company. Price the shit low to get the customers so you can start getting hype about scale.

  13. dearieme

    “Is it some sort of fraud, or pyramid scheme, or just a great big dud?”

    It’s got to be all three doesn’t it? I only heard of it a few weeks back, but it just looks like one of those end of boom jokes that has fools investing in just in the hope of unloading to the next fool. The CEO’s yogary, new age, image is the only thing that separates it from the most mundane business imaginable.

  14. Oblong

    “Treating it as a tech company, as many do, is stupid. That difference in perception is why the IPO failed”

    It’s a very mundane and simple business. Without the ‘tech’ label its worth a tiny faction of it’s current valuation, and then it brought back to earth with huge bang.

    It’s a fraud because it can simply never live up to the valuation. Because of the valuation, the CEO has had a free hand to play games behind the curtain, and I have no doubts that will be the case.

  15. Bloke in North Dorset

    Completely OT

    Am I the only person who is nauseated by the sympathy shown by the MSM for Tom Watson as the nuttier end of Labour attempts to oust him?

    This is the twat that abused Parliamentary privilege to ruin the of the people accused by Carl Beech. Not only was that wrong, it isn’t why MPs have Parliamentary privileged.

  16. “It’s not a fraud. It’s a classic problem of maturity mismatch though.”

    Precisely. Rent space from them all you like but don’t invest in them. If you have investments in any property companies, check if they lease to them and sell if they do (unless there are rock solid guarantors). This *will* go wrong.

  17. BiND,

    Yeah. Watson isn’t Frank Field. He’s a cunt.

    Parliamentary privilege is constantly being abused. These kangaroo court select committees are just an excuse to slander people. That’s why Cummings said he’d go if they both swore to do it under oath.

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