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Now Worth $10B, Is WeWork a 2000 Redux?

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Re: Now Worth $10B, Is WeWork a 2000 Redux?

#41

One of my clients has a space in one of WeWork's San Francisco locations. Every time I've visited, I have been struck by how many of the spaces seem underutilized (i.e. companies have more space than they're using). For example, I see companies that have private offices with x desks but I only see x /2 being used at any given time. Other private offices appear to be entirely unutilized (i.e. they're occupied but I ne…

My wife's workplace currently has a WeWork office, as well as a manufacturing facility outside of the city. They typically alternate days, switching between being at the office (which has the 'prestigious' New York City address and most of the paperwork), and the warehouse out on Long Island.

They used to have a bigger office, and my wife would typically be the only one using 1 of the 3 desks - the others belonged to the engineer, who would be at the warehouse more frequently, and the sales manager, who was out making sales. It might be under-utilized, but both engineering and sales still needed their own desk, file storage, etc. for the times that they were in the office.

Re: Now Worth $10B, Is WeWork a 2000 Redux?

#42
post #32

Earlier quoted context omitted.

> But who supplies the VC's with money? Ultimately, all "money" these days is supplied by central bankers. There aren't a lot of good ways to short this stuff, at least if you aren't someone like BlackRock. That's especially unfortunate because it means no one is going to make money on the downside, offsetting others' losses. In every transaction there is still a winner or a loser, it's just that in this case the win…

Can you draw the link from central bankers operations to the inflow of cash to VC's? Because most CB operations are either setting rates (where I understand they at least have to stay in between some bandwidth the market will appreciate, or else face a situation like Switzerland), or transactions buying assets (mainly bonds). Both do not directly accomplish the inflow of money into VC. VC's don't leverage (no banking…

It is desire for yield. If you take the risk-less rate down from ~4% to 0%, then you can shift the rates for higher risk asset classes down similarly. If VC is historically a 12% return asset class (properly risked), LPs will demand the asset more, driving up supply and down the return until it is in-line with the risk profile (perhaps 8%?).

Re: Now Worth $10B, Is WeWork a 2000 Redux?

#43
At the lowest tier for just floating desk space the cost of WeWork and these other coworking spaces is kind of ludicrous if you consider the free alternatives - working from home, a laptop-friendly coffee shop or even the library.

So when they say they have "plenty of cushion in a downturn" that's probably very true. When the tech market is bad the number of freelancers explodes. Loss of larger anchor startups can probably be augmented pretty easily by dropping the fees for freelancers a bit and doing business in volume.

Re: Now Worth $10B, Is WeWork a 2000 Redux?

#44

I recently toured a new WeWork space in San Francisco. While beautiful, the price was absolutely bonkers. I say that in the context of a commercial real estate market that is booming in general.

You're paying for no lease. You can get a 3-10 person office in a downtown SF with no lease. No other place offers that.

Daly City, SF without all the SF! Plus you can BART into the city and voilà, you can pretend you're in SF the entire time!

WIN-WIN-WIN!

Re: Now Worth $10B, Is WeWork a 2000 Redux?

#45
post #35

Earlier quoted context omitted.

There are plenty of opportunities to bet against many of these markets, some more direct than others. To bet against the Canadian housing market, for instance, you could look at shorting vulnerable financial institutions (Canadian banks and lenders with exposure to the Canadian housing market). You could also look at the Canadian dollar, which could conceivably fall if there's a housing crash. Private startups are ob…

Canadian banks are in good shape though, they weathered the 2008 storm easily. Mortgages are limited to 25 years in Canada and you need some 20% down IIRC. I do think there is a housing bubble, especially in Vancouver, but it's not clear to me how one could bet against it. And there always the chance that the prices are sustainable, they are positively mild compared to Zurich or Tokyo or San Francisco.

You can get a 30 mortgage, as long as you have 20% down (so you don't need CMHC insurance).

The real reason why shorting the banks won't work is that with less than 20% down the CMHC insures that the lender will get their money back. For thenon-insured mortgages, the banks can also go after other assets since all Canadian mortgages are recourse loans.

Re: Now Worth $10B, Is WeWork a 2000 Redux?

#46

Does WeWork pay to have these sorts of articles written? Because there are a lot of these sorts of places and they never get mentioned in these articles about WeWork. It makes it sound like WeWork is single-handedly reviving a concept that died with the first dotCom crash, yet it's really just the latest. The only other places they mention are Regus--making it out to be a shambling zombie form of its pre-dotCom bust…

Companies do pay PR firms to get tech articles written about them. These types of articles actually make up a lot of what makes it to the front page of HN.

Re: Now Worth $10B, Is WeWork a 2000 Redux?

#47
post #32

Earlier quoted context omitted.

> But who supplies the VC's with money? Ultimately, all "money" these days is supplied by central bankers. There aren't a lot of good ways to short this stuff, at least if you aren't someone like BlackRock. That's especially unfortunate because it means no one is going to make money on the downside, offsetting others' losses. In every transaction there is still a winner or a loser, it's just that in this case the win…

Can you draw the link from central bankers operations to the inflow of cash to VC's? Because most CB operations are either setting rates (where I understand they at least have to stay in between some bandwidth the market will appreciate, or else face a situation like Switzerland), or transactions buying assets (mainly bonds). Both do not directly accomplish the inflow of money into VC. VC's don't leverage (no banking…

The government leaves the cheap money door open to banks like Goldman Sachs. Goldman Sachs lends rich people a pile of money at 1%. Rich people invest that borrowed money with the intention to arbitrage the difference.

Works great, until the party ends when interest rates start increasing or the assets plunge and one has to cover their leverage, whichever happens first.

Re: Now Worth $10B, Is WeWork a 2000 Redux?

#48
post #10

(big imho-post) Oh, I wish someone could explain to me how I can practically short many of these bubbles that come around HN daily. China, the many tech-unicorns, the housing market in Canada. Enough chances to short something succesfully. That whole 'private-IPO' thing makes the 'valued at' so much less worth, since you can't short them, information is private, no efficient market hypothesis in play (if any). I only…

Succintly, government-sponsored VCs have a better performance until they get so much money they start to underperform.

Still, in the U.S only 4.53% of enterprises get GVC(p.20).

http://www.nber.org/papers/w16521.pdf

Re: Now Worth $10B, Is WeWork a 2000 Redux?

#49

One of my clients has a space in one of WeWork's San Francisco locations. Every time I've visited, I have been struck by how many of the spaces seem underutilized (i.e. companies have more space than they're using). For example, I see companies that have private offices with x desks but I only see x /2 being used at any given time. Other private offices appear to be entirely unutilized (i.e. they're occupied but I ne…

Real estate transaction costs can be huge, IF the rent is reasonable (apparently not this case) then paying rent on underused space is basically a real estate options market. There is a viable business model here, its like insurance that if you need an additional long term office next Monday, just walk in to "your" space. It might be cheaper to make one transaction, pay your 6% or more of commissions and fees, underuse the space, than to pay two 6% commissions and fees (and labor to do the second deal).

Several employers ago I got to learn about financial industry disaster recovery plans and you'd be surprised how many traders have an empty office squirreled away on the other side of the city as their tornado/fire recovery plan. Sure only 1/20th the employees would fit, but its only 5% the rental cost of the real office and some bean counter said that was an acceptable loss to provision an office with no people and a stack of server hardware. If they let people work from the D.R. site that would be a public admission that people don't need to work in a bullpen and could just as well work from starbucks or home, but that would not meet the emotional need to intimidate people in person and demonstrate butts-in-seats metric goals so using the D.R. space for actual work would be unthinkable unless the main office was literally on fire.

This combines with open office style, such that people can't avoid noticing unused space, although unused space is hardly a new feature of the business world. There's a small room right down the hall from me, but its behind a locked door, so no one notices. If they were not an open office company, they'd just lock a door and no one would notice. Placing their capacity on display like this is arguably an architectural design fail, they should have found an architectural way to "hide" empty space from casual visitors in an attractive and cheap manner.

Re: Now Worth $10B, Is WeWork a 2000 Redux?

#50

Earlier quoted context omitted.

There are plenty of opportunities to bet against many of these markets, some more direct than others. To bet against the Canadian housing market, for instance, you could look at shorting vulnerable financial institutions (Canadian banks and lenders with exposure to the Canadian housing market). You could also look at the Canadian dollar, which could conceivably fall if there's a housing crash. Private startups are ob…

On the second point, the correlations between hyped startups and established software vendors often isn't that strong. It doesn't necessarily need a major crash for markets to decide that Uber actually isn't worth 40% of the current global taxi market. Indeed in some cases there's the distinct possibility the correlation goes the other was and profitable public incumbent tech providers will benefit from the loss-maki…

When folks talk about the desire to bet against the private IPO bubble, they're thinking about a broad, significant decline that affects lots of companies, not the downfall of a specific company. Realistically, this type of broad, significant decline is unlikely to happen without a major correction in the public markets.

So long as the public markets are seen as being strong and stable, it's unlikely that the small, relatively illiquid market for private tech companies will correct itself.

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