work from work 🏢
Lord & Taylor Building, Icon of New York Retail, Will Become WeWork Headquarters
As the flagship store shrinks, the deal is an acknowledgment that even grand shopping spaces of old may now be more valuable as offices.
In selling its Italian Renaissance-style building to a WeWork joint venture for $850 million, Lord & Taylor and Hudson’s Bay are acknowledging that even the grand physical shopping spaces of old are now worth more as office space catering to millennials.
WeWork is opening a second headquarters — in San Francisco
Don’t call it a real estate company, it’s a tech company. WeWork will open an office in Salesforce Tower and will hire around 100 engineers.
A SoftBank fund has made its largest U.S. investment: $4.4 billion in WeWork
$4.4 billion to one company.
"No one is investing in a co-working company worth $20 billion. That doesn't exist," Neumann says. "Our valuation and size today are much more based on our energy and spirituality than it is on a multiple of revenue."
Despite a $17B Valuation and Expanding Business Model, How Long Can WeWork Work?
It was just after the 2007-2008 financial crisis, which drove the Manhattan office vacancy rate to more than 13 percent, according to brokerage reports (and which would not come down to pre-recession levels until 2016). That was the highest level, in fact, since the late 1990s and reflected widespread layoffs and the quick liquidation of unnecessary space...Adam Neumann and Miguel McKelvey saw an opportunity in the tumult. The pair had started and sold a Brooklyn-based company called GreenDesk, which rented out environmentally friendly coworking space, and decided to do much the same thing on a larger scale with more services thrown in.
The first issue is on the revenue side; what is the main revenue driver? I read somewhere that WeWork achieves an occupancy rate of 97% in buildings within one year of opening. If we assume that's true, then that means that to a large extent their revenue growth is being limited by how quickly they can stand up these buildings, so it's in their best interest to open up spaces as fast as possible.
However, there was also this little tidbit in The Information:
Deal Hurdles for WeWork: Neumann’s Style and Rich Stock Price
When executives at office space provider WeWork considered expanding into China two years ago, they discussed buying a fledgling Chinese co-working firm called UrWork. A deal didn’t get done, in part because WeWork offered stock, which UrWork didn't want to accept, a UrWork adviser said.
As a result, WeWork’s revenue per member has remained essentially flat since 2015—at about $650. That’s a far cry from the $1,000 that WeWork executives talk about one day hitting, which has also been hurt by slow sales of services such as printing and phone use.
The other part is WeWork's lease expenses, and one would expect that as they grow and move into "nicer" buildings in better locations they will have to pay more for leases. So there they are going to experience margin compression over time if their average revenue per user is flat. In my mind, the sources of additional upside for WeWork are in pricing power (i.e. charging members more money for spaces in better buildings) and stickiness (e.g. as their tenants grow from 5- person companies to 25-person companies, they will rent more desks at WeWork and get further locked-in).
Then when you layer all that touchy-feely stuff I talked about before on top, plus whatever "tech" they have, plus going after bigger companies like Pepsi and IBM, you end up with a positive outlook for this company.
Case in point:
IBM to take entire WeWork building in landmark deal
IBM has agreed to sign a membership deal for all desks in WeWork’s 88 University Pl, in the first reported case of a single corporation taking an entire space.
The technology giant is set to move up to 600 employees to 88 University Place, sources told The Real Deal. The agreement means the building will essentially become IBM’s corporate office, but designed and managed by WeWork.
That being said WeWork management is planning for the upside case so they want to shoot for over $20 billion. I can't say for sure whether this business will be worth more than a 15X revenue multiple (given that they are projecting $1.3 billion in revenue this year) but I look forward to the free lemon water and tequila Thursdays in the meantime.