WeWork owes $18 Billion in Leases?

wework owes 18 billion in leases alexander muse medium
wework owes 18 billion in leases alexander muse medium

Fortunately, for WeWork, as Americans shift more and more of their retail purchasing online the demand for retail space is declining. Don’t get me wrong, brick and mortar retail isn’t going anywhere but the United States has dedicated between four and ten times as much space as their European and Asian counterparts. The shift to experiential shopping is perfectly timed to take advantage of the shift of talent people and high-paying jobs back to city centers. Richard Florida of CityLab explains,

“Big companies like Google or Amazon can afford to build their own new facilities. But smaller companies and gig-economy workers need flexible coworking spaces that companies such as WeWork provide, and they need affordable living spaces as well. Both of these can be built in the shell of former retail spaces.”

Ironically, WeWork is very much aware of this trend and in a departure from their typical leasing strategy, WeWork bought the iconic Lord & Taylor building on Fifth Avenue in Manhattan last year. The company will lease about a quarter of the building back to Lord & Taylor and use most of the remaining space for their global headquarters. The big question is whether or not WeWork will recognize the opportunity for ALL of their locations.

Large retail real estate companies like Simon and GGP have a LONG history of selling (not leasing) large boxes attached to their malls to big box retailers like Lord & Taylor. WeWork should exploit this fact along with the tectonic shift in brick and mortar retailing to future proof their business and lock in upside for their shareholders buy purchasing their facilities instead of leasing them. If the company had pursued a strategy of buying instead of leasing they might have a $100 billion valuation instead of a $20 billion valuation.

When the Dot Com bubble burst the physical spaces that housed the internet faced tremendous financial pressure. They had signed longterm very expensive leases during the meteoric rise of the bubble. Intransigent landlords refused to restructure their leases and one by one data center providers filed chapter 11 and walked away from their facilities — investors lost billions while landlords suddenly had billions of dollars worth of facilities. Between 1999–2003 there was a HUGE transfer of wealth from technology investors to real estate investors. WeWork, given their current model, is almost certainly going to experience the same sort of transfer if the U.S. economy falters and the demand for office space slows.

Money is cheap. Prime real estate is in oversupply. Demand for WeWork-type spaces is in huge demand. It is time for WeWork to take advantage of the world we’re living in and starting buying the buildings they occupy….

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