By: Jonathan Walter
WeWork is the largest co-working company in the world. The company takes on long-term leases for office space, redevelops the space, and then subleases the space for various period of time. Tenants include individuals, small start-ups, established midsize businesses, and even large corporations like Microsoft. Founded in New York City in 2010, the company is now worth over $20 billion dollars. On top of being the biggest office tenant in New York City, WeWork manages over 10 million square feet of space in over 144 offices across the globe.
To get an idea of just how much space WeWork manages and what that means for its valuation, it’s best to compare it to peer companies. The largest publicly traded office real estate company, Boston Properties, has a market cap of roughly $18 billion and owns about five times the square footage that WeWork does. Lyft, another well-known startup, has a valuation of just over $15.1 billion dollars.
In addition to real estate, WeWork has plans to branch into other business sectors as well. The company has already announced that it will be moving on to housing (WeLive), retail (WeMRKT), and education (WeGrow). As the company expands, its identity changes. So, what is WeWork? Is it a technology company? Is it a real estate company? Is it both or is it something else entirely?
With this rapid growth has come a number of legal (and non-legal) issues, some of which are more common to the technology companies that WeWork considers peers than a real estate company like Boston Properties.
At the beginning of 2018, WeWork made the decision to remove beer taps from their workspaces in California. This is because the company operates in a regulatory grey area and does not have a liquor license in the state. While California law allows for employers to provide alcohol to employees, it is silent on whether or not co-working spaces can serve alcohol to their members and at least one attorney believes it could be problematic that the company provides access to the beer in exchange for leasing the space or paying a membership fee. Although WeWork is technically a landlord, in many ways the company treats its tenants like employees. In addition to beer taps, it furnishes the office with amenities like beanbag chairs, pool tables, and Ping-Pong tables. This is very different than a traditional landlord-tenant relationship and has more in common with the silicon valley start-ups who provide these amenities to their employees than a typical landlord who just leases out office space.
Despite WeWork’s efforts to differentiate itself from an office real estate company like Boston Properties, the company has still fallen into some of the same pitfalls that a more traditional real estate company would face. Most notably, it was revealed that the company owes $18 billion dollars in rent, and some insiders believe that the company is still susceptible to economic downturns. Despite WeWork’s unique business model, rising interest rates and a loss of customers could put the company in a difficult spot. There is an argument to be made that should an economic downturn happen and WeWork becomes unable to pay its rents, the company’s size could force landlords to keep the the company afloat. Additionally, WeWork’s other ventures could provide the company with other more stable sources of revenue.
It is difficult to pin down exactly what kind of company WeWork is, but so far, the company has seemed to use that to its advantage. With its expansion in to other areas, the question may only grow more difficult to answer as the company faces new challenges.
See Roland Li, WeWork Revolutionized Co-working. Now it’s Targeting Corporate Headquarters, San Francisco Chronicle, Nov. 27, 2018,https://www.sfchronicle.com/business/article/WeWork-revolutionized-co-working-Now-it-s-13423133.php.
See Eliot Brown, WeWork: A $20 Billion Startup Fueled by Silicon Valley Pixie Dust, The Wall Street Journal, Oct. 19, 2017, https://www.wsj.com/articles/wework-a-20-billion-startup-fueled-by-silicon-valley-pixie-dust-1508424483
See supra note 1.
Trisha Thadani, Why WeWork Locked Up Its Beer Taps in California, San Francisco Chronicle, Feb. 16, 2018, https://www.sfchronicle.com/business/article/Why-WeWork-locked-up-its-beer-taps-in-California-12620165.php.
Shona Ghosh, WeWork Wants to Raise $500 Million in Bond Sales. Documents Show It Owes $18 Billion in Rent and is Losing Money, Inc., Apr. 25, 2018, https://www.inc.com/business-insider/wework-raise-money-bond-sale-document-shows-owes-18-billion-rent-burning-cash-sotfbank-investment.html.
See Andrew Ross Sorkin, WeWork’s Rise: How a Sublet Start-Up is Taking Over, New York Times, Nov. 13, 2018, https://www.nytimes.com/2018/11/13/business/dealbook/wework-office-space-real-estate.html.
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