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Comment by short_sells_poo | Hacker News Reader

Seems like they are pretty much levered to the hilt. What happens when the current bubble bursts (or even just deflates) and their occupancy rate declines?

Their business model seems to be selling short term leases and buying long term leases. This is all fine and dandy as long as they can find enough buyers for the short term commitments, but the distribution of almost all such strategies tends to be heavily tailed. You basically collect a small but consistent margin and occasionally suffer heavy and unavoidable losses.

That's a perfectly fine strategy if the company can stay solvent during the loss, but this seems far from certain in case of WeWork.

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Extremely levered indeed. I imagine that they will reduce the lease terms from the current average of 15 years when occupancy rates tighten. At that point they have a different problem, their margin difference between their lease payments and their lease revenue (minus the perks, furnishing office spaces) will come down. All said and done, had they been valued at say ~$10B, this would have been still a high risk play but at least the multiple is not so exorbitant. I don't get what Masa saw in this to value them at $47B, there must be something. Isn't he super smart???

> Seems like they are pretty much levered to the hilt. What happens when the current bubble bursts (or even just deflates) and their occupancy rate declines?

Convert the We Work spaces into homeless shelters = profit from Government contracts.

in a recession, is short term, flexible office space more or less desirable?

It's important to distinguish between the general form of leased small office space and the WeWork model. In a recession, I feel it's pretty likely companies would look at their expense numbers and decide that WeWork is way too expensive in comparison to options like Regis, work from home, or just eliminating workers outside the main office.

Wouldn't anyone spending money on that just cheap out and go with a library or cafe or home-office to save money? Sure, not working at home is great for productivity for some people, but when push comes to shove, their customers can largely move elsewhere, right?

Maybe if you work alone. But there are plenty of corporate customers of WeWork who will never, ever tell their employees to "work out of a cafe".

The problem of course is that not all customers are big corporates - some are small firms that will scale back spending, or even close, if a recession hits.

> short term, flexible office space more

This is more appealing to businesses who don't want large capital expenditures, which could or could not be related to a recession. It's more related to market trends and access to a lot of cheap capital.

Less. Small businesses die like flies in a recession

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