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WeWork's Value Falls as $47 Billion of Lease Obligations Worries Investors

· Real Estate,WeWork,Real Estate Outlook

WeWork's Value Falls as $47 Billion of Lease Obligations Worries Investors

The $47 Billion of lease obligations is far from the only worry that investors have about WeWork's valuation and business prospects. The business model as pointed out by legendary real estate tycoon Sam Zell has been around for 70 years. Furthermore, Zell points out that every company that has been in this space has gone "bust".

WeWork lost 1 billion in operating income in the first half of 2019, a higher loss than in 2018, despite continued revenue growth. The company also missed its 2018 revenue forecast by 30%. This same management is asking for shares that have voting rights equaling 20x other shareholders. The company also does not possess any unique technology or patentable ideas. It is simply a fashionable sharing space.

WeWork's largest competitor Regus has been around for decades offering the shared office space model. Regus is also solidly profitable, with similar revenue to WeWork, in the mid $3 billion range. Yet, Regus is only worth $3.6 billion and has been a public company since 2001. WeWork's last funding round was at a market capitalization of nearly $50 billion. The disparity in value can explain why the recent IPO efforts of WeWork management and their largest shareholders Softbank, have been met with very little investor interest from Wall Street. The firm is considering slashing their value by up to 2/3's from their previous funding round to a market value of less than $20 billion.

In addition to Regus, Silverstein Properties has offered a shared office space firm in Silver Suites for many years and many rivals including NextSpace, Workbar and Industrious have popped up. All of these firms have offered generally the same business plan as Wework, with a few changes here and there creating their own unique brand of shared office space.

With mounting losses and many competitors, the outlook for WeWork is grim.

Written by Alexander Fleiss

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