Item — HN Reader

Good point - goes to show it’s always easier to criticise behemoths like this from the outside.

However, I wager that they have had long enough to plan around this one - _surely_ there are a non-negligible amount of leases they can trade or sell on / do something with as most WeWork locations are in highly desirable spots.

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> they have had long enough to plan around this one

WeWork’s core model has always been borrowing long and lending short; they are inherently vulnerable to a sharp spike down in commercial rents.

Apart from financially hedging that, or penning fancy outs when they signed their leases, it’s tough to see how even prescience a few years ago could have saved them. And that’s amidst Silicon Valley’s attitude in 2021-22 that the Fed couldn’t—not wouldn’t, couldn’t—raise rates or else America would go bankrupt or some nonsense.

Commercial leases are usually 7 years. If they bought in during the go-go run in 2018-2019, they've still got years left. Breaking a commercial lease in good times is already very difficult (I was lucky to get out of one a year early in 2019 because I found someone to take it over that the landlord liked). And who would take over or sub the lease today? Everyone is trying to get out of their leases right now because office space is underutilized with WFH.

Also good point. However, while commercial spaces in general are (as you say) underutilized, my gut feel (non-empirical here) from being in large cities is that there is somewhat of a boon for hot-desking / blurred-work-life-balance "office leisure spaces".

Without having your experience of breaking a commercial lease, I would imagine one avenue to explore would be trying to offload some of these leases to emerging companies doing what I refer to above.

Sure they could offload them (commercial leases are usually transferrable/sublettable),but if you offload them for pennies on the dollar, that looks really bad on the balance sheet.

Better to keep them and tell your shareholders that this is a temporary blip, and profits will be coming any day now...

If I ran WeWork my evil plan would be to move to a franchise model, collect a franchise fee from each lucky winner of the franchisee stakes and transfer the leases to them. And then I would sit back and collect a modest fee based on revenue (say 10%) for the branding and the concept.

Isn’t this a microcosm of the broader story with commercial real estate? Values are down massively. Trying to break the lease is like realizing those losses for WeWork.

It's a significant money investment to renovate a space for co-working. Also, if you move spaces, you will lose some customers to attrition. There's a lot of overhead... it's not like everyone just teleports to a different building.

You're assuming that they:

a) have long term leases

b) paid a reasonable amount for them

c) those leases can be traded

d) those leases are actually worth enough to be useful.