“The only constants in life are death and taxes,” is a phrase most of us have heard. The WeWork IPO constant is “debt and obligations.”
Regardless of if their business model makes profit, the landlords will still expect these obligations to be met. It is like in Goodfellas as Henry Hill recalls, “Business bad? **** you, pay me,” WeWork is beholden to these long term contracts with landlords.
So it begs the question, does the idea of taking on more debt obligations in scaling actually make WeWork profitable? The market currently does not believe so and is not willing to take the risk.
Bloomberg reported that WeWork owes $47 Billion in long-term lease obligations. That number makes potential investors cringe but makes landlords very happy. The CEO, Adam Neumann, has taken step of purchasing properties then leasing them back to the company. While once again this makes investors cringe, it is a smart way for WeWork to carry forward.
By purchasing properties, WeWork will be able to increase their spread, while mitigating debt risks since they own the commercial building. The problem with this is that Class A properties WeWork purchases require massive down payments plus value add capital and WeWork is already in mountainous debt. Even Adam’s growing cache of leveraged properties is not enough to sustain the growth WeWork needs to reach scale as a majority of their properties are leased through 3rd party landlords.
Debt obligations require investors to take a big risk on a company. If WeWork changed course from signing long-term leases and paying the rent to office owners, they could reach scale quicker. Under an owner model, WeWork to eventually become the owner of the buildings they work from, in a few years the mortgage will be paid off but also the building’s appreciation will start to kick in.
WeWork could increase margins and generate a new source of profits for the company while reducing their long-term liabilities. WeWork gaining dual profits from short-term leases as well as the from the property appreciation, WeWork will be able to further reduce rent costs and create an unfair advantage over other co-working companies that don’t have the capital sources to replicate in time.
Blockchain presents growing companies like WeWork massive possibilities since implementing strategy at this stage should be lean.
WeWork and SoftBank could utilize advanced technology solutions powered by the blockchain to solve acquisition needs without expanding too much capital. For example, Jointer.io could assist with property acquisition, XRWeb could grow the community in a lean decentralized fashion, and Aqua could reduce admin costs. The Aqua solution integrated with the Hilton Hotel chain, XRWeb is a Google Partner and PlugNPlay graduate, and Jointer recently won the Disruptive Startup Award judged by a panel of Google, SoftBank, Bain Capital, Thomson Reuters, Stanford Angels, BMW, Andreessen, NEA, and other top VC Funds. These are serious companies that could solve WeWork’s woes.
McDonald’s makes much of its revenue by buying the physical properties and then leasing them to franchisees. Jointer.io could assist by providing 95% of the downpayment needed for property acquisition.
Jointer would reduce WeWork’s dependence on long-term lease agreements and allow WeWork to gain dual profits from short-term leases as well as from long property appreciation. WeWork will be able to further reduce rent costs and create a heft advantage over companies that don’t have access to such a solution.
WeWork has short term leaseholders that they depend to continue renting a desk. The blockchain could be a way to incentivize long-term loyalty. WeWork could offer rewards holding tokens in escrow which will eventually be used for services or rent.
XRWeb has a live staking model present that has helped create a community of over 38,000 staking users. XR Stakers receive rewards based on proximity to activities on the network. Utilizing XRWeb would allow WeWork to grow the community in a lean fashion and obtain it through these same proximity-based rewards.
Once implemented, Aqua Intel will provide a consumer profile system to manage WeWork’s tenants. By leveraging the blockchain, they facilitate consumers to monetize their data through a complete token ecosystem model. This model could cute data costs and allow WeWork users to earn ways to pay for rent that will not cost WeWork.
Disruptive Startup Award @ Stanford Innovation for Enterprise, Consumer, Media, Health, Energy and Robotics, Digital Journal http://www.digitaljournal.com/pr/4419565
WeWork’s Balance Sheet Looks Ugly So Yours Doesn’t, Bloomberg https://www.bloomberg.com/opinion/articles/2019-09-02/wework-ipo-lease-obligations-and-an-ugly-balance-sheet
Hilton Backed Data Platform Hits the Blockchain Market, Cryptovest https://cryptovest.com/news/hilton-backed-data-platform-hits-the-blockchain-market/
How Blockchain Technology Could Disrupt Real Estate, CBInsights, https://www.cbinsights.com/research/blockchain-real-estate-disruption/
Jointer is the parent company of the not-for-profit stablecoin, Element Zero. The Author is a Co-Founder of Jointer and oversees Element Zero from a Chair position. The Author supports Ethereum which is the underlying technology of all tokens mentioned.