- The current structure that WeWork has will not work in the long-term.
- The coworking/serviced office sector has been in continuous long-term expansion for more than forty years, and although there have been some failures, the vast majority of operators make money, but WeWork is an exception.
- WeWork needs to go into Chapter 11, be relieved of most of its debt, and be restructured under a completely new management drawn from the industry.
Can WeWork survive?
The short answer is no, at least not as currently structured.
The company needs to go into Chapter 11, be relieved of most of its debt, and be restructured under a completely new management drawn from the industry, not from outside. Although the messianic founding couple of the company are long gone, their legacy remains in the form of bloated costs and strange practices, which are draining the cash from the business.
It is not that the business model itself is bad, as some would suggest (e.g. Wrights Research on SeekingAlpha) on the grounds that it involves leasing space long term and re-letting it short term; I thought that misunderstanding had been excised decades ago. It is simply that the company is hopelessly inefficient. The coworking/serviced office sector has been in continuous long-term expansion for more than forty years, and although there have been some failures, such as HQ Global, MLS and MWB, the vast majority of operators make money.
No, the problem is WeWork itself.
One piece of news last week was the departure of the Chief Legal Officer, and I noted that he was paid his annual bonus of more than $300,000 presumably on top of the salary package.
What? Why was he getting a bonus, when the company is so heavily loss making? It makes no sense. I dread to think what his annual salary was.
What is the CEO’s salary? What are the overall corporate overhead costs? A good start would be to sack the entire senior management, halve the costs and get to work slimming down the business.
Private equity firms get a lot of stick in the press for the layoffs they impose and the money they make on successful deals, but in certain situations they are exactly what the doctor orders.
If you’re reading this KKR, Blackstone et al., get in touch and we will tell you what to do.