We(Didn't)Work

This is Gonna be a big one.....

WeWork announced their financials today and boy are they grim. They had a net loss of $387mm and have remaining cash of $205mm. Their stock sits down 30% in after hours with a market cap around $315 million, which means the actual value of their business is only $110 million or less. This was a company once valued at over $80 billion.

Honestly, are we really that surprised? The business model never made sense. You took long term liabilities and hedged them with short term, much riskier income streams. It was doomed to fail, even without all of the fraud, theft, and controversies. It was a business plan that could have only ever made sense in VC boardrooms in Silicon Valley when money was free.

Well, a lot has changed since then and the writing is on the wall. WeWork’s filings make clear that its days as a going concern are probably very limited. And then we have a serious problem.

See, WoWork has around 600,000 members at over 500+ locations worldwide. If they go bankrupt, all of those members and companies are soon to find themselves without an office. This may be the bankruptcy that touches the most lives and companies in our lifetime.

But most important of all…WeWork leases 18.3 million square feet of office space in the US and 43.9 million sq ft worldwide. WeWork is the #1 lessor in all top 10 cities by square footage in the US.

For comparison, Salesforce Tower, has around 1.4 million square feet.

We are about to dump 31 Salesforce Tower’s worth of office space onto the market.

The real estate catastrophe from WeWork going under is going to be near unthinkable. According to the best data I can find, WeWork has about $15.6 billion in lease obligations that it will likely default on. It’s probably the single largest default on real estate in history.

Considering WeWork doesn’t have a full quarter of cash left on hand and its stock is collapsing, this is very likely. So hold on tight. This is going to get ugly.