Nearly out of Cash, WeWork Shifts into Shrink & Survive Mode

House cleaners come in, halt all new leases, dump side businesses, sell corporate jet, lay off thousands, purge “Adam’s posse” – in just two days.

WeWork is fighting for survival. It’s burning through so much cash that it needs billions of dollars pronto. The collapsed IPO dream has cut off the money pipeline from retail investors. S&P now downgraded the company to B-, deep junk, citing the “heightened uncertainty” about its “ability to raise capital to support aggressive growth and the pressure this places on liquidity.” S&P is worried that WeWork is going to run out of money. WeWork’s bonds ended trading Thursday at a yield of 10.01%.

With the money from retail investors out of reach, institutional investors and banks must now roll up their sleeves and stick their hands in, and risk getting them cut off in the process, and they’re not eager, and the clock is ticking.

Thursday evening it emerged that WeWork is halting all new lease agreements with landlords in order to reduce the cash burn, “people briefed on the matter” told the Financial Times. It was the latest measure of a whole whirlwind of measures the company undertook over the past two days. WeWork is entering shrink-mode.

On Tuesday, WeWork founder and CEO Adam Neumann, facing a palace revolt among his directors over the collapsed IPO hopes, said that he’d get out of their way and would step down. Co-CEOs Artie Minson and Sebastian Gunningham took over, and they’re not wasting any time. They came broom-in-hand.

They instantly put staff cuts on the table via an email to employees: “We will closely review all aspects of our company with the intention of strengthening our core business,” and they expected “difficult decisions ahead,” which is corporate-speak for big staff cuts. The company employs over 12,000 people globally. A source told the Wall Street Journal that the house cleaners might ax several thousand people.

The broom-swinging co-CEOs are also trying to get rid of three businesses WeWork had acquired since 2017: Managed by Q, Conductor, and Meetup.

Earlier on Thursday, it emerged that WeWork is trying to sell its Gulfstream G650 that it had acquired for $60 million in 2018. Whatever it may get for the used and modified jet will be peanuts compared to the billions of dollars it needs just to get through another year.

But the jet had become one of the symbols of Neumann’s excesses. And it had become a morale problem. “Multiple employees” had told Business Insider in recent weeks that employees were frustrated by the large amounts spent on the corporate jet and on lavish parties, even as managers cited a lack of money when they reneged on promised bonuses and raises.

Also on Thursday, it emerged – WeWork has turned into a sieve, and everything instantly leaks out – that the new house cleaners are going to sweep out the “Adam’s posse” – as one leaker described this group to the Financial Times. The Wall Street Journal reported that “people familiar with the matter” had said that these 20 folks included friends and family members of Neumann and his wife, Rebekah, along with top managers and even the driver of his Maybach that Neuman was chauffeured around in. A base Maybach stickers for around $170,000. This guy knew how to burn through other people’s money in style.

Here’s the thing: the whole WeWork concept was based on endless growth, on growth-at-all-cost. In its hilarious S-1 filing in preparation for the scuttled IPO, WeWork raved about its addressable market of $3 trillion, with a T. The whole idea was growth no matter what. That’s why investors put so much money into it.

But by putting all new lease agreements on ice, and by implementing the other measures that have been emerging on an hourly basis, including the layoffs of thousands of employees and selling three businesses, WeWork has moved from growth-mode to shrink-mode.

It’s goal now is to slow the cash burn to live another day, and forget about growth – which ironically eliminates the last scintilla of reason to invest in something like this: because who would want to invest in a money-losing cash-burning machine that is shrinking?

But its biggest investors and banks that are exposed to it have a reason to throw good money after bad: They don’t want to have to write off the money they have already invested in it, and by giving it more money, they hope that WeWork will make it long enough to where it can be sold to retail investors via an IPO, and then they might get part of their money back.

Softbank, which has already plowed over $10 billion into WeWork, has committed to plowing another $1.5 billion into it next year. Now they’re discussing to increase this to at least $2.5 billion. The thinking is, if it can keep the $10 billion investment from collapsing by throwing another $2.5 billion at it, well, then, by golly, let’s do it for crying out loud.

WeWork is also trying to put together a leveraged loan of $3 billion to $4 billion with a group of big banks. But the banks have gotten cold feet, and they want WeWork to raise a lot of equity first. The IPO was supposed to do that, but now forget it.

All these moves that WeWork is undertaking – getting rid of its CEO, corporate jet, non-core companies, thousands of employees, etc., and freezing all new leases – appear to be systemically designed to induce confidence in the bankers that new management can right the ship, that it can change the culture of the company and can figure out how to somehow turn this massive cash-burn machine into a business.

But once the company switches to shrink-mode, as it is now doing, the rationale for throwing even more money at it is becoming even more elusive.

The Dark Side Comes to the Fore: Juul is the Second Highest Valued US Unicorn, Behind WeWork Which Crashed & Burned. Now it’s Juul’s Turn. ReadAltria Rues the Day it Plowed $13 Billion into Super-Unicorn Juul

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  126 comments for “Nearly out of Cash, WeWork Shifts into Shrink & Survive Mode

  1. Jos Oskam
    Sep 27, 2019 at 1:37 am

    Free advice to all investors in WeWork: Cut your losses!
    (I’ve always loved this typically American idiom)

    By the way, I can’t help wondering if the demise of the WeWork IPO signals a turn in the sentiment that keeps all these cash-burners alight. Will a spectacular blowup prove to be the black swan that finally sours investors’ mood on these mirages?

    Interesting times.

    • nick kelly
      Sep 27, 2019 at 10:28 am

      There is only one big investor in WE, Soft Bank and as WR suggests it is too far committed to quit now. Pot committed. If another two billion can prevent its twelve going to zero, well…..
      Fortunately unlike some other unicorns the public hasn’t had a chance to make a fool of itself with this one. But apparently Goldman has extended a big credit line that it is willing to get out of at a loss.

      • Harrold
        Sep 27, 2019 at 11:10 am

        Harvard Management Company also has a $150 million investment in WeCo.

        • Arturo
          Sep 27, 2019 at 4:59 pm

          JP Morgan has over $1billion in loans in either personal loans to Sir Adam or to WeWork directly. And a part of the ‘deal’ was that JP Morgan loans to Sir Adam for personal real estate purchases which are then leased to WeWork and WeWork owes Sir Adam big long term lease payments.

          It caught my eye when Mr. Wolf said that Big Banks had gotten cold feet, and my first question was whether or not JP Morgan was one of those Big Banks now looking for wool socks.

          WallStreetOnParade blog has done some nice articles on the We – JPMorgan connections.

        • vinyl1
          Sep 29, 2019 at 8:58 pm

          @Arturo – If the JPM loans are to buy real estate, they can take the collateral, right? That is a lot less dumb than just putting money into WeWork.

    • Sep 27, 2019 at 12:14 pm

      Buy the bonds and short the stock, we are only seconds away from QE

      • Wander Lust
        Sep 27, 2019 at 12:40 pm

        Once ‘rational’ bond buyers dig in to the docs, it will be tough to get bids at YTW >20%.

        Frankly, I am a bit bummed that I won’t get a chance to short the stock any time soon. I was in a WeWork space for about two years – not really by choice.

        Saw a big transition and could clearly see what an over-hyped business model it was on top of the fact that the noise level when it was busy was nearly unbearable.

        Phone call at “your desk” – fat chance if you are sharing space. If you could get a phone booth, it wasn’t much better. Saw the Austin Congress location go from one floor with good beer to multiple floors and beer taps that almost never worked. The free coffee was always crap.

        At no point in time was there ever a barrier to entry outside of trying to promote it as a “brand” where the cool kids hung out. The opportunity to sell short at a $47B valuation would have be the world’s biggest slow pitch softball. Rats.

      • GP
        Sep 27, 2019 at 1:02 pm

        Seconds away? We are already in QE. Going into this weekend, Fed has issued more than $160B in it’s magic money. As term repo (2week duration) and daily repo.

        Spigots are open for more:
        https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/repo-reverse-repo-agreements/repurchase-agreement-operational-details

        Rewarding banks who made poor choices by giving them cheap guaranteed financing.

        • GP
          Sep 27, 2019 at 1:14 pm

          To expand on this. Term repos (brand new invention btw) are issued for duration of 2 weeks. If these are issued and subscribed everyday at $60B, cumulative effect is $600B in term repo. On top of that if daily repo is issued and subscribed at $100B, we have $700B permanent ‘temporary’ QE.

          This reverses all that QT and some.

        • chillbro
          Sep 27, 2019 at 2:02 pm

          This has been debunked by Wolf in another article’s comment section. Repos are not cumulative.

        • GP
          Sep 27, 2019 at 2:15 pm

          Chillbro,

          Not only you didn’t understand, you are accusing Wolf of debunking something he hasn’t.

          Daily repos are reversed the next business day.

          Term repos are brand new invention of the Fed and the transaction reverses in 10 business days. So yes, these are cumulative transactions.

        • Eastwind
          Sep 27, 2019 at 2:25 pm

          @chillbro below (for some reason I can’t respond to the post below directly):
          Daily repros are not cumulative, as Wolf noted elsewhere.
          Term repro agreements, which are repo agreements where money is borrowed not overnight but for a 14-day term, are cumulative day to day, up to two weeks worth.

          If the fed loans out $60B in two-week repros every day for two weeks, how much is outstanding when the first $60B matures?
          Answer: Use 5 days a week, or 9 days in two weeks not counting the expiration day, or 9×60 = $540B.

          The fed is *so far* only offering these term repos 3 days a week, so *so far* the cumulative QE is 5×60 or $300B, plus $100B more for the nightly repro agreements that are rolled over daily (and are not cumulative with each other but are cumulative with the term repros). But there’s nothing stopping the fed from offering the two-week repros daily as well if they the demand is there.

        • Sep 27, 2019 at 5:44 pm

          GP.

          You’re getting a little over-enthusiastic here with your QE theories.

          Today’s operations were under-subscribed because there was not enough demand for cash.

          Of the 14-day repos, which had a limit of $60 billion, the Fed only bought $49 billion (these repos will unwind in two weeks).

          Of the overnight repos, which had a limit of $100 billion, the Fed only bought $28 billion (these repos will unwind Monday morning).

          By Monday, the demand for cash will die down further because it’s the end of the quarter, and the overnight repos will return to somewhere near zero. The 14-day repos will unwind at maturity. And the whole thing will mostly be gone in a couple of weeks.

          I don’t think we’re going to see a lot of activity going forward until the end of the year. At the end of 2018, there was already a spike in repo rates, though the Fed just ignored it, and rates returned to normal in January. This year in late December, it might get a little more interesting, but this time, the Fed will be ready.

        • GP
          Sep 27, 2019 at 6:07 pm

          Wolf,

          I have been tracking the daily repo operations here: https://apps.newyorkfed.org/markets/autorates/tomo-results-display?SHOWMORE=TRUE&startDate=01/01/2000&enddate=01/01/2000

          Fed invented a new beast: term repo.

          Then it announced there would be 3 term repos this week for $30B each. Then they upped it three sessions of $60B each.

          They upped the daily repo limit from 50 to 75 and then to 100.

          “Things will calm down, nothing to worry” is what a Fed governor would say.

      • Zlatan Marunovich
        Oct 3, 2019 at 12:15 pm

        Invest, invest, invest! Just by saving money, it is not enough. The best investment is your self and precious metals such as gold or silver. The metals future is increasing its value and I recommend checking out this new edition from the Perth Mint. Never too late to invest.

    • paul whalen
      Sep 27, 2019 at 1:32 pm

      Real Landlords renting to We Works demanded,in addition the parent guarantee on the lease, letters of credit for up to a year’s rent in the case of a lease default. I’m sure We Works counted the LC’s as assets on the balance sheet. What happens the liquidity when the landlords show up at the window to call in the markers?

    • Rick
      Sep 27, 2019 at 4:32 pm

      First we work, then we don’t.
      Thank you for the billion.

    • intosh
      Sep 27, 2019 at 4:34 pm

      “Spectacular blowup” would be the collapse of Softbank’s pyramid schemes… euh I mean funds.

  2. Gordon
    Sep 27, 2019 at 1:38 am

    This venture was a scam from the get-go, as well documented on her site – https://wallstreetonparade.com – by Pam Martens.

    • c1ue
      Sep 27, 2019 at 5:05 am

      Pam Martens didn’t explicitly say so, but this really looks like a combination of bust-out and Enron.
      Bust-out of Softbank cash by Neumann and Co, and Enron for the building owners who were the early investors. JP Morgan plays Arthur Andersen here with lending as a big brown cherry on top.

      • weinerdog43
        Sep 27, 2019 at 7:59 am

        That, is a great metaphor. Awful to visualize, but entirely appropriate in this case.

  3. Jim
    Sep 27, 2019 at 1:39 am

    Bye bye, we don’t work anymore!

  4. raxadian
    Sep 27, 2019 at 2:41 am

    [But its biggest investors and banks that are exposed to it have a reason to throw good money after bad: They don’t want to have to write off the money they have already invested in it, and by giving it more money, they hope that WeWork will make it long enough to where it can be sold to retail investors via an IPO, and then they might get part of their money back.]

    *Falls out laughing.

    Honesty they are losing ten cows to get an egg.

    • Wisdom Seeker
      Sep 27, 2019 at 7:14 pm

      The Sunk-Cost Fallacy used to be a staple of every Biz School curriculum. Makes one wonder if perhaps SoftBank is every bit as corrupt/fraudulent as WeWork?

      How many more decades will it take Japan to get out from under its bad debts from the 1980s, if it keeps adding to them in this fashion instead of cleaning house? (Ditto for Europe and the 2000s…)

    • Ted
      Sep 28, 2019 at 9:43 am

      Putting more money in a bad investment has always worked for me. Not.

  5. Old Dog
    Sep 27, 2019 at 2:51 am

    “…appear to be systemically designed to induce confidence in the bankers that new management can right the ship…”

    Elizabeth Holmes is available and I bet she’d be willing to right the ship, should the compensation be commensurate with her talent. Her experience in duping old rich folks is legendary. She’d raise $1B in a NY minute.

    • William Smith
      Sep 27, 2019 at 3:39 am

      Sadly, what you say in jest could actually come to pass in reality. In a world where investors have to _pay_ to “invest” their money at huge risk, the “good old days” of any sort of sanity are long gone. The shysters and shysteresses are the lunatics now firmly in charge of the asylum.

      • raxadian
        Sep 27, 2019 at 7:26 pm

        But the Fed rates are over zero in the USA. Doesn’t that mean USA Bonds are a way better option?

        • Oct 3, 2019 at 8:09 am

          Real U.S. rates are still negative or near-negative.

    • nick kelly
      Sep 27, 2019 at 10:30 am

      Liz will be in jail. ‘The mills of the law grind slow but they grind small’

      • nick kelly
        Sep 27, 2019 at 10:42 am

        As crazy as We’s claims are they aren’t technically criminal.

        Liz has been charged with 12 counts of fraud, trial to begin June 2020.

        • Walter Schneider
          Sep 28, 2019 at 1:45 pm

          That is good news.

  6. Dan
    Sep 27, 2019 at 2:55 am

    The greatest trick WeWork ever pulled was to get itself lumped in with other tech unicorns.

    Anyone rational should have seen through it, as there’s a comparable, profitable business in the UK called IWG that’s ‘only’ valued at £3.6bn. There’s no way WeWork could have been worth $40bn

  7. Old-school
    Sep 27, 2019 at 3:03 am

    I see some people think Wework failure could crash the commercial Real Estate market. Supposedly they have signed a ton of 15 year leases and then re-lease on a short term basis. Sounds like a typical FIRE add no value get rich quick all hat no cattle scheme. Let’s see if taxpayers somehow eat the losses.

    • Frederick
      Sep 27, 2019 at 1:19 pm

      Can’t be good for the commercial real estate market I saw their sign when I walked through the new high rise area in Warsaw Poland in August They seem to like high end real estate Lots of banks building skyscrapers too including JP Morgan , Santander and First Charted Bank Wonder Why on earth they need so much additional space Seemed excessive to me Skanska is making lots of money there Evidently

    • Wisdom Seeker
      Sep 27, 2019 at 7:32 pm

      WeWork is far too small to crash something as large as Commercial RE. At least on its own. It’s big enough to impair some major banks though.

      But WeWork’s demise will probably create a lot of good business opportunities for its profitable UK competitor!

      • Craig
        Sep 28, 2019 at 1:06 pm

        >But WeWork’s demise will probably create a lot of good business opportunities for its profitable UK competitor!

        Funnily enough they have been trying to sell their Spaces! Coworking brand (weworks direct competitor despite it’s profitability.

        I wonder if they know something about the future of the coworking market post we.

  8. MC01
    Sep 27, 2019 at 3:33 am

    Good luck to WeWork with that GVI (certificate type and nickname for the Gulfstream G650).
    The market for that kind of used corporate jets is virtually non-existant: regular GVI are usually put on sale for $50 million by their overtly optimistic corporate owners, only to run into a wall. After several months at that silly price tag the price quietly begins to slip lower, not unlike WeWork’s failed IPO: $45 million, $40 million, $35 million… “make offer” and finally the desperate and ever amusing “please call”.
    Unless your company has mountains of cash to burn (either yours or ARAMCO’s) buying these things outright makes no financial sense.

    As a side note I’ve been told that Regus, WeWork’s (profitable) competitor run from a PO Box in Jersey, has been pitched around for sale for at least eighteen months. The owners are aware everybody and his uncle is jumping into the serviced office business and apparently want to bail out before profitability enters a death spiral (see low-cost airlines), but so far they have been unable to clinch a deal. Apparently prospective buyers are ready to offer considerably less than the $4 billion asking price, presumably because they are aware of the aforementioned profitability crisis looming at the horizon, courtesy of those same monetary policies everybody is enamored with nowadays.

    Again good luck to the new WeWork team because they are really going to need it: nobody loses friends as fast as an idol falling into the dust after being devotely worshipped. Elizabeth Holmes docet.

    • Harrold
      Sep 27, 2019 at 11:13 am

      I would love to see interior pictures of that plane to see how Neumann decorated it. I’m guessing 17th century French decadence.

      • FluffyGato
        Sep 27, 2019 at 11:47 am

        I’m guessing oil paintings of himself wrestling a bull by the horns.

    • Lune
      Sep 27, 2019 at 12:04 pm

      That’s interesting. Why is that? I’d assume there’s a market for used business jets just liked used cars, boats, and even commercial jets, no?

      • MC01
        Sep 27, 2019 at 1:54 pm

        Plainly put the market is saturated with corporate jets. Completely saturated. Airports like Altenrhein in Switzerland and Memmingen in Germany are full of Falcons and Citations waiting for a buyer or, failing that, the scrapyard.

        Companies are getting rid of their (owned) jets and replacing them with contracts which may range from fractional ownership to an outright wet (ACMI) lease: no point in having so many extra headaches such as hiring a qualified crew and think about maintenance when somebody else will take care of it for you, all inclusive in the quarterly fee.

        On top of that corporate jets have unusually long lifespans because, not unlike general aviation, they tend to fly far far less than commercial aircraft. You can still find plenty of Cessna Citation I and IAI Westwind from the 70’s for sale. Personally I wouldn’t touch those things with a very long pole, not because they are unsafe but because ownership costs are a nightmare, but this doesn’t stop people from putting them up for sale at fanciful valuations.

    • MCH
      Sep 27, 2019 at 7:03 pm

      There is a reason it is called sunk cost.

      As a very famous DeNiro character said once: “if you spot the heat coming from around the corner, you need to be gone I 30 seconds.” Or words to that effect.

  9. Old-school
    Sep 27, 2019 at 4:06 am

    Slightly off topic, but not so much if you believe Wework is a symptom of the sickness.

    I think I am coming of age at 63 to realize that Federal government has gotten us all captured with policy. DC has become a den of disfunction, corruption and dishonesty. The Keynsian believe of govt stimulus to fill in demand in recession has morphed into it’s good to over spend all the time. I kind of worked out my share of deficit is around $8000 this year if you assume 150 million taxpayers. If you use a unfunded multiplier of 3 it’s $32,000. I can’t afford to cough up $32,000 each year.

    It’s a politician’s nature to be dishonest and because they birthed the Fed it is forced into contortions to keep the system going with all manner of extraordinary policy which is fancy talk for dishonest money. The economy is so loaded up with debt that the so called natural interest rate is probably 2% below normal which if you are a conservative investor is a 2% skim of your assets. The way I see it is since taxes are not popular this natural rate is going to fall some more and will be 3% skim pretty soon as it’s easier to obtain the money by deception than taxes.

    The discouraging point is overall politicians are similar to Wework CEO in that they are dreaming this debt fueled economy is strong and will be totally over their head when the Minsky moment arrives. I think the negative interest rates in Europe are kind of a last gasp of central bankers to keep it all going with wire and duct tape but seems to just be can kicking closer to cliff.

    It’s an extremely challenging time to invest in goverent dominated environment when irresponsibility is being rewarded. My belief is SP500 at 3000 and 10 year at 1.70% is an artificial construction by fiscal/monetary policy and at least one is totally mispriced. We will see how it plays out. Good luck to all.

    • walter map
      Sep 27, 2019 at 6:03 am

      It’s not actually possible to run a major economy on harebrained get-rich-quick schemes, but by redoubling their efforts there’s no limit to what they can’t accomplish.

      The Commodification-Of-Everything business model isn’t working any better than the Let’s-Plug-Everything-Into-The-Internet model, but now that Big Business has comprehensive control of the government the Corporate Totalitarianism model is looking very promising.

    • James Levy
      Sep 27, 2019 at 7:26 am

      It wouldn’t work if the rich donors and corporations weren’t as hooked on debt and government spending as the politicians are.

      The problem was that by the 1970s the prosperity of the white working class (blacks had just started jumping on the bandwagon when unions were opened to them in the late 1960s) was eating into the profits and wealth of the people at the top. This had to be stopped. So the system was gamed to replace rising wages with easy credit. Wages stagnated, unions were busted, downsized, or their jobs were shipped out of the country, the share of national income going to owners skyrocketed, that to workers plummeted, and you got the recipe for today’s debt-addled universe.

      And it was all deliberate government policy, organized and orchestrated by the people at the top.

    • California Bob
      Sep 27, 2019 at 10:58 am

      re: “… keep it all going with wire and duct tape …”

      but … But … BUT … they have chewing gum, too!

    • San Germain
      Sep 27, 2019 at 5:06 pm

      You are just now figuring out that DC is disfunctional? I thought it was obvious after Gulf of Tonkin and Watergate.

  10. Old Engineer
    Sep 27, 2019 at 5:49 am

    Oh, not to worry. Just like the Terminator: They’ll be back! Banks have too much in it to drop it. And you know what? The stock will sell, even if at a lower valuation. Nothing dies until the banks are taken care of. And they could offer the IPO at a fraction of their original plan and cover what the investors have in them. So just wait.

    • Tim
      Sep 27, 2019 at 6:43 am

      The WeWork CEO con man and his wife will come out of this unscathed. They will be wealthy beyond belief. And all it took were lies, bankers, and a complicit financial media. If this guy ran a classic ponzee scheme he would go to jail. This was a modern day Wall Street ponzee scheme played under the guise of an IPO.

      Only in America….

      • Petunia
        Sep 27, 2019 at 9:40 am

        I read Neumann actually voted with the board to fire him. Anytime a top guy gets fired on purpose, it’s badder than you can even imagine. Run for cover.

        Bought anything on Overstock.com lately?

        • Harrold
          Sep 27, 2019 at 11:15 am

          That short squeeze at Overstock.com was hilarious!

      • illumined
        Sep 27, 2019 at 12:04 pm

        @Tim – It’s true Neumann & co pocketed a lot of investor money but I doubt they’ll be able to hold onto it. If even one of them can prove in court how much double dealing and perhaps even outright embezzlement there was the rest will dog pile in to get at his soon to be rapidly diminishing fortune. The veil of corporate legal protection doesn’t extend to criminal acts and defrauding investors. I bet they’re going to be in and out of court for the next 10 years.

        • Wander Lust
          Sep 27, 2019 at 12:49 pm

          Charlatans and Wall Street have learned an important lesson over the years – make sure you steal enough to pay the fines.

      • California Bob
        Sep 27, 2019 at 12:50 pm

        re: “Only in America….”

        Does the CEO have dual citizenship (US/Israel)? If so, I’m taking bets on where he ends up.

        • Erle
          Sep 27, 2019 at 8:27 pm

          If one is running a scam then one needs to put away dough “for later”. I am quite sure that he and his accomplices have stored enough nuts for winter.

  11. Jeroen
    Sep 27, 2019 at 6:09 am

    This sounds like the business concept of Moviepass. Sell monthly passes to go to a movie daily for 9,99.

    The stock soared initially because somehow investors saw the economic brilliance of it…. for about 8 months. Now it is belly up. Same Will happen with we work

    People that invest in these idiot economic concepts deserve to get burned.

  12. Tim
    Sep 27, 2019 at 6:20 am

    Is anyone who’s profited personally from this going to give the money back?

    • Tim
      Sep 27, 2019 at 6:45 am

      Unlikely

      I’m sure this con man CEO and his associates are set for life.

      • Escher
        Sep 27, 2019 at 10:08 am

        Yup. Legalized robbery of the investors. This Neumann guy is quite a slime ball.

    • walter map
      Sep 27, 2019 at 11:58 am

      Return the money? You’re forgetting the First Rule of Acquisition: Once you have their money, never give it back.

      Despite the opportunities, the Ferengi won’t be taking over the Earth any time soon. They’re terrified they’ll get ripped off.

  13. walter map
    Sep 27, 2019 at 6:28 am

    “Multiple employees” had told Business Insider in recent weeks that employees were frustrated by the large amounts spent on the corporate jet and on lavish parties

    We’ve seen this sort of thing before with the high-end grocery chain Dean and DeLuca, which has blown loads of cash on egotistical luxuries of the Greater-Than-Oriental-Splendor variety even while its vendors went unpaid and the debts piled up. Which only goes to show that pretending to be Wildly Successful won’t actually keep the doors open.

    Good night, Dean and DeLuca. Good night, WeWork.

  14. Tim
    Sep 27, 2019 at 6:49 am

    Wikipedia…but worth a read

    https://en.m.wikipedia.org/wiki/Adam_Neumann

    • walter map
      Sep 27, 2019 at 12:04 pm

      Oh my.

    • walter map
      Sep 27, 2019 at 12:19 pm

      Neumann’s wife runs WeGrow, WeWork’s yoga-based Conscious Entrepreneurial School:

      We are committed to elevating the collective consciousness of the world by expanding happiness and unleashing every human’s superpowers.

      Goodness. Where did I leave my butterfly net?

  15. Wendy
    Sep 27, 2019 at 7:02 am

    Oh Man, don’t take away my Gulfstream. That was how We were going to burn through the investors money! How the hell is this Unicorn going to fly now?

    • Javert Chip
      Sep 27, 2019 at 4:06 pm

      THC?

    • California Bob
      Sep 27, 2019 at 11:02 pm

      Bitcoin broker.

  16. Mike T.
    Sep 27, 2019 at 7:07 am

    The question is will the WeWork fiasco see all the cash burning unicorns like LYFT, UBER, TESLA finally have to make a profit?

    • James Levy
      Sep 27, 2019 at 7:33 am

      “Making a profit” is like government borrowing. It all depends on the attitude of the investor class (roughly 7% of the total population). If the government borrows tons of money for tax cuts, military spending, and wars about the globe, the investors will pony up the cash to buy bonds at very low return rates. If it borrows money to help sick people, or poor, people, watch out–they’ll scream that the government is borrowing too much and demand huge rates of return on their bonds. Same with companies. If the borrowers are helping to spread the precarious “gig economy” or undermine unions or cut into worker pay or promoting automation, they’ll get their cash even if it’s going down a rabbit hole. If the borrower’s activity does nothing to sell the ideology or the narrative the people who invest want sold, then one screw-up and they’ll pull the plug. It’s a variant on the old Golden Rule joke: the man with the money gets to say what “profitability” and “responsible debt loads” are.

      • sierra7
        Sep 27, 2019 at 9:53 pm

        James Levy:
        Thank you for your comment….hit the target well!

    • Yellowcake
      Sep 27, 2019 at 8:27 am

      I have no love for WeWork, hate ’em in fact. That said, the business of co-working does appear to be a legitimate business, if can be done and executed upon properly. Master leases need to be signed NOT AT MARKET PEAKS but rather softer markets, and at the business does not scale. It’s just business.

      Now, can we let the air out of LYFT, UBER, TSLA, Doordash and allow for the full implosion of Softbank Blurred Vision Fund?

      • Rat Fink
        Sep 27, 2019 at 11:00 am

        Yep – and Regus, Servcorp and others have been running businesses using this model for decades.

        The only thing new that Wework brings is the business model that loses 2 bucks for every buck of revenue.

        Apparently Softbank interpreted that as genius.

        • Old-school
          Sep 27, 2019 at 11:50 am

          We basically have had a decade of stimulus that have kept so many undeserving companies alive. Fed policy is now pushing on a string and is going to be overwhelmed with government deficit during next recession. Next recession is going to wipe out money losers. At least we can hope.

      • California Bob
        Sep 27, 2019 at 11:03 am

        re: “… Master leases need to be signed NOT AT MARKET PEAKS but rather softer markets …”

        Sounds like the commodities markets (and probably should be viewed the same as well).

      • Erle
        Sep 27, 2019 at 8:32 pm

        If one gets a call from someone at WeWork does it sound like a Mumbai boiler room? Any background jabber in a call gets a call block from me.

  17. Augusto
    Sep 27, 2019 at 8:07 am

    WeWork is just another scam and sham. Maybe when the Master Fakes of our age, Deutsche Bank, GE and Tesla go under people will wake up. Maybe? But people seem to like living Fake.

    • Rat Fink
      Sep 27, 2019 at 10:57 am

      I can’t say I’d be unhappy if Wework unravelled Soft Bank. This company failing in itself would not do that but the impact it might have on the entire SB portfolio could deep six them.

  18. IslandTeal
    Sep 27, 2019 at 8:47 am

    On a side note… Wonder how PELOTON is doing today…. LOL

    • Realist
      Sep 27, 2019 at 9:49 am

      Off topic:

      I wonder how Peloton did get its name. In Finnish peloton means “without fear”.

      Btw, Kamala means in Finnish “awful”

    • Javert Chip
      Sep 27, 2019 at 4:15 pm

      Peloton was priced last night at $29.00…

      …actually open today at $27.00…

      …closed at $25.76…

      …down 11% from $29,00

  19. Lisa_Hooker
    Sep 27, 2019 at 9:57 am

    Wolf, for some reason this made me think of two cows. This is my current favorite:

    HONG KONG CAPITALISM:
    You have two cows. You sell three of them to your publicly-listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt / equity swap with associated general offer so that you get all four cows back, with a tax deduction for keeping five cows. The milk rights of six cows are transferred via a Panamanian intermediary to a Cayman Islands company secretly owned by the majority shareholder, who sells the rights to all seven cows’ milk back to the listed company. The annual report says that the company owns eight cows, with an option on one more. Meanwhile, you kill the two cows because the fung shui is bad.

    On another note. I too require some OPM so I can buy a Maybach! I am especially attracted by the umbrella holsters in the rear doors.

    • Sep 27, 2019 at 10:15 am

      LOL

      • Jessy S
        Sep 27, 2019 at 7:35 pm

        In other words, the annual report will read that you own “8 cows,” but in reality, you own nothing. Wolf, please let me get on the action and you can have 9 cows.

  20. joe
    Sep 27, 2019 at 9:59 am

    “who would want to invest in a money-losing cash-burning machine that is shrinking?”
    The same people who buy negative interest bonds.
    Because they think they can unload on someone stupider.
    And the stupid people who don’t even know their helpful financial adviser kindly invested for them.
    But seriously I will be glad when this turkey goes down and paves the way for the rest of the turnicorns.

  21. Lou Mannheim
    Sep 27, 2019 at 10:16 am

    “WeWork is trying to sell its Gulfstream G650 that it had acquired for $60 million in 2018.”

    What about the stair car? The Bluth family got a lot of use out of theirs.

    • MC01
      Sep 27, 2019 at 11:06 am

      Sadly the GVI has stairs inbuilt in the front access door. The stairs will go with the aircraft.

      But bonus points for the AD quotation. ;-)

      • Lou Mannheim
        Sep 27, 2019 at 12:01 pm

        I just don’t see how a rational investor would view this fiasco as anything other than a stark reminder of just how shady things are. They price themselves like the crew from Trainspotting negotiating the heroin deal “$47 Billion. No? OK, well #%*in’ $10 Billion then.”

        And if that’s how prices are “set”, what’s anything worth?

        • Javert Chip
          Sep 27, 2019 at 4:47 pm

          Mr Market says things are only worth as much as someone will pay for it (which changes minute to minute).

          WeWork was the love-child of Adam Whatshisname and Softbank’s Masa Son. Assuming either of these dudes are within arm’s length of reality, maybe they’ll realize the catastrophe they’ve caused (joke, joke; I was being sarcastic).

          But in all seriousness, this steaming pile of “investment opportunity” strongly appeals to the crowd that has little experience, knows nothing about investing, desperately wants a fast buck, can’t read financial statements, but (and this is important) really, Really, REALLY wants to believe in SOMETHING!

          We’ve now gone from Theranos (blood in teeny tiny bottles) to underpaid rapists driving cars to craft beer at work. Can’t wait to see what’s next.

          (sigh!) I long for the good-ole’-days of that cute little “.com” sock-puppet selling dog food.

    • FluffyGato
      Sep 27, 2019 at 11:55 am

      “Watch out for overpasses and ‘hop-ons'”

  22. Bobber
    Sep 27, 2019 at 10:19 am

    WeWork is an excellent example of what our Federal Reserve Board is trying to encourage at this late stage of the investment cycle.

    According to their plan, we just need a bunch more WeWorks to keep our economy growth intact.

  23. Sep 27, 2019 at 10:24 am

    Unlike true love, liquidity in the credit markets isn’t forever. The past few weeks has seen the NY Fed pump overnight loans ($75 bn) and 2 wk repo’s ($90 bn) into the money markets.

    No wonder the so-called ‘investors’ are backing away from once-favored Ponzi schemes like We and Lyft. When liquidity is tight, risk is instantly off.

    // The Fed’s return to system liquidity injections after a decade hiatus received abundant media coverage. For the most part, analysts were pointing to a confluence of unusual factors: $35 billion money market outflows to fund September 15th quarterly corporate tax payments; settlements for outsized Treasury auctions; and the approaching end to the quarter (where money center banks generally reduce balance sheet leverage for financial reporting and regulatory purposes).

    Missing from the discussion was that this week’s money market tumult followed on the heels of instability in other markets. Is it coincidence that Monday’s spike in repo rates followed last week’s extraordinary bond market reversal – where 10-year Treasury yields surged 34 bps and benchmark MBS yields spiked an incredible 46 bps (2.37% to 2.83%)?//

    https://creditbubblebulletin.blogspot.com/2019/09/weekly-commentary-no-coincidences.html

  24. Yancey Ward
    Sep 27, 2019 at 10:31 am

    It is corruption all the way down, isn’t it? All of it, the financial system, rotting from the inside out. Any fool with a body temperature IQ should have been able to figure out that WeWork was a giant fraud run by obvious hucksters, and yet, they very nearly carried out their IPO that would have fleeced tens of billions from ordinary investors.

    These are people that should be frog-marched to federal prison.

    • Mike G
      Sep 27, 2019 at 12:00 pm

      I suspect most of the investors did know it was a fraud. They just thought it was a hype job that would last long enough to pull an IPO where they could exit rich before the fraud became apparent to everybody.
      They get what they deserve.

      • Wisdom Seeker
        Sep 27, 2019 at 7:43 pm

        Right. In the 1960s and early 1970s stocks like this were called “Promotions”. You can read about how things were hyped back then, if you dig around in a real library a bit. The Go-Go Years is a good read in particular.

      • a citizen
        Sep 30, 2019 at 8:28 am

        There’s only one major investor in We and that is Softbank, and yes their funding activities were purely designed to fraudulently blow the valuation of We all the way to Saturn for the now failing IPO.

        Softbank gets what it deserves.

  25. Tom Stone
    Sep 27, 2019 at 10:33 am

    Poor Adam and Rebekah, I can only hope that the $700MM they have pulled out of the Company helps ease the pain of their loss of social standing.

    • michael
      Sep 27, 2019 at 1:45 pm

      Let us hope there is a severe claw back.

  26. DR DOOM
    Sep 27, 2019 at 10:51 am

    As “Monty” Mr Burns of the Simpsons would say as he is rubbing his greedy fingers together ” Ex…..cellent”.

  27. Arizona Slim
    Sep 27, 2019 at 11:20 am

    Yours Truly has actually been a coworking space member, er, tenant.

    I’m in Tucson, and I tried two of these spaces before joining a third. I was part of that third space for four years. Here’s what I saw:

    A lot of flowery words used — community, connection, and collaboration. In reality, they were just words. In practice, I experienced very little of these things.

    Favoritism. Oh, man. I could write an essay just on this topic. There were quite a few opportunities that most of us member-schlubs couldn’t touch. Because those were reserved for the insider crowd.

    And then there was that disruptive! innovative! startup that moved in like a herd of elephants. Happened in February 2018.

    One of my fellow members pointed out that this company was in violation that we and the other member-schlubs had to sign. Boy, did he say the wrong thing. Management decided that he was no longer worthy of being in the coworking space, and he was kicked out.

    Well, you can probably guess what came next. The disruptive! innovative! startup was down to four offices in the fall of 2018. And they had originally rented five.

    They didn’t seem to have that many customers while they were in the coworking space, and this was despite the fact that the company was spending megabucks on advertising.

    So, none of us member-schlubs were surprised when this company broke its lease and left the coworking space in October.

    They weren’t the only ones leaving. Last fall, I noticed that the vacancy rate was climbing. I also noticed that management didn’t seem terribly interested in doing anything about it.

    This past February, all three of the staff quit. They all took other jobs, and, most notably, the boss announced that she was headed to San Francisco for a job at WeWork. I can’t help thinking that she’ll soon be back in Tucson, what with all the layoffs at WeWork.

    Two of the three staffers were replaced, but the sales and marketing manager was not. I took that as a bad sign.

    And it was. In May, we member-schlubs were told that the place would be closing on June 30.

    Cue up the mad scramble to find other office space. I wasn’t part of this scramble, because I had just finished remodeling my home office.

    And that’s where I am now.

  28. Dan
    Sep 27, 2019 at 11:43 am

    At least this shit show didn’t get to IPO. Wall Street still has some respect.

    • Wander Lust
      Sep 27, 2019 at 12:59 pm

      Uh …. no. No it doesn’t.
      Wall Street would sell you a bag of xxxx with a bow on it, if they thought you would buy it.
      …..and then laugh and laugh and laugh.

    • Michael Fiorillo
      Sep 27, 2019 at 1:04 pm

      It’s the ghosts of FDR and Ferdinand Pecora (who led a monumental Senate investigation of Wall Street in the ’30’s, leading to the formation of the SEC) what done it… and why Wall Street and its DC enablers want to eliminate every last vestige of the New Deal.

    • Javert Chip
      Sep 27, 2019 at 5:06 pm

      Wall Street has absolutely zero respect. Remember, Goldman actually valued this pile of crap at “…up to $100B…”.

      What put brakes on this monstrous pile of cow poo was absolute rejection on the part of buyers the real world. All the Wall Street bankers in lower Manhattan couldn’t put enough lipstick on this pig to get it over $10-15B (which is still an obscene valuation for a real estate company).

      We may actually have witnessed a singular brief moment in time when all the stupid money in the world got used up. Unfortunately, most of it will grow back.

      • Wisdom Seeker
        Sep 27, 2019 at 7:55 pm

        “Unfortunately, most of it will grow back.”

        … but only at the expense of everyone else. We may not see the pain directly, but we know malinvestment isn’t a free lunch.

  29. Juan "El Tax" Robertos
    Sep 27, 2019 at 1:17 pm

    WelOnlyKindaWork

    • roddy6667
      Sep 27, 2019 at 7:38 pm

      WeAreUnemployed

  30. Gorbachov
    Sep 27, 2019 at 1:22 pm

    Sad to see job losses. But if it is going to blow

    Let it be spectacular so many cheap leases will

    Be available to real businesses.

  31. LouisDeLaSmart
    Sep 27, 2019 at 1:23 pm

    \\\
    It’s like playing poker with other people’s money: if they win, they win; if they lose, we lose! But they still get their bonus and severance package.
    If that is losing, I want a to be a loser too!
    \\\
    It’s like going to war: if we “win”, they get the meddals and the honors; if we lose, we lose and they get to learn from their mistakes, and get the meddals, and the honors, and a book contract with movie rights sold in advance. Wow…the loser takes it all…Inverse monopoly!
    \\\
    It’s like taking candy from a baby. Just that the mom keeps giving the baby more candy, and he keeps taking it away. I wonder why does momy treat this handsome and wealthy candy thief so kindly? Maybe too much suggar is bad for our teeth, or they think we dont know how to manage our candy? Are they secret lovers? I mean he is not even hidding it, he steals our candy in plain sight and she doesn’t care. And she is running out of candy, and I am running out of spare candy…I sure hope dad comes back soon. By the way, who si my dad? I don’t remeber seeing him around?
    \\\

  32. Sep 27, 2019 at 2:32 pm

    More on cheap NY Fed discount window loans from Pam- and Russ Martens.

    All of the dots are connected: Ponzi scheme ‘firms’ w/ Ponzi scheme lenders, screaming demand for short term loans to keep the lenders afloat; the realization that any firm out there is very likely to be either a Ponzi or else a lender to one. What follows is like a tire iron to the head: it’s not different this time, it’s worse.

    //”Because the New York Fed is not announcing which banks are drawing down the bulk of its loans, neither Congress nor the American people know if the money is flowing to U.S. banks or foreign bank subsidiaries in the U.S. Propping up troubled foreign banks is not what most Americans want their central bank to be doing.

    … from “Wall Street on Parade”

    The Fed already got away with this during the last financial crisis, secretly funneling $77 billion to Deutsche from the Term Auction Facility (TAF), $1 billion from the Primary Dealer Credit Facility (PDCF) and a whopping $277 billion to Deutsche Bank from the Term Securities Lending Facility (TSLF) for a grand total of $354 billion in secret funding that Congress never approved or even knew about.”//

    Nobody is going to talk about it b/c that is ‘contagion’ = bad.

    Since the failure of Long Term Capital Management the establishment has endeavored mightily to systematically misprice risk, the strategy looks to be failing on its face one more time.

  33. CreditGB
    Sep 27, 2019 at 3:10 pm

    I wonder aloud, what rights the lessors have when the lessee has defaulted. Do they get to reclaim possession of their property and continue to collect the rent from the fly by nights as WeWork did. OR Do the banks have some kind of claim on this relationship and or the rents between WeWork and their clients.

    This could get real interesting on a very wide scale if WeWork massively defaults on their lease obligations.

    • Javert Chip
      Sep 27, 2019 at 5:15 pm

      Apparently WeWork sets up individual buildings it leases from landlords as Special Operating Entities (SOE) so they can go bankrupt without attaching assets from the parent company (WeWork).

      Smart landlords are requiring Letters of Credit (LC; issued by banks guaranteeing payment) from WeWork, quarantining payment of at least 1 year’s rent.

      Question is: how many smart landlords are there?

  34. CreditGB
    Sep 27, 2019 at 3:24 pm

    I heard a rumor; Adam’s dad was Alfred E Neuman of “What me worry?” fame.

    Yeah, I know, Adam is spelled Neumann, but it just seems to fit now that he’s taken his champagne and caviar, and one of the last life boats left on this Titanic.

  35. Bobber
    Sep 27, 2019 at 3:25 pm

    How will investment committees now justify the valuation difference between WeWork, which is worth near nothing, to Uber ($50B) and Lyft ($15B) and NetFlix ($115B), not to mention others.

    Before now, they were all considered the next Amazon.

    I predict there will be a lot of stammering and stuttering in those investment committee meetings.

    • Javert Chip
      Sep 27, 2019 at 5:24 pm

      Good question, and it may even be more prescient than that:

      WeWork is really a commercial real-estate sub-leasing company (I suspect whatever technology it uses is pretty much consumed by Solitaire and…er,,,various “web surfing” activities).

      In any event, real commercial real-estate sub-leasing companies get teeny, tiny valuations (in the $1-4B range).

  36. Longtime Listener First Time Caller
    Sep 27, 2019 at 4:26 pm

    FWIW – We work just opened a couple of floors in the building where I work. I only experience their space on the elevator; when the door opens, but it seems pretty horrible to me. The walls are ugly/abrasive, and have some harsh multicolored graduated thing going on, there are tvs flashing adverts for their tenants businesses, and sometimes horrible music that feels like its deigned to pump you up – its a true assault on the senses, I’m so glad we don’t use their space. I’m super casual at work, but the people who get off an on at on those floors take it to another level; kind of a like a college party in your early 20s where everyone seems pretty smart, but nobody has the money to look nice.

    • Javert Chip
      Sep 27, 2019 at 5:26 pm

      Kinda reminds ya of a trailer park going bad

      • Jessy S
        Sep 27, 2019 at 9:36 pm

        Actually it reminds me of the Simpsons episode where Bart created a character called Angry Dad (based on Homer, of course), and he managed to get an internet publisher to publish his series on the web. Unfortunately for Bart, the company went belly up, but the company’s office was similar to what was described by the previous poster complete with rolls of stock on toilet paper rolls.

    • Lisa_Hooker
      Sep 28, 2019 at 12:31 pm

      “…in your early 20s where everyone seems pretty smart, but nobody has the money to look nice.” Most excellent. Begging you pardon but I’m going to use that.

      No amount of money can buy happiness. Enough money can rent it.

  37. Guido
    Sep 27, 2019 at 4:51 pm

    As far as I can see, this is capitalism at work. Neumann came, Neumann saw, and Neumann laughed all the way to (Soft)bank, except he didn’t deposit anything with them. Softbank didn’t watch its back and Neumann stole the underwear Softbank was still wearing. Kudos to this fellow on a job very well done. Shows it is possible to steal from ponzi artists. Only in America where one can dream of doing this, an Adam Neumann has done this.

    Now, we wait for the hordes of inspired next gen Neumanns. There are a lot more laden trees where Softbank came from.

    • lisa
      Sep 27, 2019 at 8:17 pm

      Mad Magazine in real living color- green up-in-smoked!

  38. lisa
    Sep 27, 2019 at 8:14 pm

    Somebody really learned how to copy Tesla without trying to make anything on any kind of pretend assembly line, without a tent even!
    or solar cells that burn-up roofs, and cars that they are attached to
    for the real short-term burn cycle.

  39. Rat Fink
    Sep 27, 2019 at 11:43 pm

    There is a company that has been doing business for 7 years that competes with a business that I have been involved in for 20 years (we are a dotcom dinosaur). They have never made a red cent

    They raised nearly $100m over the past 3 years. On a number of occasions we were approached by big money guys including Black Rock but turned them down citing ‘we don’t believe the business model is scalable and don’t want to waste our time and your money on something we do not believe can work’

    The money found a home as it always does. And they are currently losing $4 for every $1 of revenue (burning around 30 million per year).

    I reckon it’s going to be very difficult for them to raise any more cash – and impossible to IPO.

    And because the business model does not work I doubt we’ll be stepping in to buy them for pennies on the dollar when they collapse. Because the business is worthless.

    The Wework fiasco is actually good news for legitimate businesses because we no longer have to compete with fraudulent outfits.

    I imagine Regus and Servcorp and others are smiling right now.

  40. Rat Fink
    Sep 28, 2019 at 1:52 pm

    I am reading this https://www.bloomberg.com/news/articles/2019-09-27/wework-landlords-in-london-new-york-bracing-for-market-fallout?srnd=premium-europe

    And I wondering, where is all this demand coming from?

    Considering there are plenty of short term office options in these cities (Regust Servcorp etc).

    And I am thinking, what must be happening is that Adam is offering up space at below cost and companies that normally would take long term leases are accepting the Softbank subsidy and taking space in WW.

    I read that HSBC in Hong Kong took some space with WW. Why not if they are not going to tie you up with a long term lease and offer you rent below market.

    I can think of no other explanation

    Adam’s is following the same model as Tesla Uber etc… namely, lose money on every unit sold but make it up on volume.

    Genius!

  41. Ian Davies
    Sep 29, 2019 at 8:03 am

    Surely this deserves an investigation into the Inv banks punting this IPO? A company making such huge losses that as soon as the expected fountain of retail investors cash is denied is basically in liquidation? The same banks punting it for sale I assume are the same ones not eager to put their own cash down as loans to keep it going? Is there any regulation at all these days?

  42. JV
    Sep 29, 2019 at 10:56 pm

    “But its biggest investors and banks that are exposed to it have a reason to throw good money after bad: They don’t want to have to write off the money they have already invested in it, and by giving it more money, they hope that WeWork will make it long enough to where it can be sold to retail investors via an IPO, and then they might get part of their money back.”

    So disgusting! Then Wall Street is surprised when the regular voter turns to socialism. I’m not surprised one bit.

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