Silicon Valley Is Slowing, Whether for a Quick Breather or Extended Time-Out, I Have No Idea (Guessing the Latter)

Strongest argument in favor of an air-walking economy is WeWork, Uber, Lyft, and other unicorns destined to never make a dime. Throwing billions of dollars at these losers is a recessionary harbinger.

By John E. McNellis, Principal at McNellis Partners, for The Registry:

It is a well-established law of cartoon physics that characters may walk on air as long they are unaware of doing so. Once Bugs Bunny realizes he’s airborne, however, gravity reasserts itself, and he plummets to earth. Is today’s economy Wile E. Coyote? Is it unconsciously aloft or, perhaps more interestingly, is it the reverse? Are we on stable ground that just feels like quicksand?

The strongest argument in favor of an air-walking economy is WeWork. Or Uber or Lyft or any of the other unicorns destined to never make a dime. Throwing billions of dollars at these losers is a recessionary harbinger, calling to mind Alan Greenspan’s “irrational exuberance” warning. (A warning the political Greenspan failed to heed himself). I decided I was finished trashing WeWork last year, but the Wall Street geniuses and the business press are at it again and once again wrong about the company.

Yes, Adam Neumann has a presidential sense of conflicts of interest. Ah hell, let’s face it, he’s an outright thief. #WeWorkOverInvestors. But today’s juicy narrative — ditch the tawdry Neumann and cut costs — misses the point: WeWork should never go public. It is a flawed concept. Jesus—or even Warren Buffet—could run the company, and it would still fail. For details, see my July 2015 essay, “WeWork until WeDon’t.”

Other recessionary indicators? The near universal belief that the economy is too good to last, that our expansion is already deep into extra-innings. The graybeards seeking the cloud in the silver lining see a bevy of black swans: the trade war with China, Russia’s antics, flare-ups with North Korea and Iran. And now Ukraine and impeachment. Toss these fears and anxieties together and, perhaps like life itself, you can spontaneously create a downturn. After all, paraphrasing that famous philosopher, Yogi Berra: “Ninety percent of a recession is half mental.”

Another? Wretched excess worthy of Marie Antoinette. Marie would feel right at home in the Bay Area. Selby’s, a new restaurant that skirts Silicon Valley, sells a burger for $50. Klatch Coffee in San Francisco sells a cup of coffee for $100. Yes, $100 for a cup of coffee.

Some would say if you can’t see the recession from here, you’re not looking hard enough.

The counter is: WTF? A recession? Are you crazy? Unemployment is near an all-time low, the stock market is flirting with an all-time high, job growth remains strong, wages are rising across all economic strata and try naming a major American city that isn’t beset by construction cranes.

The real estate industry holds these diametrically-opposed opinions. I attended the ULI’s annual fall meeting last week in Washington, D.C. When asked to rate its businesses on a 1-10 scale (1 being the Great Depression), a sampling of fifty-odd developers from across the country averaged a 7. What struck me about this informal poll, however, was how often the more seasoned developers undercut their 7’s by responding, “We’re a 7 on our way to a 4.” The downturn elephant was quietly grazing in the room.

There is no telling how the national real estate market is because…there is no national real estate market. Every state, city and town is different, each subject to its own challenges and opportunities.

For what it’s worth, here’s a loafers-on-the-ground glimpse of Silicon Valley: A gifted mortgage broker says the Valley’s for-sale housing market has seized up, its volume way off from what it was in the spring. Why? “The Chinese are gone, and the investors are sitting on their hands. They smell blood in the water, sure prices are coming way down. The only ones buying are people who actually need a house.”

Ruing a normal housing market is laughable, but it hasn’t been seen in Palo Alto since 2009.

Another high-end residential sales broker said, “The market just disappeared the last sixty days. We’re in a mini-recession.” He did think, however, it would return in the spring.

Two project managers of new large-scale apartment projects both admitted they are only achieving their pro-forma rents by giving away significant free rent on signing. And I can tell you first-hand that our office leasing market has cooled.

The great Valley is slowing, but whether for a quick breather or an extended time-out, I have no idea (guessing the latter). But truth be told, I shouldn’t be opining about a countrywide recession at all. Why? Because, when one is standing in the middle of a burning field, the whole world looks like it’s on fire.

My world—retail—has been in a recession since at least 2009, perhaps longer. Not a depression. Not an Armageddon. But a recession. A recession born, not of runaway fears and emotions, but of overbuilding, e-commerce and operating cost increases. That said, one can thrive in a recession — think mammals scurrying beneath choking dinosaurs: We’re under construction with three retail projects and buying a fourth. By John E. McNellis, for The Registry.

Signs are now all over Silicon Valley and San Francisco. I dive into it in my podcast… THE WOLF STREET REPORT: IPOs Crash & Burn, Debris Hits Housing, Office Markets

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  72 comments for “Silicon Valley Is Slowing, Whether for a Quick Breather or Extended Time-Out, I Have No Idea (Guessing the Latter)

  1. Old Engineer says:

    Well, it appears that WeWork appears to have been a scam from the beginning, certainly isn’t a “tech firm”, and its failure sooner rather than later is a function of its owners hubris more than anything else. And I don’t see the tech in a lot of the “tech” firms. FaceTime and twitter are advertising companies, Dorsey and Zuckerberg are the modern equivalent of Darrin and Larry on the old Bewitched TV series. Amazon is an updated Sears, but the business plan is over 100 years old. And Google’s cloud business might label them as a tech company, but really they probably buy all the tech.
    So the Intels, Apples, AMDs, router and chip manufacturers, the real “tech” companies how are they doing? My guess is not so good. And the future doesn’t look good. As the US restricts access to real US tech products to one of the largest populations on earth it is forcing China to prioritize developing Chinese second sources. The eventual competition for US mfrs doesn’t bode well for their bottom lines.
    So I don’t know if a Silicon Valley recession is coming, but hard competitive times appear to be on the horizon.

    • 2banana says:

      Yellen bucks have found their place to die.

      Billions and billions will be vaporized in WeWork Uber, Tesla, Chewy, etc.

      Along with shacks next to a highway selling for $1.4 million.

      Cheap and easy money always commits suicide.

      • rhodium says:

        The money itself does not disappear. What is money? It’s a debt of time and energy. Value in a supply and demand situation unmarred by excess profit represents the time and energy required to produce a good or service. Price as a means of rationing represents this (assuming low to no profit). These wasteful companies paid out income to many people to provide a good/service that ultimately is not valuable enough to justify it’s price, therefore somebody simply lost that money in the sense that they bought someone’s time and energy, just not for their own benefit, and eventually they will realize this loss of value. Many venture capitalists and “investors” have been running a charity operation without realizing it, because all this money was paid to employees and management for a venture that ultimately will not create self-sustaining income. When the money dries up in the aggregate, unemployment and aggregate spending fall -> deflation and lower consumption, lower revenues, financial assets are marked down and potential investors hold their capital in economic hibernation. This is the underpinning of the business cycle. All these zombie corps showing no signs of breaking even strongly suggest a brutal recession will eventually show up.

        • Petunia says:

          The venture capitalist “investors” are not running a charity operation, they are running a gambling parlor. I am not saying this to be witty, they know most of their investments will not pay off, they are betting one will be big enough to make up for the losers.

    • ZeroBrain says:

      Hardware is cheap and the cost of shrinking is going up. Intel can’t get its s*** together. At this point, important (i.e. not YouTube Facebook etc) tech innovation is constrained by the availability of capable software developers with application-domain specialization, not hardware (for the most part).

    • Shawn says:

      I really liked your response to this article. It captures our moment in a couple of paragraphs. You forgot one thing, NVIDIA is still charging $1000+ for a single processor, in 2019! As for Apple, well, I went out with a bunch of colleagues, one guy takes out his IPhone 11, a phone he is paying $1000 buck plus for. In response, as a former IPhone user, I showed the group my Moto e5 for $125 bucks which probably does 90% of what the IPhone 11 does (for my purposes) at a 10th of the price. Yes, I believe, tech is in a bubble worth of trouble.

  2. Justin Wiedeman says:

    I mostly agree with your comments but the true Elephant in the room is energy independence. That is a game changer. In the “modern” era, we have never been in this position before. With that said, I don’t invest in the unicorns. I like infrastructure which is very expensive or protected with nice margins.

    • 2banana says:

      And California is extremely dependent on neighboring states to supply electricity and water.

      Building those infrastructure projects instate was deemed environmentally unwise.

      Better to pay higher and higher prices for other states to build them.

      What could go wrong?

      • AlamedaRenter says:

        Northern California gets almost all of its water from existing reservoirs in the state. SoCal gets some Colorado river water.

        But, yeah, that statement is false.

        • 2banana says:

          Just a bit outside…

          “The Colorado is a critical source of irrigation and urban water for southern California, providing between 55 and 65 percent of the total supply.”

        • Wolf Richter says:


          Yes, but the Colorado River is not some foreign river. California is one of the 7 states that share it. And it has some pretty good water rights.

        • AlamedaRenter says:

          Of Southern California…

          So 45% percent of 50% of the population is not close to extremely dependent.

          SFWater and EMUD supply the entire Bay Area with water from in-state reservoirs.

      • buda atum says:

        They say, “what’s the big deal? $100 coffee doh!

        • alex in San Jose AKA Digital Detroit says:

          All it takes to keep the party going is a lot of young people with no sense of history (as schools don’t teach it any more and why watch the news when American Idol is on?).

          I was delivering a radio antenna built to take, well, hurricane conditions to FedEx today, to be sent to Louisiana. So I made a comment about this to the young gal working there, and she had no idea there’d been this hurricane, see, called Katrina, that hit Louisiana rather hard, broke a lot of things, etc. The blank stare I got as I tried to convey this in Dr. Seuss level English was amazing.

          Someone needs to sell this gal a house in low-lying New Orleans because it’s a “deal”, stat.

  3. TonyT says:

    I do believe it’s going to be longer term trouble in SV, but it will be different from the dot-bomb crash, and I suspect that the non-coastal areas won’t be hurt as much (like the Texas oil crash in the 1980’s or defense layoffs in the early 1990’s didn’t have wide national impact)

    In 1999, just about everybody in SV was booming: internet, server (Sun et al), router (Cisco et al), optical (JDSU et al), storage, test equipment (Agilent), and more. This tech bubble seems restricted to a much smaller group of companies (cloud startups, social media companies, and money losing unicorns claiming to apply tech to non-tech areas, and AI/self-driving).

    This We-IPO disaster seems like a defining moment. Take the current housing market, add a whole lot of new inventory coming soon, add a few major layoffs and bankruptcies, and a change in optimism and the result will be a big change in the real estate market.

    • Vespa P200E says:

      It’s SillyCon Valley as the traditional silicon related hardware companies have shrunk or folded like the ones you noted replaced by social media BS, software and everything cloud so it appears.

      I recall how bad things got in SV in 2002 when I worked at MSFT, at the time biggest tech company. Taxi driver at SJ airport was an ex-hardware engineer who asked me for an email address to send his resume. And lest we forget the IPO frenzies 20 yrs ago with everything tech as where are the etoys.con, pets.con replaced by Chewy’s, webvan.con kinda replaced by Amazon to name a few. History does repeat…

      And the market coming to its senses on losses leading app peddling gypsy taxi companies, fad exercise bike company and 2:1 money bleeding office sublease outfit (right before the recession) are GOOD signs of market efficiencies of sort.

      • TonyT says:

        The majority of programmers I knew back in 2001 left SV after the crash. I think there will be somewhat of a repeat, except that a lot of the laid off will be H1B’s.

        I do know a number of under-employed people, but I suspect given the cost of living a lot more will leave than stay on a much smaller salary. (And when times are tough, I’m thankful I work for an established, private company that takes a long term view).

  4. Bob Hoye says:

    Informative article vividly written.
    $50 burgers and $100 cups of coffee.
    Going into the peak in March 2000, the WSJ had a story about young brokers enjoying $1,000 bottles of bubbly.
    The bull market that blew out in 1968 included a sensational “new issue” market as we called “IPOs” then.
    At one incredible lunch, 3 of us went out run up a $1,000 tab. We needed the help of three others.
    And then most of it goes away.

    • 2banana says:

      Kinda reminds me of the crazy stories coming out of Japan during their bubble in the late 1980s-1990s.

      Almost an indicator.

  5. Petunia says:

    For what it’s worth, a few months ago an upscale furniture store in my area had its going out of business sale. A few weeks after the closing date, I actually saw the store closed and their windows covered. This past weekend I saw the store was open so I went in to ask what happened. The girl at the register told me they were able to renegotiate their lease.

    This is a very nice store in a very nice mall that was dying. Obviously the management got a clue and figured out their asking rents were too high. It’s too bad they didn’t figure this out before a third of their nice stores closed. It’s not the internet that’s killing brick and mortar.

    • Wisdom Seeker says:

      Great Comment Petunia!

      Overinflated real estate prices driven by money-laundered hot capital and/or nearly-free ZIRP loans lead to rapacious landlord demands for unsustainable rents. That’s a huge drag on the economy.

      The overbuilding will have to continue until there’s enough competition for tenants to bring down rents.

  6. Marcus says:

    To your WTF counterpoint, people often throw around low unemployment as the evidence is that a recession is far off. But look at the FRED data. When unemployment does increase, it doesn’t show any warning signs. One day things are hunky dory, then the next day unemployment rates are going vertical. It happens over and over again. So, when it happens this time, why would it be different?

    Nice article. I’ve been enjoying your contributions to WS

    • Kent says:

      Good comment. Recessions (as opposed to financial depressions) are a change in sentiment. Prices, especially of real estate, start getting too high. Buying slows down. Banks see things slowing down and raise interest rates on small businesses, and start taking fewer chances with new businesses. Without bank lending, there’s less money in the economy and retail starts slowing. The media keeps hyping. But business owners start feeling a change. They slow hiring. Unemployment starts inching up. Then someone announces some significant cuts and everyone panics and cuts all at once. Suddenly, 2 million people are looking for jobs. Then the banks start calling in loans. the stock market dumps 30% and 5 million people are looking for jobs.

    • McNellis says:

      Thanks, Marcus, much appreciated

  7. Petunia says:

    More boots on the ground:

    Was in New Orleans a few weeks ago, visiting the touristy Magazine Street area which is a six mile stretch, at least a third of the businesses were closed.

  8. David Hall says:

    I watched grow in price. I did not see any earnings and decided not to invest. After years of revenue growth and no earnings, they started to produce earnings. By that time the stock seemed to be overpriced. I do not expect it to become a value stock anytime soon.

    I own shares in an S&P 500 index fund, thus I own some Amazon, Berkshire Hathaway and other impressive name companies. That made me feel good on days when the market goes up. It pays a dividend higher than negative yielding Swiss bonds that are supposed to be “safe.”

  9. ThePetabyte says:

    The issue as clear as day here is that these new tech unicorns are nothing like the grassroots-innovation driven tech behemoths of yesteryear. The reason for Microsoft/Apple success lies in the meteoric yet meticulously planned growth by visionary but tactile management by the founders who themselves struggled out of 1 car garages with their technical skills to supplement their budding managerial skills.

    These days you have CEOs that are bean counter driven being enabled by rosy tinted glasses wearing angel investors who hand bags of cash to whoever can come up with a novel idea that can be written in Ruby or whatever high level language you can think of.

    I’d liken this to be dotcom bubble 2.0 as I suspect we’ll see a reset of tech startups that are more conservative in their approach and just as conservative angel investors who will finally start asking for fundamentals instead setting up Starbucks meetings with 20 somethings who will apply Python-based AI to the Keurig machine.

  10. 2banana says:

    It is not a mental illusion when you or your neighbors lose their job….

    “After all, paraphrasing that famous philosopher, Yogi Berra: “Ninety percent of a recession is half mental.”

    • Dan says:

      I think he meant that consumer confidence is a key part of recessions – if people stop spending (because, for example, they think a recession is just around the corner), then other people stop earning, thus causing the recession to actually happen.

  11. Wisdom Seeker says:

    I have no doubt the author is a smart and experienced guy, but this article is a thought-salad of either pure personal opinion or anecdotal hearsay evidence. That can have value but I would really have liked to see some quantitative analysis. The specific impact on Bay Area economy from a few failed startups is not necessarily huge.

    Consider the troubled unicorns. The California economy is around $2000 billion/year. The IPOs in question are maybe $100B, but that’s spread out among global investors, and far-flung operations. If one shuts down, how big is the actual local economic impact? Since the unicorns destined for extinction have weak revenues relative to their valuations, investors feel pain but the economic impact to actual workers is reduced.

    Consider the ULI real estate developers. Anyone with a pulse knows the economy is good right now and has been for a while, so of course a recession is in the future. But how far in the future, and what’s the trigger? 7 heading to 4 is a prudent judgement, not a prediction of imminent doom.

    And the Bay Area housing market – some RE broker saying the market changed in the fall – without giving hard numbers – is just book-talking because the market ALWAYS changes in the fall, because it’s a seasonal business. Wolf’s analysis has been that everyone knows it was insane for a few years, and it’s coming back from that insanity. But a local real estate market returning to sanity isn’t necessarily a recession.

    And so on.

    All that skepticism is healthy. I’d be more worried if the social mood was like 1999, with ordinary Joes day-trading over lunch to flip stocks touted by hype artists predicting growth rates so high that individual companies would own the planet within 20 years.

    Instead the markets continue to climb the Wall of Worry, and that’s as it should be.

    • 2banana says:

      Your analysis does not factor in leverage.

      40:1 easy in the corporate world.

      No downpayment mortgages at 9x income

    • Wolf Richter says:

      Wisdom Seeker,

      You get the quantitative analysts from me, including charts. John gives you his thoughts, based on his observations as a professional in real estate development, with decades of experience who has been through this boom-bust scenario several times.

      From me, you get charts like these. It shows that in Santa Clara County, the southern part of Silicon Valley, in August, the median sales price of single-family houses was down 8.1% from August 2018, and down 18% from the peak in March 2018:

      • Thanks Wolf. I appreciate John’s thoughts, I just wish he’d provide a bit more quantitative information to back up his perspective, and a bit of context since not all of his readers are as informed. And also a better sense of whether this is his mood-of-the-moment based on his daily observations, or whether he’s been building up a conclusion over months of careful study.

        For instance, John’s realtor quote about “mini-recession” and “come back in the spring” reads like the lived experience of the seasonal market swing in your graph. But if it’s just the seasonal swing, though, why include it in a piece hinting an economic turning point? And if it’s not the seasonal swing, why not make that point?
        It can help to know whether or not a top realtor is having a bad 2 months, but we need to know more than what John presented. Is the sales slump just because it’s autumn as usual? Was the realtor overexposed to the Chinese buying crowd? Are they seeing a lot of people giving up on the search because of job or stock-options issues? And so on.

        Now I’m looking at the data for Case Shiller San Fran back to the late 1980s ( ). Case-Shiller uses same-house matched-sales data and is therefore not vulnerable to the variations in sales mix which afflict interpretation of “median price” data. But its slow and lagged, so it won’t be the first place to spot a turning point. It’s great for historical analysis, though.

        Before going on, I should mention that Case-Swiller for San Fran shows the Summer of 2019 being higher than Summer of 2018. The most recent data point is July, representing sales in May-June-July 2019. Now look at Wolf’s chart above. There’s a year-over-year droop in the median data for Santa Clara, which is nearby but not in the San Fran dataset. Is that real or is it just a shift in the sales mix (more people buying starter homes, fewer Chinese “investors” laundering money)? Case Schiller for San Fran says that through June-is there was not a year-over-year drop in values of individual properties. The next round of data will be interesting!

        But going back to the historical value of Case-Shiller:
        There are 3 historical peaks prior to the current high (which is not yet a peak in this dataset). Those 3 prior peaks tell 3 different stories, and the variety provides good context for the current situation.

        The 1990 peak came just before the 1990-91 recession and led to a shallow drop of about 8%, followed by a long drawn out trough through 1997 or so. The final bottom in 1996 was 12% down from the 1990 peak. Compared to inflation and returns achieved by other investments in that time, this price stagnation could have been frustrating for investors (depending on rents). But for buy-and-hold owners, there wasn’t a sharp loss. (Flippers buying in 1990 and selling in 1990 would have felt some pain, but they had huge gains from the 1980s and this would’ve been the loss that says it’s time to quit the game for a while.)

        Now look at the 2001 peak during the dot-com crash and short recession. The 2001 peak led to a quick drop of about 7% in this region. (It was worse in San Jose which is not included in this data.). But then the Great Housing Bubble kicked off, and by late 2002 prices were back above the peak. So again, only flippers would have taken an enduring loss.

        The near-doubling of prices from 2001-2006 led to the big traumatic crash, with a 45% drop in the San Fran data by 2009, with a trough through 2012. But the bubble peak prices were back in 2015 and now we’re at new highs.

        Now the question is are these prices more sustainable, this time around?

        If we have another massive financial crisis driven by the exposure of trillions of dollars in accounting frauds and bad loans, then maybe.

        But if “all” we have is another dot-com crash, the evidence suggests we’re looking at a shallow drop of maybe 10% – and if Wolf’s data is more accurate, maybe we’ve already had it. Then a trough whose duration depends on the next wave of monetary and fiscal policy.

        And if what we have is a few failed unicorns, that’s not up to the level of the dot-com crash, so outside of the immediate “headquarters kill zone” the price impact will be more muted. There are a LOT of companies operating in the Bay Area besides these unicorns, and the vast majority have very-sustainable revenues.

        If the froth on top of the bubble was the Chinese money-laundering “investor”, and that is now dried up, will the underlying demand from young families who “need a home” support current prices? That’s the real question. How much impact is there if some current owners find their startup dreams dashed and have to start over?

        • NARmageddon says:

          Not much wisdom-seeking in that enormously long comment. All I see is a pile of bumbling rationalization that the current bubble will not burst, or if it does, will not be so bad.

          Look: The dot-com stock crash was the easy one to “fix”. The 1994-1999 stock bubble was much smaller than 2003-2008 housing bubble 1.0 was much smaller than the 2012-2019 everything bubble 1.0.

          There is not a single company in SF Bay or anywhere else that will be unaffected when this bubble blows. It will catch on like a wildfire.

    • akiddy111 says:

      Wisdom Seeker,

      I agree with your comment.

      And i know that you know that people were gloomy on Santa Clara median home prices when they were $500,000 in 2012. As you now know, median home prices are $1,200,000.

  12. Elle M. says:

    We’re currently in the “those who need a house” category. We have a baby and a big dog and just frankly sick and tired of living in an apartment. Our budget is $2 million and we’ve been looking in Orinda for the last few months. We’re seeing a lot of houses sitting for 90 days or more with price reductions but those tend to be the undesirable homes in non-ideal locations. We’ve been interested in two homes in the last few months, both are nice homes on good streets and both have sold for about $200k above asking within a few days after listing. Right now we’re debating waiting until next year to see if prices will go down a bit but interest rates are currently really good so we’re a bit torn. Thoughts?

    • Bobber says:

      Advice? There’s a huge difference between living in an apartment and buying a $2m house. Why is such a huge leap necessary? Why not buy something with a longer commute or something smaller for $1M. Or move to a different city where RE is reasonable.

      • Elle M. says:

        Sorry I should have provided more context before asking my question. We purchased our first home (3 bed/2bath condo) in SF in 2009 and lived there as our primary residence until a few years ago when we relocated to another state to pursue a new job opportunity. That didn’t work out so we moved back to the Bay Area and ended up renting in the east bay due to the location of our new jobs. We’re currently renting out our condo in SF and plan to keep it as a rental unit permanently.

        We now have a baby and want to buy a house since we’ve been renting and paying crazy high rent prices for two years now. Moving out further is not an option due to the location of our jobs.

        • J Bank says:

          You can get a decent deal on a bigger apartment now. I would hold tight if I were you… and I lend on CA real estate (including SF) for a living.

    • roddy6667 says:

      Save your cash and rent a house until the market crashes. You will thank me later if you take my advice.

    • MCH says:

      If you could wait, I suggest waiting. The momentum is on your side right now as a buyer. I have seen houses on the market that have stretched out to a much longer time frame than before.

      I do agree that going from renting to a $2M is a bit of a stretch. But if you can afford it, then you should go for it.

      • Baypoor says:

        I do not understand the comment that there is a jump between renting and buying. You clearly do not live in the Bay Area. There is nothing you can buy for 1 million in a decent school district. We rent, our rent is 7000 a month. We could afford a $3 million house, but they are truly crappy in decent school districts on the peninsula. I mean built in 1948 and 1800 sq ft, ranch house above a crawl space type.

    • Tim says:

      You folks is SF are nuts.

      You could get a good job making six figures, buy a house for less than $1M, not worry about traffic, and have good schools for your kids to attend. All you need to do is move. Is SF worth it?

  13. polistra says:

    Leaving aside the investors, I can’t see why the CUSTOMERS are using WeWork. The pictures of their workspaces look like school cafeterias with laptops instead of trays. This is NOT an environment for doing serious computer-based work. There’s no security, no privacy, no place to store papers and media. And serious computer work usually requires a full-sized keyboard and a large monitor, not a laptop.

    Almost anyone can do better at home. Even in a small apartment you can set up a proper computer-based office with all the necessities.

    Why are these people paying rent for something they could do much better at home? Do they live in their cars?

    • 2banana says:

      It’s kinda like why people pay $6 for a cup of coffee at Starbucks when they can make just as good coffee at home for a quarter.

      A twenty something could explain it to you – but you still wouldn’t get it.

      • MCH says:

        dude, it’s the ambiance. get with it, you old fart. :)

        Starbucks has an advantage, because it is like an office for several hours, with power and unsecured wifi. hahahahaha.

        Seriously though, I’ve seen the We buildings around here, I never get the idea of these open office space. It seems kind of silly.

    • roddy6667 says:

      If they had a home office, nobody could see them being cool while working. In their nouveau-twisted value system, this is more important than anything.

      • NARmageddon says:

        >>If they had a home office, nobody could see them being cool while working.


        Additionally, but related: WeWork really is WeDontReallyWork.

    • Anonymous Coward says:

      A former colleague, who now works for an organization with virtual offices, said the local team meets once a week at WeWork to have some “face time” … but that he does not pay any rent. Apparently, We has no real controls to determine whether visitors are rent-payers or otherwise. He doesn’t know which of his colleagues do pay. There are purported to be stricter controls if you wish to use a meeting room or printer and such, but seriously this company is a sham of a travesty.

      They may not ring a bell at the top, but the failed IPO by We nonetheless reverberates loudly and will be looked back upon like and Lehman were. Anyone who argues otherwise has never lived to see the hubris wiped off market valuations for any extended period of time. The day of reckoning is nigh.

    • Craig says:


      One gentleman I met used it to find customers. He maintained the membership just to be able to get in and start knocking on office doors.

      Sometimes he would be on call downstairs for his clients, but the real work was done in the client’s private office or back at his home office

    • fajensen says:

      I find that I need the ambient noise of people I don’t know nor care about to scream out a long piece of code or to do the outlining of a tricky report.

      I do that work the best and fastest at conferences, cafes, airport lounges, the office canteen in a pinch – except I get disrupted by colleagues there.

      Then I can fix the draft work up and add the details back in the office. Headphones don’t work, it has to be ‘people noises and movements’.

    • alex in San Jose AKA Digital Detroit says:

      There used to be a “maker space” called TechShop right in downtown San Jose, before it suddenly closed and its owners took off with everyone’s money but that’s another story.

      The thing is, it was a place to hang out, with free coffee and popcorn, wifi, etc., and quite a number of people slept in their cars and hung out there during the day. The min. Social Security payment if you retire at full SS age is about $1200 a month and that goes pretty far if you’re just living in your car. I think there were even showers there.

    • Lisa_Hooker says:

      By renting a kewel-looking office space your customers have no idea just how much of a shoestring operation you really are. No need for storage space as it’s all in the cloud. Typically a very cloudy business.

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

  14. Gian says:

    Are we to believe technology has reached its pentacle? I think not and SV will bounce back. As far as RE is concerned, all we hear is there are shortages everywhere, which will only serve to stoke building and drive up prices. The economy is all about perception and the democrats are clamoring for a recession and in fact attempting to induce one through their nonstop BS. Scare people, stop them from buying or spending and voila a recession has been induced. I know many business people, construction, manufacturing, real estate and they have never been so busy. But let’s not talk about that.

    • Anthony T says:

      “As far as RE is concerned, all we hear is there are shortages everywhere, which will only serve to stoke building and drive up prices.”

      There were (also) huge shortages in 2007, just before there wasn’t.

    • MC01 says:

      As I said before, Silicon Valley’s biggest problem right now is they have global competition. You have all sorts of high-tech companies from all over the world competing with what was once Silicon Valley’s monopoly.
      To give you an example later this year we’ll start trials for a diagnostic software coming from South Africa: a very sophisticated tool. If it’s not to my liking we’ll trial another from Germany but I am fairly confident about the one from the Cape.

      Silicon Valley has been leading the way in globalization, by outsourcing production of their hardware and the writing of millions lines of codes to low-wage corporate havens throughout Asia, but is Silicon Valley geared for global competition? Because that’s the magic word here: competition.

      I hope to entertain you all by writing on how airlines throughout the world are being slowly boiled alive by competition,which is great to improve oneself (albeit it makes for late hours and little vacation time) until funny money creates all sorts of Franken-companies which don’t care about fundamentals and really “disrupt” the market, in the same way that an infestation of Large white will “disrupt” a cabbage field.
      Nobody was ready for this and I can assure you plenty of PE managers (active in the aviation field) who have been lending their vociferous support to funny money practices are ruing the day. Too Late Too Late.

      Silicon Valley is in a somehow worse position but I suspect they expect their name to carry the day: after all iPhone’s are still branded “Designed in California” like it were some kind of magic charm that will deflect competition. Judging by iPhone sales that magic is wearing out, so let’s see how long the trick of “shifting to service sales” and “improving customer experience” will last.

      • DarkMatter says:

        “As I said before, Silicon Valley’s biggest problem right now is they have global competition. You have all sorts of high-tech companies from all over the world competing with what was once Silicon Valley’s monopoly.”

        The crux of the issue is a shift of the worlds “best” who are choosing to remain in their own country. This is happening all over the world. The Bay Area is no longer getting the cream of the crop. Why come here to make a quarter million to struggle in life? You know what sort of lifestyle half that amount buys say in India?

        The Bay will have one more big cycle after this recession as San Jose transforms into the next SF if Google’s plans come through.

  15. R2D2 says:

    People in England have long been scratching their heads about WeWork! Regus is a famous office-rental company in the UK — been around for decades. Big marketshare… but low valuation. WeWork pretended to digitalize and hipsterize the office-rental experience. Of course, it turned out to be nonsense. Office rentals are boring by nature. Valuations will always be low. WeDontWork.

    • Craig says:

      >People in England have long been scratching their heads about WeWork! Regus is a famous office-rental company in the UK — been around for decades.

      We also had online grocey shopping since the 90s. But now Amazon is offering it to San Fransisco, it is suddenly a big thing?

      • char says:

        Online shopping trials started in the early eighties with minitel like systems so it is even older.

  16. larry says:

    Wolf, I am curious where and what retail you are investing in? I am surprised you are doing this in the declining brick and mortar market.

    • Wolf Richter says:


      This article was written by John McNellis (see byline), who is a commercial real estate developer, things like strip shopping centers, apartment buildings, and the like. That’s what his company does. So they’re not going to quit doing what they do just because it gets tougher.

      I’m not into retail. I operate this website, that’s my job, occupying nearly every waking hour of my day :-]

      • Lisa_Hooker says:

        Wolf! Felt compelled to note my heartfelt thanks for your work and your website. Essential daily read. Thank you!

    • Wolf Richter says:

      But McNellis might jump into this discussion here. I’d like to know more too about his latest investments. John?

    • mcnellis says:

      Hi Larry

      We invest in small supermarket-anchored centers. Of the deals I mentioned, one will be new construction anchored by a Safeway and just a couple shops, the other will be a minor make-over of an existing Trader Joe’s anchored center. The other two projects we’re building now are part of enormous mixed-use projects where the retail, while not insignificant, is absolutely dwarfed by the residential component of the project. You can get a fair understanding of what we do by visiting kind regards

  17. Art says:

    It’s about time the fake economy had an extended time-out.

  18. Tang says:

    Many thanks to wolfstreet and those contributors. Your information is invaluable.
    I do my part to share.
    Dot com crash. Sun Microsystems year before did stock split. Trading close to 100 bucks then.
    In my part of the world, I was then working for a Sun distributor. Was supporting a customer who used Sun systems. They IPO before the crash. Company offered me 50 lots. I took and sold the next day. Never look back. That company bankrupted in 2 years. Amazon shares then traded at $6.

  19. Tang says:

    That co. was doing high tech stuff.. voip using Sun servers in countries sg, us, eu.
    Mediaring was the name. Nice sounding

  20. RobvC says:

    When I read : ” The only ones buying are people who actually need a house ” I felt good, for a moment.

    • Wisdom Seeker says:

      Yes, houses should be owned by people who need and use them, not traded like baseball cards to the highest flipper.

  21. CreditGB says:

    These unicorn business models will generate decades of American Greed episodes.

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