Per My Last E-mail #14
WeWork, Collaboration, Wellness, Tricksters, and Unicorn Bonds
Hi Friends 👋,
My sabbatical is off to a great start. We spent the weekend upstate on a lake with friends, and on the way back, had lunch at the Beekman Inn, where Alexander Hamilton and Aaron Burr exchanged insults that led to their infamous duel.
I’ve also had the chance to read, write, and work from six different places in the city. I’ll write a post on the best places to drop in closer to the end of the sabbatical, but for now, the early leaders are Dumbo House, The Assemblage, and the Nomad Hotel Library.
🏢 The We Company’s S-1 is my Super Bowl - if you’ve read this newsletter, you know how much I love WeArticles, and it is the biggest player in my industry, so its IPO will have an impact on me professionally. Today, I am going to do a deeper dive into one topic than I normally do in Links & Listens, sharing the three best articles I’ve read on the S-1 and the company’s impending IPO (plus one funny one), adding my thoughts, and discussing some of the implications.
What is We!? Understanding the WeWork IPO by Byrne Hobart
This is the best piece I have read on the We S-1, and judging by the number of times it has already been cited in other articles and tweeted out by really smart people, others agree. On a topic that has caused much frenzy and hyperbole, Hobart takes a balanced and nuanced view. For example, where many have roasted Adam Neumann for owning buildings and leasing them back to WeWork, Hobart points out that this is actually smart financial engineering - Neumann can keep low-multiple assets on his personal balance sheet while putting a higher-multiple revenue stream on WeWork’s P&L. He even defends the much-derided “Community Adjusted Earnings” metric. Ultimately, Hobart doesn’t pick a side, but his piece is required reading before you pick yours.
Danco makes the case that WeWork is actually disruptive in the classical sense - it is a low-end disruptor, giving clients who are overserved by traditional real estate the smallest possible number of square feet per employee to keep costs low. By being the low-cost provider and raising and burning mountains of cash, WeWork can fend off incumbents (Why would we want to sell discounted desks to a bunch of freelancers when we own buildings and sell 10 year leases to IBM?) and new entrants (Why would we want to compete with WeWork, who is willing to spend billions of dollars to undercut our prices and build a lower cost structure than we can?). Danco doesn’t go so far as to say that he believes that it will work, just that he can see a play for them where he hadn’t before.
WeWork and the 2010s by Ranjan Roy
Roy, one of the earliest WeWork tenants in its first location at 175 Varick, argues that WeWork is the most 2010s company. From the cheap cash and fast growth to the contract labor issues to selling the idea of elevated consciousness and self-betterment while taking Saudi money via SoftBank, no one company encapsulates so much of the past decade’s business cycle as WeWork does.
[Funny] WeWork Isn’t a Tech Company; It’s a Soap Opera by Elizabeth Lopatto
Presented without comment.
What does it all mean?
The real estate market has gotten as hooked on WeWork leases as WeWork has gotten on SoftBank cash. For almost any space over 5,000 square feet that comes available in markets like New York, San Francisco, and dozens more, WeWork has a bid in. This, along with general economic expansion, has pushed rents to all-time highs. In Manhattan, asking rents hit $80.25 psf in Q2, an all-time high and 9% higher than the same time last year.
If WeWork’s IPO is a success, this trend is expected to continue as pressures from a new set of investors push WeWork to continue accelerating expansion. If the IPO is unsuccessful, showing that new investors prioritize profit over growth, or is pulled, leaving WeWork with less cash than planned, losing the WeWork bid could have a negative impact on commercial real estate markets worldwide.
I do think that a short-term pullback could present a long-term opportunity for the flexible workspace market to thrive. The chart above describes the Gartner Hype Cycle, which most new technologies or trends go through. Something is new and shiny, attracts a lot of investment and hype, ignores the underlying business or market needs while focusing on growth, fails to meet inflated expectations, and crashes. But the underlying technology or idea is strong, so smart, committed people keep working to make the thing a reality on a more realistic timeframe. And then the technology or idea is adopted in a way that makes financial sense, before becoming a part of the mainstream.
If an unsuccessful WeWork IPO causes trouble for WeWork and a pullback in the commercial real estate market, it will allow the companies who are solid operators to work with landlords and customers on building the businesses and products that will shape the way that people rent space to work for decades to come. If the WeWork IPO is a huge success, 🤷🏻♂️.
Links & Listens
👯♀️ Kevin Kwok, who has influenced my thinking with his work on Loops, dropped his latest piece - The Arc of Collaboration - on why productivity and collaboration are one-in-the-same, and why none of the “productivity” or “collaboration” tools available today simultaneously serves both needs well. Worth reading just to see how Kwok thinks.
🧘🏻♂️ In Wellness for the Well-to-Do, Laura Entis of Outside describes the rise of physical-wellness centers aiming to tackle our anxiety, overwhelm, and loneliness, for an elevated price.
🎰 When you visit an ecommerce site, you’re exposed to a series of mechanisms designed to capture and keep your attention and get you to buy. In These are the shady tricks shopping sites use to get your money and info, QZ writers Amanda Shendruk and Marc Bain take you through an interactive journey to explain what’s going on.
💵 When Puja asked which Invest Like the Best episode she should start with, I had to share my all-time favorite: the 2018 interview with Ali Hamed. This week, Hamed wrote a great piece on What the Investors of 2040 Will Wish They Had Been Doing in 2019. TL;DR: creating a bond market for unicorns.
This week, I will be finalizing the venue for Debate Club and putting together a list of topics. If you want to get involved, sign up here!
Slack Book Club has crossed the 10 signup threshold, so I will put together the Slack group and send out a poll to choose the first book. We will start in a week or so, so you can still join by filling this out.
Wednesday is Puja’s birthday (!!!) - shower her with Happy Birthdays!
I’ll also be continuing to read, write, and work from a new place every day this week, so send me your favorite hidden places!
As always, if you’re enjoying Per My Last E-mail, please share it with your friends and co-workers :)
Thanks for reading,