Incentives Matter: A WeWork Update

Incentives Matter: A WeWork Update

Our readers will know that we have been covering the WeWork story for a number of years now and that we have been sceptical, at least to the extent that WeWork’s business model was a poor bargain for landlords and likely obscured a reduction in net absorption in central London that would have otherwise led to greater rental declines than we saw. So, the company’s tribulations over the past few months came as no great surprise to us. We have, however, lived in England long enough so that you won’t see us standing next to a huge “Mission Accomplished” banner. But if we were being slightly truer to our country of origin, the shameless victory lap would go right here.

There was certainly one thing that came as a surprise. We did not expect the “how” and “why” to it all falling apart to have been so self-inflicted. Some journalists have used the term “Death by S-1” – hurrah, the public markets work! WeWork’s senior management and founders have been exposed for the jumble of conflicts of interest, self-dealing, lack of effective oversight and potential cases of fraud that plagued the company. And while these conflicts and mismanagement alone probably didn’t bring the company down, they did bring to the fore a discussion on WeWork that highlighted some real risks, such as nearly $50 billion in future lease obligations, negative EBITDA and stalling growth.