Yes, it's not completely clear whether they'll have the political stomach to actually go through with letting the leases lapse at the end of their life.
It would probably have been better to use Land Value Taxes instead of relying on limited leases.
Not necessarily true I don't think. It's possible they will freak out over the upcoming years. There's a lot riding on commercial real estate. It isn't easy to convert to living space either.
If they have a lot of capital available, maybe. But the likely scenario (my opinion): they're stuck with big multi-year leases to property owners, most of their existing customers do not renew their short-term leases because of the economy, and WeWork's existing cash reserves can't come close to covering the short fall until the market picks up.
Think the fact that the leases are coming due over the next few years rather than all at once will prevent a bailout? Might just be a slow decline like old factories in Chicago that sat vacant for a while and then got snapped up for commercial space since they were so cheap.
Especially since they may be poised to significantly reduce their costs with renegotiating leases while the commercial real estate market is in tatters.
If I'm following your
Hypothesis right, you're suggesting that maybe they will artificially deflate the cost of a lease to move them, and then pay the price when they get them back because they're worth less than estimated at start of lease?
Someone mentioned in this thread that a likely scenario is these landlords switching to mid- or long-term rentals instead of selling. Which sounds very plausible to me, especially in a city like NYC, where the rental market is always hot.
If they raised the rent successfully on 2/3rds of the units to just over 3/2’s of its old value, then it seems like they could afford to keep 1/3 of units vacant and available for new tenants who are willing to pay that higher rent. (They’re no worse off on a cashflow basis and they have vacant inventory that represents possible upside.)
It seems like that would only be viable if supply remains constrained. If they kept building for new hires plus a spare percentage, then holding tons of empty un-rentable properties seems like a bad return. It is a complicated question for sure.
Then they are doomed. Their current tenants can’t afford the current rent, and no new tenants are going to come along at that rent level while this crisis is still ongoing, so what are they going to do?
If the current tenants can be viable if rents are reduced, along with other cost saving measures, then maybe that’s a least worst outcome for society and the landlords.
Ultimately though, to me, the actual business leasing the property, employing people and providing service to customers is doing more for society and the real economy than a heavily leveraged management company. Those retail businesses don’t deserve to exist on any terms, but if they do have value, then I think they’re worth giving a second chance.
Yeah I might be off on my comment thinking from the perspective of how sometimes they’ll jack rent up to flip tenants to bigger businesses with bigger wallets. Like if a few tenants don’t renew on a 15 story bldg then jack the rates up to get the rest out and hope for a larger company to lease the full building since they won’t want to build in this economy.
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