A recession now will make their already signed real estate too expensive, and that will happen when people dial back in discretionary expenses.

They may be able to re-negotiate their contracts. It might be much more desirable to let your tenant get cheaper price than go bankrupt. It might be more profitable to cut a deal concerning prevoiusly lent space if your tenant is willing to expand the lending when no-one else wants to rent.

You know what they say? If you owe your landlord 1 month of rent for one room, you have a problem but if you owe your landlord 10 years of rent for 1000 buildings, your landlord has a problem.

Man, this was covered, in-depth, in the article. Not only the recession case but the fact that WeWork will likely just default on a lot of leases in the worst case scenario as the lease is signed by a independent corporation that has no assets for the landlord to seize. In addition, of course landlords would re-negotiate with WeWork, better to have some money than none.

Except, as noted above, real estate leases usually don't get renegotiated. I don't know if it's because of the long time frames or exactly why, but landlords frequently would rather leave a building empty than not get their rates.

It’s because there are huge tax incentives for “under preforming” real estate investors. It’s honestly maddening. You literally get to deduct everything short of your desired “market” rent (even if the market can’t bear it, you just need a team of appraisers on your side) and you can even include upgrades and entrepreneurial risk as a deduction.

https://www.nreionline.com/finance-investment/struggling-vac...

Yep, that's why I'm trying to dig deeper in this as the HN doesn't seem to be convinced or didn't read the article :)

Color me not convinced. They have a lot of leases. It’s top of market and they’re still subsidizing their customers. Won’t actually have leverage against a host of major real estate debtors. Nor will it be easy for them to sign newer leases again when that recession ends. And “we’ll just default” is a terrible story to tell during the road show.

Yeah, same. Companies like Uber have a massive power and information advantage negotiating with their contractors (who have taken on a lot of Uber's financial risk). But commercial landlords are a whole different deal. They have seen it all, are experienced in weathering the vagaries of the market over long time scales, and are really not interested in being a sucker.

I also suspect WeWork doing deals with larger companies is not going to help them much in a downturn, because they are likely to be savvy players as well. If WeWork is threatening to default on a space, I'm sure there will be corporate office teams from stable industries saying, "Oh, we'll take that nicely built out space, thanks."

Landlords have unusually long timelines. They might be willing to let the tenant go bankrupt, ride out a 2-year recession, and wait for a tenant who can sign a 10 year lease at higher rates.

Landlords leave spaces empty all the time. Or they'll even bulldoze a building, get a tax cut, and lease the space to a parking lot operator rather than take the easy way out and lease their space at low rates.

Not if we undergo an inflationary period. And all signs point to the Federal Reserve printing more money.

I don't feel bad about my loans either. I think banks are going to get screwed with a low value USD.

The problem is that they are heavily leveraged at current prices.

Like if WeWork had a great business model after a massive recession, so would a competitor that didn't have an awful legacy portfolio to deal with.

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.

EDIT: Grammar.

Not if you're already locked into contracts at drastically higher prices. This seems like a startup that would actually be better to do in a recession instead of on the precipice of one

Yeah I was thinking the same. A recession could allow them to lock up really nice deals at cheap rates for a longer term and if they could then ride out the recession into the recovery the spread on the rates they could charge in recovery could be relatively good for them.

A recession would be the best time to build out capacity because they could snap up long-term leases and maybe even building equity on the cheap, but they've been building now that the market is frothy and getting into long-term leases at possibly the worst time...

They’ve signed long term leases. Most of their customers can cancel on a months notice. So they will have shrinking revenue but fixed costs.

You’re right that it might reduce the cost of growth ...

This is addressed in the article. There are a lot of reasons to believe that in such circumstances WeWork would be able to renegotiate its leases to lower costs.