The new normal of capital cost reimagines whole industries: the WeWork case

Many people still do not understand why WeWork is priced at where it is: about USD 20 billion and still growing, especially after it has been supported on a grand scale by the Masayoshi Son’s Vision Fund.

Here is a short explanatory note, following news in FT of developers entering in profit-partifipating agreements with the community-building startup. WeWork gets share in lucrative and big housing development projects and use it to build its presense, yet in doing so, it spruces up the creative energy around.

One of the reason that investors tend to follow the logic of WeWork is due to how artfully it was enable to demonstrate its ability to brighten up the gloom of long-term rent: inviting and building momentum from startups, big corporates started relocating their marketing, IT, business development functions closer to carefully curated startup communities. For real-estate developers, having someone like WeWork nearby increases the odds of better utilisation of space — as well as increases the value of the real-estate as it becomes managed.

This is just another another example of cost of capital reinventing the laws of established industries: long term rent to short term lease, subrenting and site management. WeWork is not about coworking spaces, it is about massive real-estate laws being rebuilt.

The cost curve of capital and opportunity curve through technology and connectivity gives the world several new examples like Uber or Tesla (mesh network of AI driven logistic agents), changing the unit economics game of how distributed ownership and accounting for this fractionalised ownership during a span of time can change the profitability and provide better value for both purveyors and consumers.

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