STACEY VANEK SMITH, HOST:
The office - it's boring. It's beige. It is full of drones in suits who are just counting down the days until retirement. And then came WeWork. WeWork was not boring or beige. It was this whole new way to see work and to see the office. The spaces were cool, had art books and indie music and neon lights and lounge-y (ph) couches and open kitchen areas where people could congregate and drink free cold brew coffee and draft beer. It was young and social and full of freelancers and entrepreneurs and tiny startups that were, you know, going to change the world.
CARDIFF GARCIA, HOST:
And personally, my biggest nightmare, but it is true that the concept took off. WeWork rented out office space in cities all over the world and even became the biggest tenant in New York, Washington, D.C., and London. Earlier this year, the company was estimated to be worth $47 billion, and a lot of competitors cropped up, but WeWork was the 500-pound gorilla. Its name was synonymous with coworking.
VANEK SMITH: And then people took a closer look at WeWork's books. The company had a staggering amount of debt, and the management was making all these weird decisions and investments, like sinking tens of millions of dollars of WeWork's money into a medical marijuana company, a WeWork school, a superfood company that makes mushroom coffee and turmeric creamer.
GARCIA: Yeah, and investors freaked out. The company's estimated value was slashed from $47 billion to $8 billion. That's, like, 80% of the company's net worth that just went up in smoke. SoftBank, which has bankrolled a lot of WeWork's growth, took control of the spiraling company, and - no surprise - WeWork's CEO got pushed out.
VANEK SMITH: Surprise. He got more than $1.5 billion on his way out.
GARCIA: A nice gig if you can get it, you know?
VANEK SMITH: (Laughter) Yeah.
GARCIA: Other executives have also been ousted. Thousands of WeWork employees are being laid off. The company is now fighting for its life, and WeWorkers are already seeing some changes.
UNIDENTIFIED PERSON #1: There's notices about, of course, certain staff being unavailable, and they're really vamping up.
UNIDENTIFIED PERSON #2: I don't see how they could not make changes, but we're riding it out as long as we can, yeah.
UNIDENTIFIED PERSON #3: I'm deeply concerned about the future of our office, and I would hope that we're able to continue working here.
UNIDENTIFIED PERSON #4: I think I've noticed less fruit in the water recently.
GARCIA: This is THE INDICATOR FROM PLANET MONEY. I'm Cardiff Garcia.
VANEK SMITH: And I'm Stacey Vanek Smith. Today on the show, WeWork goes down - a look at what happened and also what WeWork's struggles will mean for the whole business of coworking itself.
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VANEK SMITH: WeWork conjures up these images of young entrepreneurs on laptops in beanbag chairs, like, wearing noise-canceling headphones, doing big deals and then, you know, putting down their laptop to join the 5 p.m. tequila tasting and resume-building workshop.
GARCIA: Yeah. It's, like, hip, new and over, according to Amol Sarva.
VANEK SMITH: So explain this to me because...
AMOL SARVA: I think coworking is over.
VANEK SMITH: I feel like I was...
SARVA: And we're going to remember...
VANEK SMITH: Like, I didn't even think it happened yet.
SARVA: We will remember the days of coworking, but we will remember them as a thing from the past.
VANEK SMITH: Amol is the CEO of a company called Knotel, which, he would like to stress, is not in the coworking business.
SARVA: We're a flexible workspace platform. It's...
VANEK SMITH: (Laughter).
SARVA: ...In the general category of office.
VANEK SMITH: Basically, Knotel does compete with WeWork.
GARCIA: Yeah, though Amol does say that they have different specialties. WeWork mostly creates these big, hip spaces that fill up with freelancers and small businesses. Knotel pretty much only works with big companies. It will rent office space to them and then set up the office according to what that particular big company wants. Knotel, by the way, is currently valued at more than a billion dollars.
VANEK SMITH: And it will probably benefit from WeWork's implosion, though Amol says probably not from the freelancers and small startups part of that business. In fact, he thinks that part is on its way out.
SARVA: The kings of coworking are done, and the mythology of coworking - that work is a party, that everybody is a freelancer, that nobody works that companies - like, that whole mythology - I think it's just going to dissipate with the story of that company.
GARCIA: Because, Amol says, most people are not entrepreneurs or freelancers or working for tiny startups. Most of us just work for big, boring companies.
SARVA: A number that has been increasing for decades because of technology, globalization. The biggest companies are getting bigger, and so as much as you sort of feel that there is this bubbling economy of small enterprises, they will either get big or go away. And so most people work in big companies, which means the office business is a business about big companies.
VANEK SMITH: WeWork, though, focused primarily on freelancers and startups. In the last couple of years, WeWork did start to target bigger companies like Microsoft and Facebook. Around a third of WeWork's tenants are big companies, but the lion's share of its tenants are still individuals and small businesses, and WeWork itself admitted in its own financial documents that these tenants were likely to be, quote, "disproportionately affected by adverse economic conditions."
GARCIA: Yeah. Big companies, on the other hand, tend to make for more stable tenants, and also, they just have more money. And that more money part is especially important, says Amol, because the amount of money you need to spiff up an office space is actually kind of crazy.
SARVA: When you take a perfectly good office and you slice it into a million little boxes, that is so much more expensive than anyone could possibly imagine. Like, you have to be a little bit of a real estate person to understand. To build a building in New York costs, like, between 500 and $1000 per square foot.
VANEK SMITH: Wow.
SARVA: To take a normal building and turn it into a WeWork costs another $300 per square foot. It's as if you're building a building again when you convert an office into a...
VANEK SMITH: Really? So if you're, like, leasing a space, to fill it out with all the stuff - the chairs and the desks and the cubicles - it's $300 per square foot.
SARVA: Colossally expensive, yeah.
VANEK SMITH: That is colossally expensive.
GARCIA: So WeWork has these crazy costs, and it's expanding like crazy, which compounds those crazy costs. WeWork spent nearly two and a half billion dollars last year on leases, renovations and other expenses, and it had expected to spend $4 billion this year.
VANEK SMITH: Had expected. SoftBank is reportedly hitting the pause button on a lot of WeWork spending, laying off staff. And there's just a lot of speculation that it will have to start closing locations.
Do you think, like, coworking will get more expensive?
SARVA: Yeah, coworking will get more expensive. There are a lot of places that - they were giving free everything, 100% off kind of discounts. All that will go away. I mean, they have to increase price. They need to make money. To survive, they have to make money, and that involves raising price.
VANEK SMITH: A WeWork space here in New York costs around $500 a month, and that is just for access to the lounge-y common room area. If you want an actual office, it's more like a thousand dollars a month.
GARCIA: This could be where WeWork's focus on freelancers and tiny startups is going to sting. A lot of those workers are extremely price-sensitive, and they have much cheaper options. Like, they could work from a Starbucks or their living room, really. And if those customers react to WeWork's higher prices by choosing one of those alternative options, WeWork could end up struggling even more.
VANEK SMITH: And with it, the whole premise of the WeWork economy - of this whole new idea, this new dream of what working meant.
SARVA: The coworking people, they wanted you to believe that office wouldn't be office anymore, that office was a party, that work...
VANEK SMITH: Yeah.
SARVA: ...Would be, like, a delight. Thank God it's Monday - that was one of their other taglines. I mean...
VANEK SMITH: Really? That's actually very - that's adorable.
SARVA: The promise of WeWork was super vibe-y (ph). Like, there were all these, like, really hip and cool things...
VANEK SMITH: Do what you love.
SARVA: Yeah. You totally want it to be true.
VANEK SMITH: Work is cool.
SARVA: I would love that to be true.
VANEK SMITH: Me too.
Turns out work is not cool, and people probably are not going to get excited about Mondays.
GARCIA: I mean, we get excited about Mondays here.
VANEK SMITH: Sure. Have you been drinking the mushroom coffee again, Cardiff?
GARCIA: I've been taking THE INDICATOR Kool-Aid is what I've been drinking. But look. We can't count out WeWork just yet, tempting though it is. The company's still estimated to be worth about $8 billion. It has hundreds of thousands of tenants, lots of income. And some of the people we talked to outside of a WeWork here in New York really do seem to like it.
UNIDENTIFIED PERSON #5: I love it. It looks cool - cool people, lots of mixing around with networking and stuff.
UNIDENTIFIED PERSON #6: The benefits are really great. They have, like, free events.
UNIDENTIFIED PERSON #7: There's a free keg tap, which is great - you know, free beer.
UNIDENTIFIED PERSON #8: It feels like you're a part of something other than a stale office space, so it communicates a kind of lifestyle aesthetic.
VANEK SMITH: Today's episode of THE INDICATOR was produced by Darius Rafieyan. Our intern is Nadia Lewis. Our editor is Paddy Hirsch, and THE INDICATOR is a production of NPR.
By the way, if you want to learn more about SoftBank, the company that now owns WeWork, you should check out a Planet Money episode that aired a couple of weeks ago called The Unicorn Cowboy. It explains that whole relationship, and it's a totally fascinating piece.
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