WeWork’s Gamble On Growth

Even for a startup, the gap between expectations and reality is enormous at WeWork. The company has emerged as an early leader in renting out co-working spaces, and for this investors have lined up to buy in at a valuation of $10 billion, making it one of the world’s most valuable venture-backed private companies.

But an analysis of its financial projections, contained in an investor presentation from late last year obtained by The Information, shows that WeWork is forecasting big growth in profits and members even as it is pushing off significant expenses into future years. That could make its profit projections tough to meet.

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WeWork’s leasing practices have evolved since its beginnings. Its first lease, in New York’s SoHo district, was 5 years with a 5-year option to extend. Rent was low–about $37 a square foot, compared with $45 per square foot average projected this year. But it apparently did not obtain some of the same concessions such as free rent that future locations did, and has below-average profitability, according to investor slides. Last year, WeWork did not exercise its option on the location in time, causing its landlord to declare a default and seek a $500,000 penalty; the matter is now the subject of a lawsuit. WeWork has stated in court filings that the default proceedings could result in its eviction from its original flagship location.

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WeWork launched in 2010 and has grown quickly, to 20 locations last year and 50 now, mostly in the U.S., although there are some in Britain, Israel and the Netherlands