WeWork’s business model has been called into question for its small margins and high long-term lease debt. WeWork should consider a page from McDonald’s book when it comes to growing revenue while maintaining your core business.
WeWork could do this right now using advanced blockchain technology solutions to improve their projections and show a more sustainable path forward for SoftBank and other potential investors.
For those that are not familiar with the success behind McDonald’s, we can summarize that McDonald’s isn’t just a fast-food franchise it’s a genius commercial real estate company. Case in point:
- In 2016, about 85% of the company in 2016 was represented by franchisee-run locations
- Average rent per store amounts to about 22% of average gross profits
- McDonald’s makes much of its revenue by buying the physical properties and then leasing them to franchisees
- McDonalds commercial real estate holdings are estimated above $30 billion
The WeWork of Tomorrow
If WeWork stopped the practice of signing long-term leases and paying rent to other landlords, the company would substantially reduce its debt. If these same leases allowed WeWork to eventually become the owner of the buildings it works from, in a few years the mortgage will be paid off but also the building’s appreciation will start to kick in. This generates a new source of profits for the company while reducing their long-term liabilities.
If WeWork gains dual profits from short-term leases and long property appreciation, it will be able to further reduce rent costs and gain a significant advantage over other co-working companies that don’t have access to the same solutions.
How Can WeWork Support Buying Properties?
WeWork could utilize advanced technology solutions powered by the blockchain to solve acquisition needs without expanding too much capital. One of the most well documented and acclaimed blockchain solutions that can help WeWork is Jointer.io, a real estate syndication and investment platform based in Silicon Valley and Tel Aviv.
David Weild IV, the former Vice Chairman of Nasdaq, has exclaimed: “Jointer’s new tokenization approach presents a better solution that has the potential to disrupt the real estate industry.” Recently, Jointer won the Disruptive Startup Award at Stanford University in 2019 by a panel of Google, SoftBank, Bain Capital, Thomson Reuters, Stanford Angels, BMW, Andreessen, NEA, and other top VC Funds.
How Can Jointer Help WeWork?
Jointer presents a new blockchain-based hybrid syndication model that gives commercial real estate investors a high return with the low-risk profile of a REIT, as well as property owners with a VC solution.
This means if WeWork wants to buy a building and is required by the lender to provide a down payment for the equity, Jointer.io can step in as the LP and contribute up to 95% of the cost but still keep WeWork with a 50% ownership position. So, in other words, with the same purchasing power for a single building, WeWork can scale and buy 10-20 buildings.
Collaboration between WeWork and new companies such as Jointer.io could substantially improve WeWork’s business model. Such collaboration could help WeWork increase margins and reduce the company’s reliance on long-term lease debt.
WeWork needs to take a page from McDonald’s book and partner with disruptive startups to grow its revenue while maintaining its core business. WeWork should take advantage of that solution before other competitors do.