There are key aspects of the business models of Marriott and Hilton that WeWork, to its peril, has not adopted, writes jbarro
Photo: Scott Olson/Getty Images One of the many problems at WeWork is that it doesn’t really own much of value. It’s a real-estate company with no real estate. The company has extensive lease obligations to the landlords who actually own the buildings where it operates; its main offsetting asset is future revenue from WeWork members, but the size of that “asset” is highly speculative and not enough to make the company profitable in the present.
Most prominently, major hotel companies like Marriott and Hilton have mostly stopped owning real estate, and they have sustainable, high-margin businesses. But there are key aspects of their business model that WeWork, to its peril, has not adopted. That sort of mismatch would be a huge problem for hotel companies if they were structured like WeWork. If hotel chains avoided ownership of real estate by signing master lease agreements for entire hotel buildings and then subleasing them to guests by the room, they’d often go bankrupt in recessions. But that’s not how hotel chains work.
So why isn’t WeWork structured this way? Maybe it could and should be. But maybe it isn’t because the office-building owners wouldn’t find the proposition the least bit attractive. After all, a landlord can just lease raw office space to traditional tenants. A WeWork franchise model would impose three major additional expenses for the landlord: A slick interior build-out, significant operating costs, and a franchise fee.
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