00:00You took over WeWork, coming out of bankruptcy June 2024, so we're nearing your two-year anniversary.
00:06What is actually different about this company today?
00:10Well, good morning, Danny, and good morning, Matt.
00:12Where are we today?
00:14So we're financially stable.
00:16We're structurally and operationally sound.
00:20We've had five consecutive quarters of EBITDA profitability, and we continue to grow.
00:26If I give you a little bit more, so we have 47 of Fortune 100 in our spaces around the
00:33world.
00:33We have 47 of Fortune 100 in our spaces around the world.
00:42We have 45 million square feet, and we're in 30 countries, 30-plus countries.
00:48Are those square footage numbers only spaces that you own?
00:54Because I know you made kind of a strategic shift.
00:58Previously, you owned the real estate, and then you took in tenants.
01:02Now you'll manage real estate portfolios for landlords and essentially do the admin for them.
01:11Yeah, so let me correct you a little bit there, Matt.
01:15Those are the spaces that we leased.
01:18We have a number of them where we are managing those spaces, but the majority of it is leased by
01:25WeWork directly.
01:27Sorry, leased, exactly.
01:28But isn't that part of the shift that you're now essentially managing properties more than just leasing them yourselves and
01:39then getting tenants for other landlords?
01:43No, that is a small piece of our business today.
01:46It's an opportunity to grow.
01:47But today, the biggest part of our business is our properties that we lease, and then we have our members
01:54occupy them.
01:55And that occupancy today is in the low 80% across the world.
02:00And in key markets like New York, we're above 90%.
02:05Toronto as well, we're above 90%.
02:08And San Francisco is getting there very quickly.
02:10I guess, so the message I got, John, was that you were aiming towards a more asset-light business structure.
02:19Is that not part of the plan?
02:22So some people have talked about that, and we've looked at it, and it's a balance, right?
02:28The asset-light, the pure management play is not nearly as profitable as it is when you take some risk
02:37and you take down the leases.
02:39Now, there's a bit of a hybrid where our lease structure is we have a low lease price, and then
02:48we share the upside with our landlords.
02:50So that's kind of a hybrid model.
02:53But the pure managed space is not nearly as profitable as the other two models.
03:00John, then how do you solve what has been pointed out as sort of the core issue, this idea of
03:07you have long-term lease liabilities against short-term tenants?
03:10How do you solve that fundamental mismatch?
03:14So the problem is a balance.
03:17So first of all, our portfolio is now taken down to the places we want to be, the key buildings
03:23around the world, the key cities, the key markets.
03:28We've invested in that portfolio.
03:30And then we have a balance of some of our tenants are in our spaces they've committed to three years,
03:35some have committed to five years, some are six months to one year.
03:39So that balances out our portfolio.
03:42And there's been a structural shift in how people occupy real estate from where it used to be.
03:49If we roll back, and I've spent 47 years with Cushman and Wakefield prior to this, so I'm grounded in
03:55real estate.
03:55So if we roll back 10 years ago, 15 years ago, companies owned their headquarters, right?
04:02They committed huge capital dollars into owning their headquarters, and everything else they had was a 10-year lease with
04:08a lot of capital.
04:09Today, smart companies are balancing out that risk.
04:13So they may own or likely lease their headquarters with a big long-term commitment.
04:17They'll do some midterm leases, and then 20% to 25% of their portfolio is beginning to move into
04:26flex.
04:26So they can adjust to the downturns in the business cycles.
04:30I mean, if you look at a 10- or 15-year lease, think about just the last 15 years,
04:36the cycles we hit, the business cycles we hit and the downturns that happen.
04:42So you have the 2001 technology crash.
04:45You have the financial crisis in 2008.
04:47And then you have COVID.
04:49In each of those times, if you're stuck in long-term leases, you're taking the write-down, the financial hits
04:55to your books.
04:55You've got to try to sublease those spaces.
04:58Now, if you have a piece of your portfolio in flex, you can flex out of that in those downtimes.
05:05Now, that's a little more difficult for us, but we'll manage through it.
05:09John, we've been talking a lot about this Allbirds announcement today.
05:13I'm not sure if you've seen it, but that's the shoemaker.
05:15They do, like, business casual shoes and have decided to not do that business anymore.
05:21They're selling their shoemaking assets, and they're going to do, like, AI data centers.
05:27Sounds insane.
05:28The stock is up, like, 300%.
05:29I was thinking about that when I was looking at your company.
05:33And, obviously, you've got a lot of space around the world.
05:37There's a case to be made that, you know, we need more edge data centers, metro edge data centers, you
05:44know, micro edge data centers.
05:47And I imagine you already house some kind of servers for a lot of your tenants.
05:52Like, have you thought about how you could pivot a little bit more towards AI?
05:58No, actually, Matt, we have not.
06:00So, from an AI perspective, we have 220, 230 AI companies in our spaces around the world.
06:06We have the largest companies.
06:07The companies you talk about each and every day are in our spaces as well.
06:11So, from the one person to the largest in the world.
06:15The data center aspect, you know, they say stick to your knitting.
06:19We're sticking to real estate.
06:21We're sticking to the flexible real estate model.
06:23We're looking at some new innovations, different ways of creating space.
06:27Our space is being upgraded around the world.
06:32And yesterday, we launched office pods.
06:35So, little office pods or high-end phone booth type things that will be in convention centers and airports around
06:46the world.
06:46We all travel.
06:47We know you look at people sitting on the floor trying to find a plug, trying to find an outlet,
06:52trying to find a quiet place to have a call.
06:54So, we're rolling them out throughout airports and convention centers.
06:58And down the block at Semaphore, there's a line of people waiting to get into them.
07:02I would pitch Nat Podge.
07:04I was literally just about to say that.
07:06If you could allow us to sleep in there.
07:08But maybe you don't want people spending so long in this.
07:12John, I know you're also expanding where Matt and I are here in New York City.
07:16What's underpinning that?
07:18What type of customer are you getting that means that you have enough demand to expand in New York?
07:24So, our space in New York is over 90% occupied.
07:28So, when you hit that point, we don't have the flexibility today.
07:33We're opening up some new office to be able to meet it.
07:36But if a client comes to us and says, I need 10,000 square feet, I need a full floor,
07:40we don't have that availability.
07:43So, that's where the discipline came in over the last year and a half, almost two years,
07:49is to not get out ahead of yourself where you have all this vacant space.
07:53So, now we're taking space down directly.
07:56We're taking some additional space where we need it in great locations.
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