WeWork apparently just raised another $400M today to buy up some of the properties they are in right now, which will fundamentally lever up their balance sheet several x times…guess after all, revenue $/sq ft is a key factor after all similar to “same-store sales growth” for US retail companies. Same store sales is an important metric to be aware of if you are looking at the retail #’s given it takes factors such as the stabilization of assets/retail square footage, branding maturity and stripes away ‘financing engineering’.
Financial engineering in that publicly traded companies can open 100 stores to show positive top-line revenue growth to mask their declining ‘same-store sales’ #’s. Top-level revenue is growing but revenue growth efficiency is deteriorating. Same for revenue $/sq ft.Also that’s why the few small plaza landlords I know are begging Starbucks to build their coffee shop in their plaza. Starbucks has one of the highest revenue $/sq ft, besides Apple retail store. Starbucks usually do 10-15 year lease (minimizes duration/future revenue risks but on the flip side, limits upside in rent adjustments) and you usually have to pay to make decent cosmetic changes to their liking…on your own dime.
(if you look at WeWork’s revenue $ per sq foot, it’s way off the chart for pretty much all types of commercial building, excluding warehouse or public storage. But one might to wonder if there is a saturation of coworking spaces around the world. Just WeWork alone has 5 sizable office locations in Austin…As unsexy as public storage is as a real estate, it is a relatively high margin and low revenue risks business in comparison to other commercial RE that is. More stability/inflation hedge play than appreciation and cash flow play).
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- Covenant Lite – Per David Rubenstein of The Carlyle Group (by the way, their investment in the Supreme super brand is awesome) speech on 3/12/2018, now is no better time to raise capital as investors (both public and private investors) will seek covenant-lite and/or relatively high risks in return for relatively lower yield. *cough* minimal downside risks oversight and and management or like they say, focus on the downside and the upside will pretty much take care of itself.
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- Funny point: Argentina just raised a few billion $ a few months ago on their infamous 100-year/centurion bond at ~5% (just a few hundred basis points above 30-year US Treasuries). It was as if duration risks (let’s ignore default risks) is nowhere to be seen. BUT the best part…the country had to default on their government debt 5 times in the past few decades. 5% with a decent probability of default…per Mark Twain, “history does not repeat itself, but it does often rhythm”.
- Capital Scarcity – Trend is pretty clear in the 2nd picture, great, generational-defining companies are built when capital or I should say access to capital is sparse; Airbnb, Docusign, Dropbox, Uber, Pinterest, SurveyMoney, MongoDB, VICE, Stripe, and WeWork (great capital acquisition/spending efficiency, in some parts due to human spending psychology about money).
- Capital Deployment Mandate – The probability of inefficient deployment of venture capital increases exponentially, not linearly, when access to capital is easy. P.S. I am sure someone will and should raise capital fund and/or deploy venture capital $ with the mandate of investing at the shittiest macro times, which if you are looking from the Limited Partners (LP) or General Partners (GP) perspective, allows you to have optionalities and more negotiation levers to pull.
Intersection notepad 