The New York Times International - 30.08.2019

6 | FRIDAY, AUGUST 30, 2019 THE NEW YORK TIMES INTERNATIONAL EDITION

business

There’s a lot that the world’s hottest real
estate company isn’t telling us as it pre-
pares for its stock market debut.
When WeWork released the paper-
work this month for its initial public of-
fering, investors finally had a chance to
see how the company might be perform-
ing.
WeWork is spending billions of dollars
upfront to build out its empire of co-
working spaces, so it was no surprise
that the filing showed both strong
growth and big losses. But the document
lacked certain insights into its opera-
tions, like the numbers needed to evalu-
ate how its specific locations are per-
forming.
By not disclosing certain information,
WeWork is taking something of a risk.
To succeed in public markets, compa-
nies need to provide enough detail to
make investors feel informed. As a re-
sult, the omission of potentially crucial
data may weigh on WeWork’s efforts to
pitch its I.P.O. The company is hoping to
raise $3 billion to $4 billion in the offer-
ing, and is planning for it to take place in
mid- or late September, according to a
person briefed on the deal.
Jamie Hodari, chief executive of In-
dustrious, a privately owned rival to We-
Work, said the I.P.O. filing did a good job
of describing WeWork’s strategy and
provided relatively thorough parent-
level financial numbers. “But it doesn’t
quite have the requisite information for
a reader to understand how the business
is actually doing on the ground,” he said.
And investors may have concerns be-
yond disclosure. Critics have taken aim
at WeWork’s corporate governance.
Adam Neumann, the chief executive,
has majority voting power, according to
the I.P.O. filing, and his wife, Rebekah
Neumann, would have considerable in-
fluence over the choice of a new chief
should he die or become permanently
disabled.
Jimmy Asci, a WeWork spokesman,
declined to comment, citing a quiet peri-
od ahead of the I.P.O.

HOW WEWORK WORKS
WeWork takes leases on commercial
real estate and converts it into Insta-
gram-friendly spaces that it rents to
businesses and individuals. The ap-
proach has proved popular, in large part
because it offers shorter renting periods
than traditional office leases.
In the United States, flexible office
space makes up just under 2 percent of
leased office space, according to CBRE,
a company that provides commercial
real estate services. But CBRE analysts
estimate that flexible space could ac-
count for 10 percent of leased space in
top office buildings nationally by 2028.
With the backing of billions of dollars
from SoftBank’s Vision Fund, WeWork
is spending huge sums in the hope that
such demand materializes and that it
will dominate the market. Its growth
has made it the largest private tenant in

Manhattan office space, according to

data from Cushman & Wakefield, a real

estate services company.

WHAT COULD GO WRONG

WeWork could find itself in a financial

squeeze if it can’t find enough customers

to fill its spaces. First, it has to make

back the enormous amounts it spends

on sprucing up the spaces it leases from

landlords. In the first six months of this

year, WeWork had revenue of $1.54 bil-

lion but an operating loss of $1.37 billion,

twice the loss in the comparable period

in 2018.

Fitch Ratings slashed WeWork’s cred-

it rating this month in part because

higher expenses may postpone the com-

pany’s transition to producing cash

rather than consuming it.

Perhaps the biggest danger hanging

over WeWork is the big difference be-

tween the average length of the leases it

enters into (roughly 15 years in the

United States) and the time its

customers typically agree to use the

space (less than two years). The mis-

match may not matter in good times, but

in a recession a significant number of

customers could leave when their

agreements expire, depriving WeWork

of revenue it may need for its lease pay-

ments.

WHY LOCATION DATA IS CRUCIAL

Confronted with WeWork’s fast growth,

big losses and huge demand for capital,

investors may want a stronger sense of

how its locations are doing, in particular

its older ones. These spaces should be

the best performing because they have

had time to fill up, optimize their opera-

tions and cover their costs.

A publicly traded rival, International

Workplace Group, which has operations

around the world, discloses how much

its more established locations are mak-

ing after subtracting costs specific to the

location. It also breaks out figures for

newer locations, as well as locations in

different regions of the world. WeWork

discloses location-level profit only in ag-

gregate.

WHAT ELSE IS MISSING

One criticism of co-working spaces is

that they can be overcrowded. Putting

more people in a space is one way that

flexible-space companies can try to bol-

ster their profits.

But clients may tire of long waits for

the elevator and other inconveniences

and choose traditional leases.

Investors could assess whether over-

crowding might be an issue at WeWork

if the company disclosed an average

number of occupants per square foot,

but such a metric is not in its I.P.O. docu-

ment.

And while WeWork provides dis-

counts to some customers, there is no

detail on the extent of the practice. Of-

fering sweet terms to large customers

could increase occupancy, but the dis-

counts could erode profit margins.

HOW ANOTHER MODEL MIGHT WORK

Taking a huge number of leases on com-

mercial office space is not the only mod-

el for flexible-space operators like We-

Work. The other way is to form partner-

ships with landlords, who would bear a

significant share of the build-out costs

while the flexible-space operator re-

ceived a fee for running the space.

While such arrangements give far

less revenue to the flexible-space com-

pany, they don’t load the company with

big lease obligations that can become

overwhelming in a downturn. Accord-

ing to its I.P.O. filing, WeWork appears

to be open to this partnership model, but

the filing doesn’t say whether the com-

pany has any locations operating this

way.

Office pioneer may share too little

A WeWork co-working space in New York. The company’s filing for its initial public offering, expected in September, showed both strong growth and big losses.

COLE WILSON FOR THE NEW YORK TIMES

As WeWork gets ready

for an I.P.O., its filings lack

some important insights

BY PETER EAVIS

Adam Neumann, left, and Miguel McKelvey, co-founders of WeWork.

PETER PRATO FOR THE NEW YORK TIMES COLE WILSON FOR THE NEW YORK TIMES

ting rates more quickly, saying the cen-

tral bank is putting the United States at

a disadvantage to other nations that are

ushering in low rates.

“Our Federal Reserve cannot ‘men-

tally’ keep up with the competition —

other countries,” Mr. Trump said in a

message on Twitter on Wednesday. “At

the G-7 in France, all of the other Lead-

ers were giddy about how low their In-

terest Costs have gone. Germany is ac-

tually ‘getting paid’ to borrow money -

ZERO INTEREST PLUS! No Clue Fed!”

Just as central bankers spent the

weekend at their Jackson Hole sympo-

sium discussing how countries’ econo-

mies have become closely tied, Mr.

Trump announced on Twitter that he

would put additional tariffs on China

and would look for ways to stop domes-

tic businesses from operating there.

He is still contemplating tariffs that

would harm German carmakers, and

earlier this year, Mr. Trump threatened

tariffs on Mexico as a way to pressure

the country to stop the flow of migrants

across the southern border.

Mr. Trump’s next steps are clearly on

the mind of the authorities in Australia.

“Australia has been a major beneficia-

ry from the rules-based global trading

system over many decades,” Guy De-

belle, deputy governor of the Reserve

Bank of Australia, said in a recent

speech. “The current threats to that are

clearly a major risk for the Australian

outlook over a longer horizon.”

While drawn-out trade battles are

hurting Chinese growth and weighing

on global manufacturing, central

bankers around the world generally

echo Mr. Debelle: They are less worried

about the direct effects than about the

uncertainty caused, the prospect of es-

calation and the potential for a para-

digm shift.

“The combination of the structural

imbalances at the heart of the interna-

tional monetary system and protection-

ism are threatening global momentum,”

Mr. Carney said.

And a wave of rate cuts that work

partly through making domestic cur-

rencies cheaper are an imperfect fix to

the continuing trade tensions.

“If all central banks ease similarly at

around the same time, there is no ex-

change rate channel,” Mr. Lowe said last

weekend. “We trade with one another,

not with Mars.”

The pain may even be spilling back

into the United States itself in ways that

the Fed will struggle to offset. Factories

are slowing in the United States, as is

the case around the world, and con-

sumer confidence showed early signs of

softening in preliminary August data.

The global backdrop could take some

oomph out of Fed policy. The central

bank cut interest rates for the first time

in more than a decade in July, but as un-

certainty slows investment and pulls

down the global interest rate setting

that neither stokes nor slows growth, it

could also lower the dividing line be-

tween stimulus and restrictive policy in

America.

Australia

feels ripples

of trade war

AUSTRALIA, FROM PAGE 5

ollary to a feature of the bond market

that has received a good deal of atten-

tion lately: bond yields, which move in

the opposite direction of prices, have

fallen sharply.

That drop continued on Wednesday,

with the yield on the 10-year Treasury

note dropping to just under 1.47 percent.

That yield was more than 3 percent in

late end of 2018.

But bonds are still surprising invest-

ors who thought of them as a safe, low-

return, bet. One of them is George Alex-

ander, a 38-year old software engineer,

who bought a fund of high-quality long-

term bonds in February.

Mr. Alexander was not expecting big

returns from the bonds. After an ugly

sell-off in the stock market, he figured

that he could collect an advertised 3.

percent annual yield on the bond fund

while he waited for the uncertainty to

clear. Instead, the bond fund rocketed

higher.

It’s up more than 20 percent this year,

handily outpacing the nearly 16 percent

gain for stocks, including dividends.

“It’s crazy,” said Mr. Alexander, who

lives outside Houston. “It’s acting like a

stock fund.”

Investors like Mr. Alexander, who are

now sitting on a pile of unexpected

gains, face a tough choice: Lock in those

profits or bet on the gains to continue as

other investors follow them into bonds.

“They’re performing well, they’re

perceived as safe and no one thinks in-

terest rates will ever go up again,” said

Michael Hartnett, chief investment

strategist at Bank of America Merrill

Lynch Global Research. “The question

is, what could come up that would dis-

rupt the narrative?”

Despite the reputation of bonds as a

low-risk place to park money, if the cur-

rent headwinds hitting the global econ-

omy start to ease up, bonds bought re-

cently could become losers quickly.

Bonds show

boring can

be a good bet

B ONDS, FROM PAGE 5

The best gadget that I bought this year
cost less than a week’s worth of grocer-
ies. After my smartphone, it’s my most
frequently used piece of tech. It was
also released four years ago.
Can you guess what it is?
The mystery gizmo is a used Kindle
e-book reader from 2015, which I
bought on eBay from a repair techni-
cian. It lacks frills that some new e-
readers have, like waterproofing, but
I’m not the type to read in the bathtub.
So I decided to be a late adopter, and I
couldn’t be happier: The dated Kindle
does its job well, and if I ever break or
lose it, I’ll be out $50 and not $200.
I’m neither a Luddite nor a cheap-
skate. But after testing hundreds of
tech products — and buying some
along the way — over the last dozen
years, I’ve come to a conclusion: Peo-
ple usually get more joy from technol-
ogy the longer they wait for it to ma-
ture.
Cutting-edge gadgets can invoke
awe and temptation, but being an early
adopter involves risk, and the down-
sides usually outweigh the benefits.
Keep this in mind when, starting
next month, we enter the end-of-the-
year tech frenzy. That’s when compa-
nies like Apple, Samsung and Google
try to woo us with hot new gadgets,
including premium smartphones,
tablets and wearable computers.
I will be reviewing some of these
products and advising whether they
are worthwhile purchases. But my
default recommendation is to resist
hitting the “Buy” button unless you

absolutely need to replace your older

tech.

“New doesn’t always necessarily

mean better, or better in ways that will

matter,” said Nick Guy, a senior staff

writer for Wirecutter, a New York

Times Company that tests products.

Here’s a look at when slow adoption

was wise — and fast adoption a mis-

take — followed by a look ahead at

new tech to be cautious about.

THE PAIN OF BEING EARLY

In 2007, I bought Apple’s original

iPhone.

Having a fully functional web

browser on a mobile device was too

tempting, and as someone with a lousy

sense of direction, I wanted the maps.

So that winter, I paid AT&T $600 for

the iPhone with a two-year contract.

For a while, I relished being among the

privileged few to live in the future.

That special feeling faded about six

months later, when Apple released the

second-generation

iPhone. Not only did

the new model con-

nect with 3G, a much

faster cellular tech-

nology at the time,

but it started at just

$200 with a contract.

Ouch.

I’ve gone through

a handful of iPhones

since. But that expe-

rience taught me a

valuable lesson about the cost of early

adoption. Nowadays, whenever Apple

makes major changes to iPhones, I

wait at least a year for it to iterate the

tech and release the S version. (For

example, instead of buying the iPhone

5 in 2012, I waited till 2013 to buy the

iPhone 5S, which was faster and more

durable.)

Wirecutter took a similarly cautious

approach with the iPhone X, Apple’s

first radically redesigned smartphone,

with a $1,000 price tag. When the

device was released in 2017, Wirecutter

gave it a positive review but encour-

aged people not to upgrade because

Apple was likely to include the pre-

mium features in cheaper models the

next year.

“We said everything seems to work

well, but we don’t think it’s worth this

price now,” Mr. Guy said. “If you like

the iPhone X, wait a year or two and

see what happens.”

The next year, Apple released the

$750 iPhone XR, which was just as

capable as (and in some ways better

than) the iPhone X.

Kyle Wiens, the chief executive of

iFixit, which sells parts and publishes

instructions on repairing devices, said

people had previously upgraded to

new phones every 18 months on aver-

age, but could now wait more than

three years. That’s because smart-

phones have reached a point where

their improvements aren’t as notice-

able year after year.

“We’re in the golden age of smart-

phones,” he said. “Your smartphone

from two years ago still works great

and will continue to work for a while.”

PSST, WANT TO BUY AN OLD WATCH?

My waiting more than a decade to buy

a Kindle is an extreme example of late

adoption. There are other, newer ex-

amples highlighting the advantages to

this approach.

My second-best gadget purchase

this year was the Apple Watch Series

3. When Apple released that watch in
   2017, it cost $330. This year, retailers
   like Amazon slashed the price to $200.
   Apple sells the newest version of the
   watch, Series 4, for $400, and its main
   improvement is a bigger display — a
   feature I can live without, because I
   don’t often look at the watch screen.
   In other words, by waiting and opt-
   ing for a previous-generation model, I
   get to enjoy a fast, long-lasting watch
   that tracks my workouts and shows
   my calendar notifications, among other
   perks, for a steep discount.
   The late adopter approach goes
   beyond tech, Mr. Wiens said. In the
   automobile industry, carmakers occa-
   sionally revamp models with new
   driving technology and chassis de-
   signs. Then they build on that same
   design for several years.
   “With cars you never want to buy
   the first car of a new generation,” Mr.
   Wiens said. “When they radically
   change it, there’s all kinds of issues.”
   A case in point: When I shopped for

a car in 2013, I bought a used Toyota

Prius hybrid from 2011, the year after

Toyota released a redesign of the

Prius. This generation also came with

a price cut, so I got what had previ-

ously been a luxury vehicle for a mod-

est price.

WHAT TO LOOK OUT FOR THIS FALL

The question that I, as a tech reviewer,

hear most often from friends and col-

leagues is whether they should buy the

new (insert gadget name here). Using

the approach I’ve described, you can

develop an intuition for when it’s a

smart time to upgrade — and when it’s

risky.

Let’s say that in the coming weeks

Apple releases a new entry-level

iPhone and Google releases a new

Pixel smartphone.

Since Apple did its last big redesign

of the iPhone in 2017, the next one is

likely to be an incremental update. As

for Google, its Pixel phones are usually

modest upgrades that focus on soft-

ware enhancements.

If your current iPhone or Google

Pixel is on the fritz, this year may be a

good time to upgrade, assuming the

new phones get positive reviews. (Or, if

you’re like me, you could consider last

year’s models when their prices drop

after the new ones come out this year.)

In contrast, a brand-new Samsung

phone coming out in September

screams, “Buyer, beware.” That is the

Galaxy Fold, which is the first smart-

phone that can be folded and unfolded

like a book to decrease or increase its

screen size. Samsung postponed the

release after early samples broke in

reviewers’ hands in April.

Samsung said it had since improved

the Fold’s design and construction. But

with a tarnished reputation and a

nearly $2,000 price, it is likely to be-

come a hallmark example of a risky

bet for early adopters.

The wisest thing we can do is pay

attention to foldable screens and how

they may benefit us in a few years —

but probably not tomorrow.

The joys of being a late adopter

Brian X. Chen

TECH FIX

GLENN HARVEY

“New doesn’t

always

necessarily

mean better,

or better

in ways

that will

matter.”

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