Obvious arbitrage possibility is obvious, and being exploited by new companies (WeWork for $10b valuation) themselves -- if you're better at evaluating startups than big dumb landlords, you can profit here. And there isn't a shortage of capital to play this game.
If you're skilled at evaluating startups and have access to capital, owning real estate is a waste of time. This isn't an arbitrage opportunity. At best it's just borrowing short to lend long: the liabilities of the spot lease firms are in long-term leases and debt owed against owned real estate; the assets are short-term and demand leases on that property. This is no different from what gets overextended banks in big trouble when a bust occurs. In fact, we can even go a little farther: the banks that think they're the best at managing subprime credit risk (i.e., have the most underwriting skill) tend to take the biggest hit, because that skill is almost never real.
I'm working out of WeWork (Chicago office) and I think the SF WeWork is much different from most of their other locations. While there are a few venture backed startups here, most of the companies tend to be small businesses or single person companies that were previously at places like Regis or working out of Starbucks. For example some companies here: [model agency, recruiting agency, marketing firms, lawyers, accountants, payroll servicing company, a sunglass maker, stock traders] So while a downturn in Tech would hurt them in some of their locations, at the others I don't think the pain would be as bad. We were hoping there would be more tech companies here and were surprised at the number of non-tech firms. FWIW we really enjoy it and have grown now to our third office as we add people. Thats the real value here, month to month leases so we can scale up or down as our team evolves.
Same goes for many of the NYC offices. Our space near Empire State seems to have a lot of consulting businesses that would otherwise be renting out something more complicated (need their own receptionist, water bills, internet bills, blah blah blah)
> When you have ~unbounded upside and capped downside, lever the fuck up.
I don't get it. Imagine I start a business offering the following opportunity: you pay me $100, I give you a fair coin, and you flip it as many times as you like. If there was no tails, I pay you $1 for every heads you flipped.
Your upside in patronizing my business is unbounded. Your losses are capped at however much you decide to invest. How much leverage is it appropriate for you to invest with?
Now, this isn't a case of capped downside in the sense of "you can lose at most $50, no matter how much you invest", but I doubt that's what you were talking about? Certainly that sort of situation is unlikely to come up in any context.
