This is going to be my last post for the foreseeable future. I have appreciated your readership and the occasional comment.
I will continue to read all of the various sources of content that have filled these posts and will continue to curate what I find to be the more meaningful articles and graphics. However, going forward I will not be posting/distributing so frequently. At this point I’m not certain of the appropriate frequency (being mindful of my time). Perhaps annually.
“An entire generation of young adults increasingly do not aspire to one day afford season tickets like some of their parents did. ‘If you’re in your mid-20’s and move into your new job in a new city, you arrive without the ability to pay for a ticket to go to a game anymore, no cable package to watch, and no subscription to the local newspaper to follow the team.’ This is not my opinion, I heard this from the owner of a professional sports team about his own son. All eyes are on cord-cutters while a generation of cord-never-had-em emerges.”
“Land reclamation isn’t cheap but soil becomes significantly more valuable when it’s moved to create new land in Manhattan, Boston’s Back Bay and Monaco.”
Energy
WSJ – Daily Shot: US Total Crude Oil Production 7/19
“China’s savers are rushing to pull money from peer-to-peer lending platforms, accelerating a contraction of the $195 billion industry and testing the government’s ability to maintain calm as it cracks down on risky shadow-banking activities.”
“In some cases, savers are turning up at the offices of P2P operators to demand repayment, spooked by reports of defaults, sudden closures and frozen funds. At least 57 platforms have failed in the past two weeks, adding to 80 cases in June, the biggest monthly tally in two years, according to Shanghai-based Yingcan Group. The researcher defines failed platforms as those that have halted operations, come under police investigation, missed investor payments, moved into other businesses, or had operators flee with client money.”
“’Investors have lost confidence in the smaller platforms, because they have no idea if those companies will survive,’ said Dexter Hsu, a Taipei-based analyst at Macquarie Capital. Only a handful of the 2,000 or so remaining firms are likely to endure, he said.”
“China’s P2P industry, the world’s largest, is one of the riskiest and least-regulated slices of the nation’s sprawling shadow-banking system. A government clampdown has weighed on P2P platforms for two years, but the pressure intensified in recent months after China’s credit markets tightened and the banking regulator issued an unusual warning to savers that they should be prepared to lose all their money in high-yield products.“
“The shakeout has cast doubt on the listing plans of several P2P lenders and underscores the delicate balancing act faced by China’s government as it tries to reduce moral hazard in the financial system without triggering a crisis. While there’s little sign that the P2P turmoil has spread to systemically important wealth-management products issued by banks, much of China’s $10 trillion shadow-lending system faces the same headwinds of rising defaults, slowing economic growth and official calls to end to implicit guarantees on risky investments.”
“China’s P2P platforms have about 50 million registered users and 1.3 trillion yuan ($195 billion) of outstanding loans, most of which have short maturities. Normally, savers have to wait for loans facilitated by the platforms to mature before getting their money back. But some are now trying to exit early by selling their rights to others at a discount, or by going to the platform’s offices to demand repayment.”
“The turmoil is also hurting companies and individuals who have relied on P2P platforms for financing. They include cash-strapped small businesses seeking working capital, individuals without a credit history, and, more recently, leveraged stock market investors and home buyers in need of down-payments.”
“Some P2P platforms were also raising funds illegally for their own use, while others were running Ponzi schemes that collapsed when the flow of new money halted, regulators have said. That helps explain why authorities have so far been steadfast in cracking down.”
“Last month, China Banking and Insurance Regulatory Commission Chairman Guo Shuqing warned that any savings or investment product with promised returns of more than 8% is likely to be ‘very dangerous’ and that investors should be prepared to lose all their money if advertised returns exceed 10%. The average yield on P2P loans was 10.2% in the first half, official figures show. Reported default rates vary from zero on the best platforms to 35% on the worst, according to National Internet Finance Association of China.”
“Online retailers typically benefit from lower overhead than their store-based counterparts, but in the U.K. that advantage is bigger than just about anywhere. The country has the developed world’s highest commercial property taxes, and in many areas those levies have jumped even as store sales decline, because land values have risen since the financial crisis. Last year, Tesco paid £700 million in property taxes, and J Sainsbury Plc, the No. 2 chain, paid £550 million. Amazon’s bill: £14 million.”
“Research suggests that employees are happier in co-working environments like those run by WeWork. But the firm’s real genius is that it is also far cheaper for their employers. Property experts estimate that firms typically spend anywhere between $16,000 and $25,000 per employee on rent, security, technology and related office expenses. Mr Neumann insists they can get all of that from WeWork starting at $8,000 per worker. Efficient use of space is one reason. Ron Zappile of Colliers, a property-services firm, reckons that typical corporate offices use some 185 square feet (17 square meters) per employee. WeWork members get by on 50 square feet per head.”
“WeWork has more than 250,000 members from a range of industries (see chart) and expects to double revenues this year for the ninth straight year. Last year it made $886m in revenue, 93% of which came from memberships.”
But…”WeWork’s net losses also roughly doubled, however, from $430m in 2016 to $884m last year. As with many fast-moving startups, it explains its lack of profitability by pointing to big investments. It will open 15 new offices a month worldwide for the foreseeable future. Its bonds issued in April were rated as junk.”
“…the most important source of stability may well be a shift in its customers, from startups to big firms. A few years ago, WeWork’s business was comprised almost entirely of small fry. In the year to September the enterprise segment (firms with over 1,000 staff) grew by around 370%. As of June, big firms accounted for about a quarter of its membership and revenues. More than 1,000 companies now take anything from one to 12,000 desks. In June, Facebook asked WeWork for an entire building for several thousand workers.”
“The average enterprise lease is close to two years and many new ones are three to five years long. Whereas big firms, used to conventional office leases of 10-20 years, see WeWork’s contracts as flexible, the firm itself sees them as commitments that will help it weather a downturn.”
“Investors have warned of growing systemic risks in China’s $1.09tn money market fund industry, as funds buy up bank credit despite a surge in bad debt this year.”
“Comparably high yields and low risk at Chinese money market funds in recent years have made the industry a favorite among retail investors in the country. Assets under management have grown from Rmb600bn at the end of 2012 to an estimated Rmb7.3tn ($1.09bn) in March, making it the second-largest market in the world after the US.”
“But in recent months China’s central bank has tightened monetary policy and access to credit, forcing down the funds’ once-attractive yields. At the biggest funds, average returns have dropped to an annualized to 3.7% from about 4.5% at the start of the year.”
“In response, funds have rushed into bank credit, such as negotiable certificates of deposit, as a means to boost returns and continue attracting retail investments.”
“Investors are now warning that the push into bank credit comes just as regulators are forcing banks to recognize vast amounts of bad debts that were once hidden off their balance sheets, leading to greatly increased risk for the investments. Falling credit ratings at banks could force money market funds to exit their investments, something that could lead to a shock through the massive fund industry.”
“Ant Financial’s Yu’e Bao, with about $200bn under management, is the world’s largest money market fund. Last month it reduced the amount of money investors could withdraw within one day to Rmb10,000 ($1,498) per investor from Rmb50,000. About Rmb200bn flowed out of the fund between April and June. The company declined to comment.”
“The risks at the funds are centered around their source of high-yielding investments: credit from hundreds of small banks with weakening balance sheets.”
“The Hong Kong government is considering banning a pro-independence political party on unprecedented ‘national security’ grounds, a move decried by activists as the latest violation of the city’s promised freedoms and rights.”
“The mobile payments revolution in China has happened with breathtaking speed and scale. In only five years it has transformed daily life in Chinese cities and also laid the foundations for the country’s mammoth financial tech industry, which last year generated revenues of Rmb654bn ($98bn), according to iResearch. Last year, the value of mobile payments in China overtook the worldwide totals of both Visa and Mastercard.”
“Almost half the world’s digital payments in 2017 were made in China, through apps such as Alipay (owned by Ant Financial, an affiliate of e-commerce juggernaut Alibaba) and WeChat (owned by Tencent), according to PwC research. Alipay and Tencent have now also outstripped PayPal, the US’s biggest online payments operator. They each handled more payments in one month this year than Paypal’s $451bn for the whole of 2017, according to market research firm Analysys.”
“This transformation has been spearheaded by millennials, who were the early adopters of mobile payments, but it has rapidly spread across generations…A survey by research company Ipsos, commissioned by Tencent, shows that the average person born in the 1990s now carries Rmb172 of cash ($26) compared with Rmb557 by those born in the 1960s.”
“China’s mobile payments revolution was partly spurred by the inconvenience felt by many of using traditional banks, from having to travel long distances for rural customers to having to queue in branches in the cities. But it was the unique formula offered by China’s tech giants that generated the explosion: by blending social, e-commerce and payment functions into single apps, customers could manage their finances at the same time as managing their social lives.”
“The revolution was enabled by the dominance of Tencent and Alibaba, along with the latter’s sister fintech company Ant Financial (recently valued at more than $150bn). Together they have created an interlocking network, or ‘ecosystem’, of services that complement each other and can be accessed via a few ‘killer apps’. These have become the natural playground of millennials. Imagine Facebook bolted on to email with a built-in payment platform for splitting bills among friends: that is Tencent’s WeChat. Or Amazon, with its own payment system that lets you send money to friends using only their phone number: that is Ant Financial’s Alipay. The network effect of such platforms is vast; if all your friends are using them, it is difficult to opt out.”
“’The way Beijing is developing, living without a smartphone will be difficult because of all the places that are starting not to take cash,’ says Chauncey Zhang, a 23-year-old tech company employee. In large cities some stores, markets and food stalls now only accept mobile payments.”
“Not only is a smartphone necessary for shopping, it has also become indispensable for hailing and paying for taxis. Beijingers joke that it is now more important to carry a phone charger than a physical wallet.”
“Familiarity with mobile payments has also made customers more comfortable with other new fintech innovations, in areas such as peer-to-peer lending, investing in money market funds, and consumer loans.”
“On the surface, China looks an unlikely place for this to happen. Saving, rather than borrowing, is what Chinese people typically do to afford big purchases. The country has one of the highest household savings rates in the world. When it comes to investment, property is viewed as the safest asset.”
“However, many citizens and small businesses are still under-served by traditional banks, and fintech companies have seen the opportunity for mobile platforms to leapfrog the old lenders.”
“Feidee, a company that makes personal financial management apps, says that 93% of its users are young customers born after the 1980s, and 42% of these were born after the 1990s.”
“China’s government has become worried by this surge in access to credit. Regulators as well as companies are now cracking down on opportunistic lending and high-interest rate loans. Policymakers are particularly concerned about young people falling prey to bad lenders, and last year launched a push to stop such companies advertising scams on university campuses dressed up as ‘entrepreneur loans’, ‘trainee loans’ and ‘jobseeker loans’.”
“Investment, too, has been normalized by being bundled up with Alipay and Tencent’s apps: in a couple of taps a user can deposit leftover money from their mobile wallet balance into a fixed-term investment. As a result, Ant Financial’s Yu’E Bao, meaning ‘leftover treasure’, became the world’s biggest money market fund just four years after launch.”
“The rapid uptake of fintech in China means customers, investors and entrepreneurs are asking whether the same tools can succeed abroad. ‘When I leave China, I feel I’ve gone back 10 years . . . Tencent, why don’t you launch [WeChat Pay] here?’ complained a young French man in a video that went viral in China.”
“Tencent and Ant Financial have expanded internationally by following the surge of Chinese tourists travelling abroad, and are considering how best to serve local customers. WeChat Pay is starting to expand partnerships with shopping malls in Paris and Japan’s Hokkaido. The company applied for a third-party payments license in Malaysia ‘but when we got it, we found basic infrastructure was lacking,’ says Mr Ma. It took Ant Financial and Tencent years to build the links with hundreds of Chinese banks that makes their services possible.”
“China’s revolution leaves one great question unresolved. How will data regulators across the globe respond to the rise of fintech companies that could, as they already do in China, track every commercial decision in a person’s life?”
“Using the reserve to curb summer pump prices at a time the economy is booming and midterm elections loom would be a strategic blunder, leaving the country exposed in the event of an actual oil shortage.”
“Put into practice, tariffs are a complex economic weapon that can ricochet through an economy in ways even proponents don’t expect. That’s what happened with washing machines, which were among the first consumer products targeted by the Trump administration.”
“In the months since washing machine tariffs took effect in February, LG and Samsung have pressed on with investments in the U.S., given that they now face the higher cost of shipping goods in from abroad. The overseas companies and Whirlpool have also increased hiring in the U.S. But appliance prices have risen for consumers, and there are signs of waning demand.”
“Last year, Whirlpool sought protection from South Korean competition under a provision known as the safeguard law, which required the company to establish it suffered serious injury from surging imports. The law, or section 201 of the 1974 trade act, was previously invoked in 2002 when then-President George W. Bush moved to protect steelmakers.”
“The resulting tariffs apply a 20% duty on the first 1.2 million washing machines brought into the country each year, and a 50% duty on quantities above that threshold. The barriers are expected to remain in place for at least three years.”
“The U.S. imported 4.2 million large residential washers in 2017, for a monthly average of 350,000, according to Christopher Rogers, an analyst at Panjiva, a firm that tracks global trade data. This year, imports have fallen to an average of 161,000 each month through April.”
“Washer and dryer prices climbed 20% in the three months through June, the steepest rise in at least 12 years, according to Labor Department estimates.”
“Washer shipments, a proxy for sales, to U.S. dealers dropped 18% in May compared with the previous year, the steepest monthly decline since March 2012, according to data compiled by the Association of Home Appliance Manufacturers, a trade group. Analysts said shipments likely dropped because dealers had stocked up on washers before prices rose. LG blamed post-tariff price increases, too, a spokesman for the manufacturer said.”
“Private equity groups are raising money at the fastest rate in more than a decade. Buyout executives are rushing to tap investor demand just as fears grow of a market correction.”
“The average time PE funds, including those investing in infrastructure and real estate, are taking to raise money has fallen to 12 months — from almost two years in 2010 — the quickest pace since at least 2006, according to an analysis by Pitchbook, a data provider.”
“But the figures also show there are fewer funds raising cash from investors in the US — from 328 in 2014 to 271 last year and 111 by the end of June this year.”
“Last year was still marginally up from a decade ago, but large institutional investors have been concentrating their allocations to larger and more established managers, which is partly driving the decline in funds looking to raise money.”
“PE funds have been one of the winners of the era of low interest rates, as investors such as pension funds chase higher returns.”
“However, with the PE industry already having an estimated $3tn in cash to invest, there is concern that buyout funds may end up overpaying for assets and eroding the potential returns for their investors.”
“The worthlessness of Venezuela’s currency is the result of inflation, 46,000% a year, which in turn is largely caused by the printing of money to finance the government’s deficit of 30% of GDP. But there is also a shortage of banknotes. In the looking-glass world of Venezuela’s economy, cash itself trades at a premium to its face value, making it slightly less worthless than bolívares in other forms.”
“American production is poised to reach an all-time high this year, and output is forecast to surge again in 2019. The supply boom comes as tariffs from China and Mexico threaten to curb export demand, leaving Americans with a mountain of cheap meat.”
“Total U.S. meat production is forecast at a record in 2018 and is set to climb again next year, the USDA estimates. Cash hogs may average about 42 cents a pound in 2019, down 7.7% from this year, the department predicts.”
“US bankers have warned about mounting risks in commercial real estate, with figures showing they are putting the brakes on loans to buyers of office buildings, hotels and shopping malls.”
“JPMorgan’s latest quarterly results published on Friday showed its commercial real estate business had its slowest period for at least 10 quarters, with average balances flat from the previous three months.”
“Wells Fargo’s CRE loan book shrank by $2.5bn in the second quarter because of declines in construction funding and mortgages on existing properties. In contrast, its non-property commercial portfolio expanded by $1.9bn.”
“Default rates remain low but bankers are concerned that CRE loan terms are too loose, especially as the Federal Reserve’s interest rate rises push up their own funding costs.”
“Tim Sloan, Wells Fargo’s chief executive, said CRE underwriting standards had been deteriorating ‘for some time’. He added, though, that the slippage was ‘nowhere near what we saw in 2006 and 07’, before the financial crisis.”
“One of the world’s most influential oil consultancies has forecast that global oil demand will peak within 20 years, as a ‘tectonic’ shift in the transport sector towards electric cars and autonomous vehicles gathers pace.”
“’A lot of our clients recognize that peak demand is real,’ said Ed Rawle, Wood Mackenzie’s head of crude oil research. ‘It’s just a question of when it arrives.’”
“Mr. Rawl at Wood Mackenzie said the consultancy’s thinking on peak demand was driven by a renewed assessment of the impact of not just electric cars but growing signs that autonomous electric vehicles will play a major role in the future of transport.”
“In the next 10 years the biggest impact on slowing global oil demand growth — which is expected to hit 100m barrels a day for the first time this year — would be fuel efficiency, Mr. Rawl said.”
“The improvement in fuel efficiency standards in conventional cars over the past decade has already had an effect, while the coming years should see the retirement of many older, gas-guzzling cars, leaving a less fuel-hungry fleet on the road.”
“Petrol demand is expected to be the first component of oil demand to peak around 2030 as a result.”
“Seeing peak oil demand on the distant horizon, does not, however, mean lower prices in the short term, Mr. Rawl said.”
“China’s two mobile payments giants, Alipay and Tencent, are poised to lose around $1bn in combined annual revenue to a new central bank requirement that third-party payment groups hold all customer funds in reserve.”
“Chinese mobile payment transactions reached Rmb109tn ($16tn) last year, according to research firm Analysys Mason, as consumers switched to smartphones from cash for supermarkets, taxis, and payments to friends. The platforms are also increasingly used to purchase mutual funds, peer-to-peer loans and other wealth management products.”
“Ant Financial’s Alipay and Tencent’s WeChat Pay dominate the industry, with market shares of 54% and 39% respectively in the first quarter. Ant Financial is the finance affiliate of Alibaba.”
“Together the two groups control hundreds of billions of renminbi in customer funds that accumulate on their platforms when users receive payments but do not immediately transfer the funds to a bank account or other investment.”
“Previously, third-party payment groups were permitted to invest customer funds, much as banks use deposits to make loans and other investments, even though unlike banks, the payment groups pay no interest to users.”
“In January 2017, the People’s Bank of China announced that it was requiring third-party payment groups to keep 20% of customer deposits in a single, dedicated custodial account at a commercial bank and specified that this account would pay no interest.”
“In April, the ratio was increased to 50%, and last month, the central bank announced that it would raise the reserve requirement to 100% by next January. At that point, payment groups will earn zero interest on all customer funds.”
“The ostensible reason for the change is to prevent fraud and protect customers.”
“Large players like Alipay and Tencent handled customer funds conservatively, but they were still able to earn significant revenue by depositing funds in interest-bearing accounts at commercial banks. Tencent earned Rmb3.9bn in interest income in 2017, or 1.7% of total revenues, according to its annual report.”
“The PBoC’s balance sheet shows that ‘deposits of non-financial Institutions’ — a category that mainly includes payment companies — increased from nothing in May 2017 to Rmb501bn by the end of May. Before the implementation of reserve requirements, nearly all that money would have been generating interest for Alipay, Tencent, and their smaller rivals.”
“Wall Street is betting that more well-off Americans will want to be renters.”
“Financiers who loaded up on homes after the housing bust for pennies on the dollar are buying yet more—despite home prices in many markets being at all-time highs.”
“Their wager: High prices, higher mortgage rates and skimpy inventory are making homeownership harder. Well-to-do families who might have bought a single-family home in another era are willing to rent a house now, especially if it means access to a good school system.”
“The number of homes purchased by major investors in 2017 was at least 29,000, up 60% from the previous year, estimates Amherst Capital Management LLC, a real-estate investment firm with an affiliated business that made nearly 5,000 of those purchases.”
“Single-family homes have become far more attractive to investors than apartments, where a nationwide glut has driven down rental yields.”
“This year, investors have raised billions of dollars from bond buyers, pension funds and even wealthy Chinese individuals to purchase more homes. They have been particularly aggressive buyers in places like Atlanta, Phoenix, and other metro areas with good schools and faster-growing economies.”
“On Monday, the investment firm Pretium Partners LLC said it had raised more than $1 billion so that its Progress Residential could add to its 26,000 rental homes.”
“Cash to acquire and renovate homes has become so abundant lately that some rental investors can’t spend it fast enough. Without enough homes to buy, some investors are now building their own in popular residential markets like Miami and Nashville, Tenn.—upending a traditional pattern of Americans buying starter homes and moving up.”
“Managing far-flung clusters of homes—much harder than running an apartment building—has long been a hurdle for investors. But analysts and rental executives say investors are gaining confidence it can be done profitably. Also, wealthier tenants in the single-family-home market typically have children and need more bedrooms than most apartments offer. They’re also willing to accept rent increases to stay in good school districts.”
“These investors’ war chests have been swelled by rising home prices, which give them more valuable collateral to borrow against to buy more.”
Construction
WSJ – Daily Shot: John Burns RE Consulting – Construction Contractor Hourly Wages 7/11
China
WSJ – Daily Shot: BlackRock – Annual Growth in China Bank Claims 7/11
“After a temperate early summer and a balmy Fourth of July, Southern California residents abruptly found themselves in a caldron of triple-digit temperatures and wildfires this weekend.”
“The temperature spike broke with historical weather patterns. While much of the Northern Hemisphere suffers through its hottest days in the summer months — June, July, August — Southern California’s hottest days are often in September or October.”
“Records were shattered in some places on Friday. The temperature at the University of California, Los Angeles, reached 111 on Friday, the hottest it has ever been there. Other record highs, according to the National Weather Service, were 114 at the Hollywood Burbank Airport, 117 at the Van Nuys Airport, 117 in Ramona and 114 in Santa Ana. In Riverside, a high temperature of 118 matched a record set in 1925.”
“China is retreating from a policy that has channeled about $1tn in subsidies to homebuyers since 2016, a reversal that has sent tremors through the country’s residential property market amid broader concerns about a housing bubble.”
“Property investment and home sales have remained strong in recent months despite a broader growth slowdown, but analysts say the withdrawal of subsidies will damp property demand, leading to reduced construction activity.”
“Premier Li Keqiang pioneered the slum redevelopment policy as top party official in north-east China’s Liaoning province in 2005. The policy, which was later rolled out nationwide, financed demolition and reconstruction of dilapidated residential neighborhoods.”
“The program received a boost in 2014, when the People’s Bank of China created a new monetary policy instrument known as Pledged Supplementary Lending, which consisted of loans directly from the central bank to CDB earmarked for slum redevelopment.”
“The turning point came in 2015. Amid a sharp downturn in the housing market that led to a glut of unsold housing, China’s cabinet allowed local governments to provide cash subsidies to residents of slum districts, rather than physical resettlement in newly built flats in the former slum.”
“’Physical resettlement didn’t affect the supply-demand balance. It was self-regulating,’ said Zhao Quanhou, director of the financial research center at the Chinese Academy of Fiscal Sciences, a think-tank under China’s finance ministry.”
“’But monetary resettlement meant you were demolishing old buildings and not replacing them, so there was a net demand increase, and the market impact was large,’ he said.”
“’The policy was basically giving money directly from the central bank to CDB. It spurred a lot of real estate demand, and it also expanded the base money supply,’ said Xu Gao, chief economist at Everbright Securities. ‘Going forward it needs to be adjusted.’”
“Thousands of Turkish teachers, police officers and members of the armed forces have been fired one day before President Recep Tayyip Erdogan is due to be sworn in for a second term after being re-elected with vastly enhanced powers last month.”
“Mr. Erdogan issued a decree dismissing the employees on Sunday. During his election campaign he promised to end a state of emergency imposed in the wake of an abortive military coup two years ago, under which 160,000 public servants have been dismissed and more than 50,000 people have been jailed.”
“The order, published in the Official Gazette on Sunday, fired 18,632 people — nearly half of them from the police force — for allegedly threatening national security. More than 6,000 military personnel and about 200 teachers were also named. Their passports have all been cancelled, the announcement said.”
“The decree also banned 12 civil-society groups, three newspapers and a television broadcaster.”
“While The Peak may still be the area’s most prestigious location, Island South offers practical benefits.”
“China’s new oligarchs will pay handsomely for their seaside spots. Last year, local agents claimed a world record for the priciest home per square foot, when a four-bedroom beachside townhouse hit the market for USD$87.3m, or $21,200 per sq ft. This is about nine times the current average price for prime central London, according to estate agents Savills. Put another way, the same budget in London would buy six Grade II-listed Queen Anne terraced houses in Kensington, providing a total of 36 rooms.”
“WeWork’s steep valuation depends on a blinkered faith in its originality despite a crowded market of competitors. If the company’s equity value was based on the same multiple of sales as flexible workspace peer IWG (formerly Regus) it would be worth less than $3bn.”
“The company’s pitch is scale. WeWork envisions a world in which offices are so attractive that workers will choose to spend more time in them. Eventually, it pictures global cities of We-flats and We-offices, where members work out at We-gyms, learn at We-schools and network at We-events — all the while tracked by the We-operating system.”
“WeWork’s valuation comes courtesy of the deep pockets of Japan’s SoftBank and the Saudi-backed $100bn Vision Fund , which led a $3bn investment last year. That came with an additional $1.4bn raised for WeWork’s Asian subsidiaries. The fundraising round transformed WeWork into one of the world’s top 10 most valuable start-ups. Further financing from the Vision Fund, valuing WeWork at $35bn, has been mooted. This would exceed the value of SpaceX, Elon Musk’s space technology company.”
“In the meantime, WeWork needs financing. It is likely to require at least $2bn from investors in the next two years. To plug future outflows, it may seek far more. A successful initial public offering will require WeWork to convince investors that its value is based on more than giddy markets and a millennial-friendly aesthetic.”
“Unfortunately for WeWork, costs are growing just as steeply. Some look extravagant. Last year the group spent an additional $6.5m on events that included a weekend summer camp. The company justifies this as the price of growth.”
“However, WeWork’s valuation is based on its growth potential. Airbnb might therefore be a better comparison. It is valued at a higher $31bn. Yet even this is a more sober reflection of business than WeWork’s. The value is equal to 12 times trailing sales versus 20 for WeWork.”
“For now, WeWork is far from self-sustaining. The company lost nearly $1bn last year. Office occupancy at 82% is higher than IWG’s 75%. However, average membership fees are falling. There is little reason to think the decline will reverse while expansion is driven by Asia, where rates are lower.”
“Funding rounds were the only reason the company ended 2017 with cash of $2bn on the balance sheet. On FT estimates it is likely to need about $2bn more by the end of 2019.”
Markets / Economy
WSJ – Daily Shot: Deutsche Bank – US-Europe monetary policy divergence 7/3
“FlyHomes’ ability to turn clients into cash buyers exploits a quirk in the capital markets that’s arisen since the housing meltdown: Consumers are being put through more rigorous standards when they apply for a mortgage. Meanwhile, it’s comparatively easy for companies—even those with new, barely tested ideas—to get buckets of money from banks, venture capitalists, and other institutional investors.”
“Redfin CEO Glenn Kelman says these new ventures are part of a shift in how homes will be bought and sold. ‘There is just money coming out of every possible part of the world, and it isn’t going toward the consumer,’ he says. ‘It’s going toward real estate businesses who charge the consumer for access to that money.’”
Considering the headwinds of retail over the last few years, I’d say things are doing not too shabby considering it took the closure of Toys ‘R’ Us to push the absorption rate negative (granted local situations vary).
“Cut from 68-hour maximum aims to improve life balance for country of workaholics.”
“The country is home to the longest working hours and highest suicide rate in the developed world. South Koreans put in an average of 2,024 hours in 2017, the second-most after Mexico among members of the Organization for Economic Cooperation and Development (OECD). But the long hours have not translated into better productivity, with the country’s per-hour productivity ranking near the bottom.”
