Risk, Commercial Real Estate and We Work

We Work has been gored.  The bull is sitting in the middle of the ring bleeding and everyone is watching to see how it will be cut up.  Within the crowd at the bull ring, there are creditors of We Work with their mouths open.  As they watch the bull writhe and struggle, they are calculating using mental accounting what their exposure to this death will be.

People fall for sales pitches and personality.  They want to be hip.  That behavior makes them underprice and forget about risk.

The thing is, in commercial real estate the business has generally not caught up to the risk analysis that’s done in the trading world.  They still go by their gut.  They go by relationships.  They try to get into what is trendy.  They might look at data, but generally, it is the wrong kind of data.  Garbage in means garbage out and mispricing risk can cost you your business.  CRE people sometimes think it is too expensive to do the analysis.  How expensive is it to be in a sea of creditors trying to suck up the last drops of blood from the bull?

Our portfolio company Megalytics helps CRE people sift through the data.  It helps them price risk.  It helps them see if they can trust their gut feel.  It helps them know if that relationship is one worth keeping or one worth keeping an eye on.   If I was a CRE operator and WeWork knocked on my door for a lease, a simple call to Megalytics and a spend of $2000-$3000 bucks would have helped me make a better more precise decision.  The turnaround is quick too.

The bankruptcy of Toys R Us should have been a wake-up call to the industry.   No business is 100% safe.  Are you leasing to GE?  Harry Markopolos says their accounting is messed up and as bad as Enron.

When you use Megalytics, you get an analysis of big and small data to help you assess risk and validate decisions along the commercial real estate investment lifecycle from development to asset management to acquisitions to dispositions.  You receive:

• Data collection, storage, cleansing, harmonization, aggregation and visualization
• Megalytics developed scoring algorithms and model
• Key data providers including proprietary, transnational, 3rd party, public, and government
• Thousands of data sources accessed in real-time
• Most comprehensive due diligence based on hundreds of risk components

Risk is mispriced everywhere.  If you read The Black Swan, that’s one of the major points you should have walked away with.  We talk a lot about Big Data these days but no one seems to know how to use it.