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DealBook Briefing: WeWork Might Be Too Big to Fail



we work

In just eight years, WeWork has become a titan of the real estate market, snapping up pricey leases around the world. Critics have long scoffed at its business model, and many think that it will face a reckoning in an economic downturn.

But WeWork has said that it is the largest real estate tenant in New York, London and Washington. And in his latest column, Andrew argues that the claim may ensure the company’s continued success:

WeWork has gobbled up leases for so much space in so many cities, there’s a compelling case to be made that its landlords wouldn’t be able to afford for it to go under.

Because of WeWork’s size, “they have more power in a down market,” said Thomas J. Barrack Jr., the longtime real estate investor and founder of Colony Capital.

We’ll get a close look at the state of WeWork’s finances later today when it releases third-quarter earnings.


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Nissan Chairman, Carlos Ghosn, Is Arrested Over Financial Misconduct Allegations




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Carlos Ghosn, who created an alliance between Nissan and Renault that made it effectively the world’s largest carmaker, was arrested by the authorities in Japan on Monday in a remarkable tumble for one of the industry’s most powerful and admired leaders.

Mr. Ghosn, a larger-than-life figure widely hailed for saving Nissan, reviving Renault, and rethinking how automakers could share technologies, was detained after an internal company inquiry found that he had underreported his compensation to the Japanese government for several years.

The alliance, which in 2016 was broadened to include Mitsubishi, accounts for 10.6 million cars sold annually. The arrest of Mr. Ghosn, who is chairman of Nissan, chief executive of Renault and chairman of the board at Mitsubishi, stunned the industry. It comes at an uneasy time: The companies face a slowing economy, a global trade war and a shift toward electric cars.

If the alliance were one entity, it could be considered the world’s largest automaker, on track to sell more cars than Toyota or Volkswagen this year — if it can match results in the first six months of this year, when it sold 5.5 million vehicles.

Hiroto Saikawa, Nissan’s chief executive, said he would recommend to his board, which will meet Thursday, that Mr. Ghosn be removed. “Needless to say, this is an act which cannot be tolerated by the company,” he said.

Mr. Saikawa, speaking at a 90-minute news conference at Nissan headquarters in Yokohama, described Mr. Ghosn and Greg Kelly, a director who was also arrested Monday, as “masterminds” of a long-running scheme to mislead financial authorities. He offered few details, citing the prosecutors’ continuing investigation.

“I feel a big disappointment,” said Mr. Saikawa, who did not bow in deep apology before television cameras, as is customary in Japan. “And I feel frustration and despair, and indignation or resentment.”

Mr. Kelly was Nissan’s first American director, appointed in 2012, but had a much lower profile than Mr. Ghosn. Neither of the men could be reached for comment.

Renault, which owns 43 percent of Nissan, said on Monday that its board of directors would meet “as soon as possible” to discuss the matter but offered no other details. Mitsubishi released a statement that it, too, would look to remove Mr. Ghosn.

Nissan said it was cooperating with Japanese prosecutors and that its investigation into Mr. Ghosn began after a whistle-blower said he had been misrepresenting his salary and using company assets for personal purposes.

Born in Brazil to Lebanese parents and educated at elite universities in France, Mr. Ghosn made his reputation after joining Nissan in 1999. Renault, where Mr. Ghosn was an executive vice president, had bought a large stake in the Japanese company, which was on the verge of collapse at the time.

Mr. Ghosn made sweeping changes at Nissan, closing five domestic factories and cutting 21,000 jobs. Later, he engineered an arrangement between Renault and Nissan that allowed them to operate like a single carmaker. Short of a full merger, the alliance enabled them to share the cost of developing new models and to negotiate better deals with suppliers by buying components together.

As chairman and chief executive of the partnership, Mr. Ghosn was celebrated in Japan: His life story was made into a manga comic, although critics on the left noted he had earned his French nickname, “Le cost killer.” Still, he had enough political savvy to retain the support of the French government, which owns 15 percent of Renault, despite some bitter pay disputes.

In 2016 and 2017, Mr. Ghosn’s salary at Renault was questioned publicly, by French government officials and a shareholder group; this year he agreed to a 30 percent pay cut in return for another four-year term as chief executive.

Under Mr. Ghosn, the alliance overcame the kinds of differences in corporate and national cultures that have often doomed megamergers like the ill-fated marriage between Daimler and Chrysler, which was dissolved in 2007.

Mr. Ghosn, the epitome of the globe-trotting, multitasking manager, was chief executive of both Nissan and Renault from 2005 to 2017, flying between Paris and Tokyo every few weeks. He was also something of a media star, holding forth on panels at the World Economic Forum in Davos and celebrating his 2016 marriage at Versailles with actors dressed in 18th-century costume.
He earned a reputation as a hard-nosed manager who drew up rigorous business plans and kept close track of their progress.

“His world is the world of efficiency,” said Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen who follows the auto industry. “It’s the American style of management: clear plans, clear goals and permanently monitored.”

Mr. Dudenhöffer said it was questionable whether Nissan or Renault would have survived in the brutally competitive market for mid-price autos without Mr. Ghosn. In a measure of investors’ regard for him, Renault shares slid 10 percent on the Paris stock exchange Monday; Nissan shares fell 9 percent in trading in Düsseldorf, Germany. Nissan was down more than 5 percent in early trading in Tokyo.

According to Nissan’s securities filings, Mr. Ghosn was paid 735 million yen, about $6.5 million, in cash in 2017. That is a drop of 33 percent from the ¥1.1 billion he received in 2016.

He stepped down from the top job at Nissan last year but remained at the top of the alliance. Just last month he told reporters that he planned to stay in that post until 2020. Mr. Ghosn was paid ¥227 million in cash and stock options by Mitsubishi Motors last year.

In insular Japan, where foreign leadership of domestic companies is rare, Mr. Ghosn’s downfall could be taken as a referendum on the perils of working with outsiders.

“He’s always the go-to when people say foreigners can never succeed in Japan,” said Pernille Rudlin, managing director of Rudlin Consulting, which specializes in intercultural consulting with Japanese companies. “Now there are no good examples left.”

Nissan has had stumbles recently. In October 2017, the company suspended production at all of its Japanese factories after discovering that uncertified technicians had conducted vehicle inspections. In July, the company admitted to falsifying emissions and fuel economy tests.

The misconduct allegations about Mr. Ghosn are of another order, analysts said.

“For Nissan, Mr. Ghosn is a big hero,” said Shin Ushijima, a lawyer who specializes in corporate governance. “This news is so embarrassing.”

At a news conference with the Belgian prime minister on Monday, President Emmanuel Macron of France said it was too early to comment. But the French state, as a major Renault shareholder, would be “extremely vigilant about the stability of the alliance” between Renault and Nissan, he said.

Mr. Macron added that the French government would seek to maintain stability and “full support” for Renault’s workers. The company employs more than 47,000 workers in France.

Mr. Ghosn’s pay was long debated there. In 2016, Renault was pressured by Mr. Macron, the finance minister at the time, to reduce his compensation. In 2017, he insisted on a package of 7.4 million euros, about $8.5 million. The French government balked but Renault shareholders ultimately approved that payout.

In Japan, Mr. Ghosn’s compensation made him an outlier. Japanese executives typically earn far less than their American or European counterparts. Takeshi Uchiyamada, chairman of Toyota, for example, was paid ¥181 million in 2017, compared to Mr. Ghosn’s reported ¥735 million.

Foreign investors tend to criticize Japanese companies as not paying executives enough. “For the Japanese market, the main concern from foreign institutional investors is the question of whether compensation will be less incentive driven,” said Hideaki Miyajima, professor of commerce at Waseda University in Tokyo. “The criticism of Japanese firms is that compensation is not related to performance, and Japanese leaders are less likely to take risks.”


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New York Is a Genuine Tech Hub (and That Was Before Amazon)




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In 2003, Craig Nevill-Manning, a computer scientist at Google, wanted to set up an engineering outpost in New York. Google’s top leaders were skeptical, but they told him that he could go ahead if he could find 15 “Google-worthy” software developers in the city.

“The attitude was that pretty much all the good software engineers were in Silicon Valley,” Mr. Nevill-Manning recalled. “It seems crazy in retrospect.”

Mr. Nevill-Manning found his developers and opened the engineering office in New York. Today, Google employs 7,000 people in the city, and more than half are engineers and technical staff.

The Google story mirrors the rise and evolution of New York as a genuine tech hub — home to a deep pool of technical talent as well as sales, marketing and business expertise. And Amazon’s decision to put a headquarters in the city, eventually employing more than 25,000 workers, only reinforces that trend.

“This solidifies New York’s importance and significance in tech,” said Fred Wilson, the dean of New York’s venture capital community and co-founder of Union Square Ventures.


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NY State Kicking In $1.5 Billion-Plus for Getting Amazon HQ




amazon hq2 new york

Amazon stands to get more than $1.5 billion in grants and tax breaks from New York state in exchange for bringing at least 25,000 workers to a new campus in Queens, a record-setting incentive package that was both cheered and jeered Tuesday by elected officials in the city.

At a celebratory news conference, Gov. Andrew Cuomo acknowledged that the economic development plan offered to Amazon to move to Long Island City was the richest in state history.

The company would get city and state help settling into a site along a boat basin on the East River, now occupied by a gritty mix of private industrial buildings, parking lots and city-owned properties. Amazon would invest $2.5 billion of its own money to create the campus, and if it hits its hiring and building targets, the company would get $1.2 billion in tax credits over 10 years plus a cash grant of $325 million.

New York’s incentives were nearly triple those offered by Virginia, which also landed 25,000 Amazon jobs in the Washington suburbs.
But Cuomo, a Democrat, insisted it would pay off with $27.5 billion in new tax revenue. He said that amounted to a $9 return for every dollar of public funds spent.

“This is a big moneymaker for us,” he said. “It costs us nothing – nada, niente, goose egg. We make money doing this.”

The plan was immediately assailed by others as a corporate giveaway.
Alexandria Ocasio-Cortez, a Democrat newly elected to Congress from Queens, said on Twitter that her constituents were outraged that the company would be getting so much public support “at a time when our subway is crumbling.”

“We need to focus on good healthcare, living wages, affordable rent. Corporations that offer none of those things should be met w/ skepticism,” she wrote.

City Council Speaker Corey Johnson said he was skeptical of the plan and couldn’t understand why a company as rich as Amazon would need any public support. State Sen. Michael Gianaris and City Councilman Jimmy Van Bramer, Democrats who represent the Long Island City area, also condemned the deal.
“We are witness to a cynical game in which Amazon duped New York into offering unprecedented amounts of tax dollars to one of the wealthiest companies on Earth for a promise of jobs that would represent less than 3 percent of the jobs typically created in our city over a 10-year period,” they said in a joint statement.

More powerful city Democrats, though, lined up in support of the project, which represented a rare moment of close cooperation between Cuomo and Mayor Bill de Blasio, a fellow Democrat but frequent political rival.

De Blasio, who campaigned for office on a promise to give more thought to regular New Yorkers than big corporations, called the deal “an extraordinary day for Queens.”
The opportunity to create 25,000 mostly well-paying jobs outside well-off Manhattan, he said, trumped concerns about whether the project would overburden the neighborhood’s subways, schools or sewers. He promised it would benefit even residents of a nearby public housing development, one of the nation’s largest.

Part of the deal involved setting aside part of expected new tax revenue for projects that would benefit all of Long Island City and western Queens, not just the area being taken over by Amazon, he said.

New York’s inventive package would give Amazon roughly $48,000 in benefits for every job it created in the state, compared to $22,000 for Virginia and $13,000 for Tennessee.
Amazon vice president for real estate John Schoettler said the company, which already has a large presence in New York City, planned to start hiring next year.

Securing part of Amazon’s second headquarters represents Cuomo’s biggest economic development project, topping his “Buffalo Billion” initiative in western New York.

Some of his other initiatives haven’t panned out as hoped. The construction a Tesla solar panel manufacturing plant hasn’t created the number of jobs Cuomo expected. His top economic development adviser was convicted of corruption charges linked to the project.
“It certainly appears New York is being overwhelmingly generous,” said David Friedfel, director of state studies for the Citizens Budget Commission, a nonpartisan state government watchdog group. “And we have a history of providing economic development benefits that don’t pan out.”


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