The Real Deal New York

The accounting reform that could be a game changer for co-working firms

New rules would treat conventional leases as liabilities
December 12, 2017 04:15PM

Inside a WeWork space (Credit: WeWork)

A change in federal accounting rules taking effect by 2019 could give co-working companies a major boost.

Under the new rules, public companies will have to list office leases as liabilities on their balance sheets, which could make them look worse on paper. But there’s a loophole: if public companies sign a lease with a co-working space provider, and if the provider has a right to move the tenant, that lease won’t have to be listed as a liability.

Several co-working companies are now using the rule change as part of their pitch to potential tenants, The Information reported. Knotel’s CEO Amol Sarva called the reform the “Y2K of regulatory change.”

“It’s been part of our discussion with them. ‘Hey guys, avoid this,’” he told the outlet. Industrious and Serendipity Labs have also brought up the rule change in talks with potential customers.

On the flip side, the change could also hurt co-working companies once they go public or get acquired by increasing their own liabilities. WeWork, for example, rents much of its space from landlords under long-term leases.

Nabbing more employees from large companies would be a plus for co-working companies, limiting their reliance on riskier freelancers and startups. The new accounting rules will “accelerate” the trend of bigger companies taking co-working spaces, Zach Aarons of Metaprop NYC told The Information.

Big corporations, with 1,000 employees or more, now account for 30 percent of WeWork’s monthly sales. [The Information]Konrad Putzier