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November 18, 2021
It was second time lucky last week for WeWork, finally going public after a tumultuous few years. The commercial real estate company was founded in 2010, and grew to an arguably fictitious $47bn evaluation before a humiliating IPO (initial public offering) withdrawal in 2019.

Background

From 2010-2018, WeWork grew quickly, buying real estate across the world. By December 2018, the company controlled more square feet in London than anyone but the UK government. Similarly, in New York, WeWork had become the largest commercial tenant, overtaking all of the Big Four American Banks: JP Morgan Chase, Citigroup, Bank of America and Wells Fargo.

WeWork was mainly bankrolled by Japanese investment management conglomerate SoftBank. Other investors included Benchmark Capital, Fidelity Investments, JP Morgan, Goldman Sachs, Harvard Management Company, Wellington Management, T Rowe Price and Hony Capital.

Run Up to the Failed IPO

The publication of WeWork’s financial reports in the months before the IPO was scheduled sported disaster for the company. WeWork was haemorrhaging cash:

  • In 2016, WeWork made $436million in revenue, but lost $429million
  • In 2017, WeWork’s revenue grew to $886million, but the company lost $890million
  • In 2018, WeWork lost $1.6billion on $1.8billion in revenue

Furthermore, Chief Executive Adam Neumann was found to have suspect dealings. One example is the cash out of $700 million in stock options before the IPO. The report also revealed that Neumann purchased buildings in US cities such as New York and San Jose and leased them back to WeWork, making millions of dollars in the process, in highly unethical conduct. Major investors pulled out, forcing Neumann to pull the IPO. Find out more.

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After the Failed IPO

SoftBank bailed out WeWork, which was running dangerously low on cash. Neumann was relegated from Chief Executive to merely an ‘observer’ in the company. New Chief Executive Sandeep Mathrani has been much more cash-conscious in his operation, slashing the number of office locations and divesting non-core ventures, attempting to reassure investors that corporate and management excesses had been dealt with.

Over a series of evaluations spanning two-months, the $47billion unicorn fell to a more realistic $8bn valuation.

Current Performance

The company has fallen on further hard times. The pandemic contributed to a $3.2billion loss in 2020, and worsened to a $2.1billion loss in the first quarter of 2021 alone.

Last week WeWork started trading on the New York Stock Exchange, through a SPAC (Special Purpose Acquisition Company) merger with BowX Acquisition, rather than an IPO.

WeWork’s Future

WeWork feels optimistic about its future. The company believes a post-pandemic world will see more companies seeking increasingly flexible working arrangements and working spaces. Mathrani believes the business will turn a profit in the final quarter of this year.

It must be acknowledged however that the profitability of many of WeWork’s real estate in major cities such as London or New York relies on the return of white-collar workers to the city. Whether this happens en masse is still uncertain. Throughout the pandemic, many of the world’s largest corporates such as Facebook, Shell Global and Ernst and Young retained their deals with WeWork; many SMEs (small and medium-sized enterprises) terminated their lease. Given 99% of companies in the EU are classed as SMEs, this is a huge market for WeWork. From February in 2021, WeWork earmarked $15million to subsidise rent for loyal but struggling SME tenants.

One opportunity for WeWork is collaboration with universities. Many education analysts predict that remote university learning may continue, particularly for international students. UK universities may follow the US approach in looking for a service for students to operate in a shared space away from the main university campus.

Talking points:

  • How else could WeWork attract SME tenants?
  • More broadly, what is the future for commercial real estate post-pandemic?
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