The True Bellwether of Investment Fueled Growth: Blackstone + The Office Group, Not WeWork?

Published on June 21, 2017 - By Adam Greenwald

While many in the coworking industry have questioned WeWork’s business model and staggering $20 billion dollar valuation, there seems to be no uncertainty within the flexible office industry of valuation and business prospects for Blackstone’s new majority stake acquisition of The Office Group, “the pioneer of the shared workspace concept” in the United Kingdom.

Founded in 1985, Blackstone is considered one the “world’s leading investment firms,” with 368 billion dollars worth of assets under management (as of March 2017). Spanning 20 offices around the globe, Blackstone’s portfolio of companies employ more than 500,000 people and now, even more, with The Office Group under their belt.

Investing in real estate is not a novelty for Blackstone. In fact, real estate investments make up roughly 30% of their current balance sheet. Yet, purchasing a reported 75% stake in The Office Group is an unorthodox move for the 30-year-old firm. Anthony Myers, Blackstone’s head of European real estate, said that “the traditional workspace is being redefined in gateway cities across the globe as evolving business practices increase demand for flexible office space,” as quoted in a recent Reuters News article. This move, signals a wake up call for the entire flexible office industry.

The Office Group was created in 2003 by co-founders Charlie Green and Olly Olsen. The team was then joined by Lloyd Dorfman in 2010, the founder of Travelex–a foreign exchange company, whose core service is purchasing and exchanging currency online. It is reported that Dorfman, who bought a majority stake in The Office Group when he joined the company, will remain on the executive board after the Blackstone purchase has completed alongside Green and Olsen.

The investment by Blackstone is particularly notable as it now values The Office Group at $640 million dollars, backed by its “portfolio of 36 buildings focused in and around London that provide workspace and other community services to more than 15,000 members.” Some of The Office Group spaces house tech giants like Facebook, Dropbox and Pinterest and corporate entities such as Santander and British Gas.

WeWork’s staggering valuation does make it one of the most valuable startups in the world, but much of their widely-marketed success seems over-hyped. There have been reports of the company overextending its finances, barely meeting projected revenue forecasts and slashing profit outlooks.

As such, WeWork appears to depend on constant growth to survive long-term and any major economic downturn could virtually freeze up the company without “real assets” to sell and countless lease obligations. However, there is no shortage of dollars to keep the WeWork train running, with investors such as Goldman Sachs and JP Morgan Chase & Co leading the way in hopes of cashing out during a potential IPO.

On the other hand, turning The Office Group public is a bit premature at this point in time. But with the world’s biggest property investor in Blackstone as their partner, accelerated growth and development of the company is unquestionably promising.

Within the political landscape, news of this partnership shows confidence in the UK commercial real estate market despite the Brexit vote. Co-founder Lloyd Dorfman expressed that “the referendum result was good for flexible office space,” in a recent online publication. It’s also a sign that global investors are taking advantage of the region’s economic uncertainty while betting that the flexible office industry will become even more attractive to today’s remote workforce.

Back in the United States, an abstention of direct investment in the flexible office industry from a global real estate leader such as Blackstone coincides with a lack of of confidence for the country’s political and economic future. Uncertainty remains just that for WeWork and for the number of flexible office and coworking operators that are trying to climb their way to the top.