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Jonathan Price – CRE & Flex Expert
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WeWork is continuing down the path of real estate domination with a new investment fund called ARK that is focused on acquiring properties. Although the project has not been formally announced yet, WeWork has gotten a head start.
The company partnered up with Rhône Capital to raise $400 million to put towards buying properties, including the Lord & Taylor building in Manhattan, which is expected to become WeWork’s headquarters. It has also bought properties in London and Washington D.C.
They also partnered up with Rudin Management and Boston Properties on the massive Dock72 project in the Brooklyn Navy Yard. WeWork has also launched WeWork Space Services that assists startups to find a space once they have outgrown coworking spaces, as well as HQ by WeWork, which designs and manages properties.
“Don’t kid yourself, these are disrupters, they are seeking to disrupt the relationship of the landlord to the tenant,” State Realty Trust CEO Tony Malkin said. “They are seeking to disrupt the relationship of the landlord to the broker.”
Now, many landlords and brokerages are responding to this takeover by launching their own coworking operations. For example, CBRE started Hana that provides flexible offices for its clients.
Malkin believes that WeWork’s business of taking on long-term lease and using them for a month-to-month service increases the likelihood of downturns and doesn’t offer landlords a share of the profits from each space.
Operators such as Knotel, WeWork’s biggest competitor in New York, have begun signing “partnership leases” to address the partnership question.
Knotel CEO and cofounder Amol Sarva said that he considers partnership leases equivalent to giving co-ownership of the building and says they are “happy to have skin in the game alongside [landlords].”
Granit Gjonbalaj, WeWork’s Chief Development Officer, said the company plans on expanding its partnership leases in the U.S.
WeWork’s valuation has increased tremendously due to the billions of dollars from SoftBank, whose recent funding took their valuation to over $40 billion. SoftBank backers, such as the Saudi Public Investment Fund, recently refused to sign off on a new $16 billion investment that would give the Japanese firm majority ownership in WeWork.
Despite massive funding, the Wall Street Journal reports that the company continuously outspends its incoming revenue, having recently posted a $1.2 billion net loss in the first three quarters of 2018. CEO and cofounder Adam Neumann said that net loss is normal for a company expanding at their rate, but the pace in their expansion is leaving the industry concerned.
