Home    WeWork to buy co-founder’s property stakes with new $2.9bn fund

WeWork’s parent company will buy out the stakes of its co-founder Adam Neumann in buildings where the lossmaking shared office space provider is also a tenant, seeking to address investor concerns about potential conflicts of interest.

The We Company has created a subsidiary called Ark to manage and expand its real estate holdings, raising an initial $2.9bn in equity capital that will be used in part to buy back Mr Neumann’s property interests at cost. 

“The company will get a really good deal. My family office will get a bad deal,” Mr Neumann told the Financial Times. 

The move comes five months after the We Company filed papers confidentially with the US Securities and Exchange Commission to prepare for a potential initial public offering. It also comes as the company’s executives watch intently the sliding share prices of other lossmaking companies, such as Uber and Lyft, after recent IPOs. 

Mr Neumann declined to comment on when his company might go public, but said its preparations were a sign of it “getting more mature”. 

“Any asset I have that has any WeWork in it or potential for a WeWork in the future is moving to that company . . . at cost,” Mr Neumann said. “It’s clear and clean.”

He defended his unconventional past property purchases as being a necessary part of his company’s growth. “In 2013 no one was buying [WeWork buildings]. I had not a lot of choice except to say ‘I’m buying, I’m putting my money where my mouth is’.” 

Ivanhoé Cambridge, a property subsidiary of the $310bn Canadian public pension fund manager Caisse de Dépôt et Placement du Québec, will provide “substantial” capital to Ark, the We Company said on Wednesday. The new subsidiary will have a separate chairman and other limited partners. Its properties will be occupied by WeWork.

Ark will also take on an existing $1.8bn portfolio of buildings, such as the former Lord & Taylor department store in New York, which were owned by an investment arm called WeWork Property Advisors. 

“Because I’m a large shareholder of We, I’m 100 per cent aligned with the business,” Mr Neumann said. “I do not need anything for myself.”

The decision to move the property to its own unit is part of the We Company’s management team preparations for a potential flotation. Losses have spiralled as it has expanded to 425 locations and some of the company’s biggest backers — SoftBank and the Saudi-backed SoftBank Vision Fund — have signalled they will not pump billions of dollars more into the $47bn group. 

Bonds that WeWork raised last year to fund its expansion have slid from their offering price, in a sign of the reluctance among some asset managers to invest in the group.

Wednesday, 10 April, 2019

Speaking for the first time about his decision to file confidential paperwork with the SEC in December last year for a possible IPO, Mr Neumann said the We Company had done so for “optionality” before it agreed the latest investment from SoftBank. 

Mr Neumann added that its revenues had hit an annualised “run rate” of $3bn by April 1 when it had a $3.3bn “committed backlog”, defined as signed deals with corporate customers for long-term membership. He declined to say how long a period these commitments covered.

Speaking shortly after Uber’s IPO, in which shares of the ride-hailing company quickly slid from their launch price that itself was below initial expectations, Mr Neumann said he was “disappointed for them”. But, after checking the Uber stock price on his phone, he added: “I think there are a lot of differences between our company and any companies today that are in that process.” 

Last year, the We Company’s losses more than doubled from 2017 to $1.9bn, while revenues climbed to $1.82bn. It has expanded its ambitions and has launched ventures in housing and education as it seeks to broaden its portfolio.

Additional reporting by Mamta Badkar in New York

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