Property  Flat  Villa  real estate 3 execs who made VC flex-office space investments slam WeWork’s governance and leadership as its valuation crumbles

Property Flat Villa real estate 3 execs who made VC flex-office space investments slam WeWork’s governance and leadership as its valuation crumbles

WeWork parent The We Company has made last-minute changes, including cutting CEO Adam Neumann's voting rights. WeWork; Eduardo Munoz/REUTERS; Samantha

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WeWork parent The We Company has made last-minute changes, including cutting CEO Adam Neumann’s voting rights.
WeWork; Eduardo Munoz/REUTERS; Samantha Lee/Business Insider

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Earlier this year, WeWork was the most valuable private US startup. Its valuation at its initial public offering could shrink from $47 billion to as low as $10 billion, according to media reports.WeWork’s IPO would be the first time that this new type of flexible-office provider — brand-forward and amenity-focused — has gone to public market.The public market has yet to test WeWork and its newest competitors, and private funders in the space are watching closely.Business Insider spoke with three people connected to venture funds that invest in startups that blend tech and real estate. They credited WeWork with making office space a “commodity” and tried to paint its problems as company-specific.Read all of Business Insider’s WeWork coverage here.Earlier this year, WeWork was the most valuable private startup in America.But now, a month after revealing detailed financials, WeWork is weighing the drastic move of slicing its initial-public-offering valuation to as low as $10 billion, down from $47 billion in its most recent SoftBank-rolled funding round. The blow to the high-flying WeWork comes at a time when other flex-office startups have been raising money. And there’s been a broader flow of funding into the so-called proptech industry, which hopes to put a tech twist on old-school real-estate businesses.Critics have blasted WeWork for its wide losses and corporate-governance practices. WeWork’s parent company, The We Company, has made last-minute changes, including cutting CEO Adam Neumann’s voting rights, and still plans to push ahead with an IPO, with help from SoftBank, according to The Wall Street Journal.WeWork’s IPO would mark the first time a brand-forward and amenity-focused office provider has gone to public markets. IWG made its public debut nearly 20 years ago — it has roughly the same number of workstations as WeWork and a market cap of around $4.3 billion. Some competitors are working to paint themselves as hospitality companies and have stressed that they are looking to do management deals with landlords instead of traditional leases.We talked to three investors in flex space and coworking. They were quick to criticize WeWork-specific factors while arguing that the broader shift in what customers want and expect from workplaces still offers an opportunity. Read more: The CEO of coworking startup Convene is worried bad press around WeWork’s model could taint the entire flex-office industry

Brad Greiwe, cofounder and managing partner, Fifth Wall

Brad Greiwe.
Fifth Wall

“The media attention is 100% warranted,” Brad Greiwe, the cofounder and managing partner at Fifth Wall, told Business Insider. “If you have a company who has ridden as high as WeWork has, with a CEO like Adam who is larger-than-life to a certain extent, that attracts a lot of media attention.” he said. While Greiwe and his firm have invested in the WeWork competitors Convene and Industrious, he thinks the discipline of the public markets has already been an important check on WeWork and private funding in the space.”A lot of time, private investors get a little ahead of themselves,” Greiwe said.Greiwe sees detractors and supporters in the real-estate industry dividing into two camps.The detractors, like the billionaire Sam Zell, are saying that they’ve “seen this rodeo before,” according to Greiwe, with other companies that have large lease obligations and uncertain long-term revenue.Supporters point to other variables, like technology and consumer demand, as proof that there is a “difference this go around.”Greiwe says he is confident that flexible office space is here to stay.”This isn’t just a fad, this is the evolution of the office sector,” Greiwe said. WeWork has initiated an explosion in branded, flexible, and customer-centric office space.”What WeWork did, and did really well, was to show that office space is not a commodity,” he said. Instead, WeWork offers a branded product that is differentiated from other products by its amenities, design, and flexibility.Greiwe points to the large office owners around the world who are pouring resources into flexible-office strategies, such as Hines, which has partnered with Industrious. Compared to these giants, WeWork is just a “drop in the bucket,” he said.Greiwe thinks consolidation, already occurring across the industry, is an inevitability, as flexible-office firms scale up their operations to partner with the largest office owners.While WeWork has grown quickly using a lease-arbitrage model — an asset-heavy, high-revenue approach — Greiwe sees landlords turning toward management partnerships. These asset-light, lower-revenue agreements, he said, are more likely to survive during an economic downturn. Management partnerships are a trade-off for providers: They don’t have to pay to lease spaces, which frees up their cash flow, but they do have to share the upside with the landlord. As uncertainty mounts at this point in the economic cycle, a more conservative approach could help flex-office providers ride out a downturn. “Real estate is a cyclical business, and having a model that’s flexible enough to sustain itself through tumultuous ups and downs will prove to be a much more attractive business model,” Greiwe said.  

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