Even as WeWork’s IPO collapsed last fall and its then-CEO Adam Neumann was left walking the streets of New York barefoot, fighting for his job, the company still had a few things going for it. For one, it had become New York City’s largest occupier of commercial office space. By the end of 2019, having spent profligately to expand in the run-up to its IPO, WeWork was leasing almost 9 million square feet in the city — more than the Empire State Building, One World Trade Center, and Google’s giant West Side office building combined.
Since the collapse of its public offering and the arrival of COVID-19, WeWork has been forced to retrench. The company’s CEO said earlier this year that it was looking into restructuring 20 percent of its leases. In June, it backed out of a 115,000-square-foot space in midtown. A fifth of its offices in the city were empty this summer, and WeWork is far from the only office supplier facing headwinds: Moody’s predicts that commercial rents will drop by 21 percent this year — a steeper decline than the 19 percent dip that occurred during the global financial crisis.
Such perilous conditions, of course, are what gave rise to WeWork in the first place. Neumann and his co-founder, Miguel McKelvey, opened their first co-working space in 2008, just as the economy was cratering. The company’s early expansion was fueled not only by Neumann’s manic ambition but by the cheap rents it could get.
What supercharged WeWork’s growth, however, was its ability to raise money to keep expanding as the economy began to boom and rents started to rise. One senior employee recalled a pivotal moment in 2016, just when it seemed as if the company could no longer find investors willing to fund its growth. “We said, ‘Nobody else in the world is going to invest,’” the employee told me. “Then, all of a sudden, literally the only guy in the entire world who could give the company the one drug it was craving shows up at the door.” The man at the door was Masayoshi Son, the founder and CEO of SoftBank, who, over the next three years, would go on to pour more than $10 billion into WeWork.
It’s clear now — in the midst of a global pandemic — that New York City’s real-estate market is undergoing a historic collapse. What’s less easy to see through the fog is that aspiring Adam Neumanns now have an opportunity to build new empires out of the COVID-19 wreckage, just as WeWork did from the ruins of Wall Street in 2008. The questions will be: Can they find someone willing to write the checks? And, once the money is in hand, will they have learned anything from the ways in which such extravagant amounts of cash ultimately pushed WeWork over the edge?
Adam Neumann met Masayoshi Son in January 2016, when Neumann flew to India for a start-up conference hosted by Prime Minister Narendra Modi. At the time, India claimed its GDP was soaring by 7 percent a year, the highest rate in the world — a figure later found to be a “fantastically crafted fiction.” Neumann was one of the conference’s keynote speakers, alongside Travis Kalanick, from Uber, and Masa — in business circles, he only needed one name.
WeWork was considering an expansion in India, and Neumann used the trip to make a frenzied tour of the country — working and partying late into the night, as was the WeWork way. He met with Jitu Virwani, a real-estate tycoon and one of the wealthiest men in India, at the billionaire’s home, where he baked a loaf of challah to present to Modi. (The prime minister’s security team rejected the gift for fear it could be poisoned.) At the conference, Neumann delivered his address wearing a traditional Indian garment inspired by a guest he had met at a recent birthday party for his friend Jared Kushner, who was then merely the scion of a New York real-estate family.
“I just came here five days ago for the first time, so I’m still an early student of India, but here is what I’ve observed,” Neumann said onstage. “For a very spiritual country — and I can definitely tell you this is the most spiritual country in the world — I’m surprised a little bit from the amount of talk I heard about valuation and raising money and bubbles.” The crowd laughed nervously.
Masa was in the audience, and that night, he and Neumann met at a bar on the top floor of a building in New Delhi. The SoftBank founder harbored many of the standard doubts about WeWork’s business — it was capital-intensive, risky, and difficult to differentiate from its competitors — but he also prided himself on an ability to see through the numbers and into the soul of a business and its entrepreneur. Masa’s deputies had passed on investing in WeWork, but Masa believed that “my first insight in the first few minutes is sometimes more meaningful” than hours of his employees’ due diligence. He compared his deductive powers to another diminutive guru: “Yoda says use the force. Don’t think, just feel it.”
As they talked on a couch in a corner of the bar, Neumann told Masa about WeWork’s growth. The company was on pace to open its hundredth location later that year, just six years after opening its first. Masa was unimpressed. He told Neumann that if he set his sights high enough and was willing to move quickly, the opportunity in front of him was even bigger than he could imagine.
A few months later, in December 2016, Masa made plans to visit Neumann at WeWork’s headquarters while he was in New York to visit president-elect Donald Trump. “Ladies and gentlemen, this is Masa of SoftBank … one of the great men of industry,” Trump told a crowd of cameras in the lobby of Trump Tower. Masa, the first CEO in a line of business-world supplicants to visit Trump, hoped to revive a proposed merger between T-Mobile and Sprint, which SoftBank owned, that had been blocked by the Obama administration. Wearing a red V-neck sweater and tie, Masa told reporters he had come to celebrate Trump’s new job. “Because he would do a lot of deregulation, I said, ‘This is great. U.S. will become great again,’” Masa said. He held up the piece of paper he had just shown Trump, explaining that SoftBank would invest $50 billion in the U.S. and create 50,000 new jobs over four years — a timeline neatly tied to the span of Trump’s first term.
The plan was light on details, apart from Masa’s suggestion that the money would come from his newest project: the Vision Fund, a $100 billion pile of venture capital. It was the largest such fund in history, with more money than most VCs would be entrusted to invest in their lifetimes. Masa intended to spend it in the next five years. The largest portion of the cash was coming from Saudi Arabia. Mohammed bin Salman, the next Saudi crown prince, had been on a worldwide tour in the hope of expanding the country’s economy beyond oil. Masa promised bin Salman and the Vision Fund’s other limited partners — Apple, Foxconn, Abu Dhabi — that the money would allow him to seek out companies that would define the economy of the future, with a focus on artificial intelligence and the looming arrival of the singularity, when man and machine would become indistinguishable.
On the morning of Masa’s meeting with Trump, SoftBank had blocked out two hours for a tour at WeWork headquarters to see if the company might fit the Vision Fund’s brief. That morning, however, Masa was running late. Neumann grew nervous, pacing back and forth in his office as the morning dragged on and Masa was still nowhere to be found. A circle of employees prepping for the meeting was tasked with ensuring the pitchers of fruit water looked fresh and the music in the office was at the right volume. By the time Masa arrived, the two hours were almost up. “I only have 12 minutes,” Masa said. “Go.”
Neumann had long tried to position WeWork as a technology concern — a “physical social network” — rather than a real-estate-leasing business. He knew that was Masa’s primary interest, so he took Son straight to WeWork’s “R&D lab” on the third floor to show off various systems the company was developing: a standing desk that automatically adapts to a member’s height; a keyless entry system; a phone booth with smart lighting. It wasn’t the singularity, but, after the 12 minutes were up, Masa told Neumann to join him in his car. Neumann grabbed his investor deck and hopped into the back seat. Masa told him to put the presentation away. Despite his doubts, Masa was impressed by the speed at which WeWork had been able to execute a labor-intensive expansion. That month alone, the company had opened new locations in 13 cities in seven different countries.
WeWork also presented a unique opportunity for the Vision Fund. It would be impossible to invest $100 billion by funding a flock of nimble start-ups; Masa needed to find companies that could use his cash to overcome barriers to entry in industries where the theoretical returns were large enough to justify the costs — an industry like real estate, with expensive leases and significant capital expenditures to go along with an enormous total addressable market.
As they drove away from WeWork’s headquarters, Masa pulled out an iPad and began sketching the terms of a deal: SoftBank and the Vision Fund would invest more than $4 billion in WeWork. The investment would be the Vision Fund’s biggest to date, and it was many times larger than any funding Neumann had secured up to this point. WeWork’s new $20 billion valuation would make it the fourth most valuable start-up in America, behind Uber, Airbnb, and SpaceX.
After Masa dropped him off, Neumann got into his white Maybach, which had been trailing Masa’s car, turned up some rap music, and drove back to WeWork headquarters. A photo of the digital napkin, with Masa’s signature in red and Neumann’s in blue, was soon circulating among WeWork executives. The entire exchange, from Masa’s 12-minute tour to signatures sealing one of the largest venture-capital investments of all time, had taken less than half an hour.
Neumann now had a pair of models for success: Masa and Trump. His friend’s father-in-law had become the most powerful person in the world through a mix of chutzpah, bluster, and a willingness to pander to his audience. Neumann began invoking the phrase “fake news” when something negative about WeWork appeared in the press. When one of his executives told Neumann he couldn’t join him for a tour of the building, Neumann replied, “When you have the opportunity to spend time with the greatest real-estate mind in the world, you do it.”
From Masa, Neumann absorbed a sense that WeWork should think even bigger. Masa saw the future of real estate as a land grab in which the person with the most territory would ultimately win. The Vision Fund’s money would allow WeWork to aggressively expand and box out any competitors. His only objection, as Neumann and his team laid out their plan during a meeting in Tokyo, was that they were still being too timid. “Why only a million members when you can have five?” Masa said at a time when WeWork barely had 100,000. If WeWork could do that, grow to 50 times its size, Masa said its valuation at the time — just shy of $20 billion — would look cheap. The company might be worth $1 trillion.
“In a fight, who wins?” Masa asked Neumann in one meeting, “The smart guy or the crazy guy?” Neumann replied that an unhinged combatant, willing to scrape and claw to survive, could beat even the most skilled fighter. Masa said that he was right, but that, so far, he wasn’t acting crazy enough.
A few weeks after SoftBank’s investment was announced, Jamie Hodari met Neumann early one morning at Francis S. Gabreski Airport, which serves private jets flying in and out of the east end of Long Island. Hodari was the CEO of Industrious, a WeWork competitor with a large presence in the second-tier American cities that Neumann was only beginning to get into. While Hodari was among Neumann’s nearest rivals, he didn’t have a beach house in the Hamptons, let alone two, as Neumann did. Hodari took a two-hour Uber ride from New York the night before and booked a motel room so that he could board the jet flying Neumann out at six o’clock the next morning.
By 7:30, the group was on its second round of Bloody Marys. They were flying to Atlanta, where Industrious had three locations. WeWork was moving onto the company’s turf, and Neumann asked Hodari to join him in a pair of lounge chairs at the front of the plane for a private chat. According to Hodari, Neumann laid out his argument for why Industrious should partner with WeWork: The two companies would be stronger together than if they battled for customers. “I’m going easy on you because we’re both Jewish,” he told Hodari. “But I’ve got 150 people ready to bury you.” If Hodari didn’t want to join forces, Neumann said, WeWork employees would descend on every Industrious location, in Atlanta and beyond, and offer Hodari’s tenants a year of free rent. If they resisted, Neumann would offer them two years, and if there was anyone left after that, he would give them three — all subsidized by the multibillion-dollar war chest Masa had just given him.
Hodari was rattled. He had raised less than $100 million. Industrious couldn’t compete with discounts like that. At the same time, it was hard to imagine an investor — even one as flush as Masa — who would be willing to weather losses on the scale Neumann was talking about. Hodari figured Neumann was bluffing.
He wasn’t. A few weeks later, WeWork flew employees from other cities to Atlanta to lead a guerrilla marketing campaign against Industrious. One tactic involved driving a flatbed truck carrying a glass-walled office and parking it in front of Industrious locations while employees handed out the lavish free rent deals that Neumann had threatened to unleash.
Atlanta was just one front in a worldwide assault fueled by WeWork’s Vision Fund spoils. In New York, a WeWork employee started showing up at locations operated by Knotel, another competitor, claiming to be the CEO of a start-up urgently seeking office space. He then took a tour and surreptitiously jotted down the names of each tenant, in order to send them all a discount for switching to WeWork. (Knotel put up a “Wanted” poster charging the employee with “espionage” and offering a $2,500 reward.) WeWork employees in San Diego sent out the discount offer — “a year of office space, on us” — so indiscriminately to tenants at a local co-working space run by Wolf Bielas that they sent one to Bielas himself, who kept a personal office there. A few days later, WeWork set up an outdoor living room with several couches and a snake plant in front of the building. When Bielas confronted them, a WeWork employee replied that they were simply “spreading the love.”
The company’s existing plans were ripped up and doubled. Masa told Neumann he should have 10,000 salespeople — never mind that he didn’t yet have 10,000 employees. WeWork was hiring 30 people a week, then 50, until eventually more than a hundred people were joining every Monday. In December of 2017, just a year after opening its 100th location — in Berlin — WeWork opened its 200th, in Singapore.
But it was now operating in markets where it had little expertise. The rents it could charge in Latin America were much lower, while landlords in many Asian countries were less willing to fund WeWork’s renovations, which had been crucial to keeping its costs low. “The expansion here was just as haphazard and aggressive as it was in the rest of the world, and the economics of the deals were worse,” said Matt Fry, who helped the company expand internationally. “But we were on autopilot.” In one meeting, about ballooning costs in London, some of WeWork’s team thought they should put the brakes on growth in the city to get its operations under control. Neumann rejected the idea. WeWork could charge exorbitant rents in London and thus bring in more revenue, which was how people were judging the company’s valuation.
It was difficult for WeWork employees, who were used to growing quickly, to keep up with the pace that Masa and Neumann were demanding. WeWork’s business was a rent arbitrage: lease office space from landlords, then fill it with enough paying tenants in smaller offices to more than make up the difference. For the model to work at any given location, each space needed to meet certain physical requirements — size, shape, location, available infrastructure — that would allow the company to keep its costs at a minimum while squeezing in enough people to turn a profit. At one point, WeWork’s West Coast team met in Seattle to come up with projections that could satisfy SoftBank’s demands. But as the team surveyed the real-estate market in cities up and down the coast, they came to a troubling realization. “There was literally not enough real estate in these cities to reach these numbers,” one person involved in the discussion said. New construction was popping up all over Seattle, but the team found that WeWork could have occupied every new building going up in the city and still not hit the goals Neumann and Masa were setting before them.
Masa’s money allowed WeWork to warp the economics of the commercial real-estate world — a pattern that was repeating itself around the world in industries of all kinds. Massive amounts of venture capital, much of it flowing directly from Masa and the Vision Fund, were flooding into everything from scooters to food delivery to all-you-can-watch movies. The money was being funneled to consumers, who were happy to receive heavily subsidized services, while Bird and DoorDash and MoviePass all burned cash to acquire customers, hoping that one day they could charge full price. For businesses without Warren Buffett’s “moat” protecting them, a new model existed: “capital as a moat.” Can’t beat ’em? Drown ’em in cash.
Almost none of the companies spending so lavishly was anywhere near profitable, and WeWork was among the most extravagant: The company lost nearly $2 billion in 2018, its first full year of spending SoftBank’s money. The discounts WeWork offered made it difficult for anyone to figure out the natural demand for their product. The deals also made it hard for competitors to keep up. Hodari and other WeWork rivals said they lost only a small chunk of their tenants to WeWork’s marketing blitz, but if the campaign continued, none of them would have the cash reserves to survive what amounted to predatory pricing as WeWork bought up leases at above-market rates while leasing the space to tenants at prices that would make it difficult to break even.
In 2017, five partners from Benchmark, the Silicon Valley firm that had been WeWork’s first major investor, flew to New York to confront Neumann. The Benchmark investors chastised him for selling so much of his WeWork stock and were critical that the company had missed its projections yet again. In 2014, Neumann had told investors that WeWork would be spitting off more than $500 million in profit by 2017. Instead, the company was on pace to lose nearly $1 billion as the costs of its rapid expansion grew.
The Benchmark investors worried about the distorting effects the Vision Fund would have on WeWork’s growth. But practically every atmospheric force of the 2010s was encouraging Neumann to do precisely what Masa was enabling. (Uber, another Benchmark company, had negotiated its own multibillion-dollar investment from the Vision Fund, and Dara Khosrowshahi, its CEO, made the counterargument in favor of taking Masa’s money: “Rather than having their capital cannon facing me, I’d rather have their capital cannon behind me.”) WeWork’s “growth at all costs” plan epitomized an increasingly popular Silicon Valley strategy known as blitzscaling, a term coined by Reid Hoffman, the co-founder of LinkedIn.
Hoffman acknowledged that blitzscaling could seem counterintuitive. “It involves purposefully and intentionally doing things that don’t make sense according to traditional business thinking,” he wrote. The idea was to not worry too much about risks and costs that might bother a traditional businessperson. The goal was “lightning” growth. The effect of the Vision Fund was to break some of the foundational rules of capitalism, allowing WeWork and other companies to price products not to make a profit but simply to acquire market share.
Hoffman admitted that blitzscaling had its dangers. There was a difficult balance, he wrote, “in marrying responsibility and velocity.” While start-up founders “may benefit from behaving like ethical pirates,” he added, “they should never behave like sociopathic criminals.” He was worried less about ethics than the kind of negative PR that befell Uber in 2017, when its founder, Travis Kalanick, was forced to step down.
Neumann expressed little interest in slowing down. One morning in early 2018, with his own blitzscaling campaign fully operational, he flew on a private jet to Seattle to meet with Howard Schultz, the former CEO of Starbucks. WeWork was thinking of expanding into retail. When they met, Schultz gave Neumann a piece of advice. After Starbucks started to take off — blitzscaling before the word even existed — Schultz said that he wished he had taken six months to stop growing so that Starbucks could have ironed out various problems that would plague the business for years. This was precisely what many WeWork executives had been pressing Neumann to do: systematize its sales and leasing operations, get a handle on the construction process, stop moving into peripheral businesses. On a private jet flying him out of Seattle, Neumann shared Schultz’s advice with several WeWork employees who were on board, then told them what he thought of it: “Fuck that.”
WeWork continued to expand with almost no limitations. The number of locations it had worldwide tripled. The number of employees it had nearly quadrupled. (The number of $60 million private jets it owned, primarily for the use of its CEO, went from zero to one.) It had long been Neumann’s goal to make WeWork “too big to fail” — becoming as entrenched in the real-estate world as the big banks had been in the financial system — and Masa’s money seemed as if it might help him do just that.
And then it all fell apart. WeWork’s IPO was mocked; the numbers didn’t add up, and Neumann’s proclamations that WeWork would “elevate the world’s consciousness” didn’t make much business — or common — sense. Many WeWork employees were left to wonder: What would have happened if Neumann and Masa had never met? WeWork would probably have run out of money back in 2017, slowed its growth, gone public, and perhaps settled into becoming a nice little business. Masa’s money was now something of a poisoned chalice: It had enabled the company to grow at a remarkable pace, before sending it hurtling off a cliff.
Today, SoftBank still hopes to be a major player in real estate: It has funded Compass, the real-estate brokerage, and Opendoor, the home-sales marketplace, in an attempt to reshape the residential market. But with a new era beginning in the midst of such devastation and loss, what lessons can the next barons of New York real estate take from WeWork’s rise and fall? Most immediately: Now is the time to act. What separated WeWork in its early days was a penchant for empire-building: taking out big leases when no one was renting and expanding rapidly once it was clear the idea had legs. Other co-working and office-leasing operators were content to maintain small fiefdoms. Neumann wanted the world, and for a decade, he gobbled up more and more of it.
But, eventually, WeWork’s expansion became too much for the company and the market to bear. Despite promises of technological innovation, real estate is a hands-on business, and the company’s employees could barely keep up with the rate at which they were building and operating new spaces. Few people inside or outside the company could see how it made sense to open a school, or invest in a wave-pool company, or try to operate a gym. The company wanted to become an office-space platform and then a consciousness platform, when it wasn’t clear what exactly either of those would be. Like so many start-ups of the 2010s, WeWork simply wasn’t content to be what it was.
Real estate is perhaps the industry most disrupted by the spread of COVID-19, and right now, somewhere in Manhattan, there are new Adam Neumanns prowling the streets, looking for deals, hoping to build. They might even take a look at the original WeWork in Soho (which the company closed down this summer), where you could still find the company’s original logo pasted on the inside of an elevator: a stick figure wielding a sledgehammer to smash a computer. The city’s distressed market is a perfect place to build a new way of doing things — so long as those doing the building understand that a dash of technological fairy dust can’t sweep away the practical problems of running a real-estate business based in the real world.
But the potential windfall of disrupting the real-estate world remains so big that the next version of Masa — if not Masa himself — will almost certainly come looking to bestow their largesse on ambitious entrepreneurs promising to make something new. In WeWork’s case, Masa’s desire to fund world-changing ideas pushed an already ambitious company to expand too far too fast. When the next version of Masa comes along, promising the chance to take over the world, the question for the COVID-era’s Adam Neumanns will be whether or not they have the guts to forge ahead smartly rather than extravagantly, or if they will give in to new visions of grandeur all their own.
Adapted from the book Billion Dollar Loser by Reeves Wiedeman. Copyright © 2020 by Reeves Wiedeman. Reprinted by permission of Little, Brown and Company, New York, NY. All rights reserved.