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Why on Earth Is Adam Neumann Trying to Buy Back WeWork?

WeWork CEO Adam Neumann Visits Shanghai
Photo: Jackal Pan/Visual China Group via Getty Images

Adam Neumann has put together a bid of more than $500 million to buy WeWork, the bankrupt co-working company, The Wall Street Journal reported this week. The co-working start-up’s co-founder and once–chief executive has spent the last several months trying to find his way back to the company he helped create in 2010 before being ousted in 2019, but WeWork doesn’t seem to want him back. In response to the news of Neumann’s offer, WeWork basically pulled an I don’t know her, telling the Journal that it receives “expressions of interest from third parties on a regular basis.” One might have a few questions here. Like: Does it make sense to get back into the office-space-leasing hustle at a moment when no one seems to be going into the office like they used to? And why would Neumann, a billionaire twice over who is currently running a similarly hype-y residential start-up called Flow, even want to?

Here’s what we know.

Wait, who wants to rent office space right now?

While there is a glut of office space available at the moment, the office is not, as was once feared and hoped, dead. Most of New York’s office workers settled into some kind of hybrid schedule over the last few years — on any given day, 52 percent of office workers are at their desk, but just 9 percent come in five days a week, according to the Partnership for New York City. Companies still want and need office space, but those needs are different than they were before the pandemic. Which is where co-working space, or as experts are now calling it, flexible office space, comes in.

So co-working is still a thing?

Yes. Commercial brokers say that as companies have shrunk their overall footprints after COVID, the demand for co-working space has only increased.

Okay, then it makes sense Neumann wants WeWork back.

Co-working can be a viable business, and so, too, could WeWork. But it seems doubtful that Neumann, of all people, would be the one to finally make WeWork a going concern. The business of co-working has also changed from what it once was, says Julie Whelan, who leads a research team at CBRE. The aughts-era idea of co-working popularized by WeWork — a bunch of 20-somethings paying monthly fees for individual desks in shared offices where they could meet other entrepreneurs and drink free craft beer — has shifted to a more à la carte office model many different types of businesses are interested in using. Flexible workspaces — smaller, built-out offices with shorter lease terms — allow younger companies to lease spaces without long-term commitments and more established companies to access extra space if they need to accommodate visiting workers, rent extra conference rooms, or open satellite offices with lower overhead. While office leasing is muted right now, the demand for spaces under 20,000 square feet is higher than ever, according to Whelan.

What are the details of the bid?

Neumann and his backers — it’s not clear who they are, exactly — have reportedly submitted an offer of more than $500 million to take over WeWork. Despite his track record, Neumann keeps convincing people to give him money — e.g., the $350 million his real-estate company, Flow Global, raised from venture-capital firm Andreessen Horowitz. Neumann, who received an extremely generous exit package when he was ousted from WeWork, also has a lot of his own money, a net worth of $2.3 billion, according to Forbes, but he hasn’t indicated he’s financing the bid himself. In February, Dan Loeb’s hedge fund Third Point Capital was rumored to be involved, but Third Point quickly clarified that it had had only preliminary conversations with Flow, and The Wall Street Journal reported that Third Point was not part of this bid.

Will WeWork take it?

It’s not looking likely. One source, citing IWG, another major co-working company, as a benchmark, thought that Neumann’s offer was a lowball: WeWork is likely worth three to four times that, between $1.5 to $2 billion, although Neumann might be counting on the publicity to work up something closer to a credible bid — of, say, $1.2 billion. (CNBC reported that the bid could go up to $900,000 if due diligence and financing line up, which are big ifs.) But Vicki Bryan, CEO of Bond Angle, a bond research firm, scoffed at the notion that WeWork was worth even $500 million, noting its lack of tangible assets and liabilities — the many leases it’s working to renegotiate or exit through the bankruptcy process. Neumann’s offer struck her as another number he’d plucked out of thin air.

It doesn’t seem based on financial information from WeWork, in any event. In February, Flow’s lawyers wrote a letter to the company, quoted in the Times, expressing “dismay” with WeWork’s “lack of engagement even to provide information … in what is intended to be a value-maximizing transaction for all stakeholders.”

Remind me what Flow is again?

A residential real-estate company that, not unlike WeWork, seems to be playing up what is essentially landlording as a bold, disruptive new business. The company assembled a portfolio of some 3,000 apartments in Miami, Atlanta, and Nashville that would be run in some cooler, more community-driven way than other apartment complexes. Although no one really knows what that means.

Okay, thanks — back to why WeWork doesn’t seem interested in Neumann taking over.

Someone with knowledge of the situation told us that having Neumman hovering over WeWork’s bankruptcy proceedings is unwelcome, to say the least. With any bankruptcy, there’s an element of uncertainty, and WeWork has to renegotiate many, many leases to emerge from bankruptcy as a viable business. Landlords don’t know who they’ll be dealing with down the road, and now Neumman has raised the possibility that it could be him.

Why did WeWork go bankrupt in the first place?

Like many aughts-era start-ups, the company has always struggled to bring in more than it spent. After a failed IPO, it finally went public in 2021 through a SPAC, at a valuation of around $9 billion. But the company’s business model — signing long-term leases with landlords and making money on subleasing built-out spaces — can be risky, and WeWork signed a number of long-term leases for top dollar in the years before the pandemic. In 2018, it became New York City’s biggest private office tenant. After the pandemic, the company tried to renegotiate and exit many of its leases, but wasn’t able to right itself fast enough to avoid bankruptcy.

As of February, WeWork said it had made agreements with more than 100 locations, representing more than $1.5 billion in savings. Many leases have been renegotiated — in a number of locations, WeWork downsized its footprint considerably — others have been exited altogether, and some agreements have shifted from a lease to a revenue-sharing model with the landlord.

Landlords are getting into the co-working game?

Landlords are building out their own spaces and hiring co-working companies to manage them, or entering into partnerships with co-working companies, where they share revenue and risk, a model that’s widely seen as more resilient than the WeWork lease model. (IWG, which had a lease-based model like WeWork’s and also struggled after the pandemic, has increasingly shifted to a revenue-sharing and management model, with good results. It is often held up as a counterpoint to the hot mess of WeWork.) “I don’t think it will ever be the dominant type of office space in the U.S.,” Whelan says, noting that flex/co-working space is still only a fraction of all office space, 2.4 percent in Manhattan, and even less than that nationally. “But I do think that almost every building will have some flexible office space in the future.”

Jamie Hodari, the CEO of Industrious, another flexible-workspace firm, says that Industrious’s revenue is up 300 percent since the start of the pandemic, with a lot of growth coming from companies using co-working spaces for satellite offices (i.e., a company will have a traditional lease for its New York City headquarters, but flex space for its 40-person team in Denver). “I think one of the ironies of the WeWork bankruptcy is it came at the exact moment when there’s rapidly rising demand for flexible office space,” Hodari says.

Why is Neumann doing this?

No one knows for sure, but several people involved in the industry pointed out that he’s sure getting a lot of attention for it. “Does he actually want it or is this all a show? That’s hard to divine,” says one, speculating that he might be using the bid as a ploy to raise money for Flow. “He’s a legend in his own mind and he’s coming in to save his baby,” says another, adding that he’s milking the publicity for all that it was worth. In any event, no one seems to think that Neumann would be the best person for the job. He’s a hype man who excels at raising — and spending — money, not the kind of leader you’d want to shepherd a company through post-bankruptcy rebuilding. “I think the person who would be most frustrated if Adam Neumann bought WeWork would be Adam Neumann,” says one. “I can’t imagine a worse person to soberly run a company in dire straits and turn it into something profitable.”

Why on Earth Is Adam Neumann Trying to Buy Back WeWork?