Will WeWork Work?
(Bloomberg Businessweek) -- When WeWork Cos. tried to go public two years ago, it was an unmitigated disaster. The company was burning cash at a rate as high as $2 billion a year, and its erratic and egomaniacal chief executive officer, Adam Neumann, had enriched himself by selling off stock while persuading private investors to value WeWork at an inflated $47 billion. Public investors balked at the price, the startup was forced to pull its initial public offering, Neumann resigned, and thousands of employees lost their jobs, all in the span of a few months.
Then Covid-19 hit. Seemingly the last place people would want to be was an enclosed space shared with hundreds of strangers, breathing the same air and touching the same elevator buttons and seltzer dispensers. WeWork occupancy dropped from 67% to 46% during the first nine months of the pandemic.
Now WeWork is giving it another try. The company is preparing to go public via a $9 billion blank-check merger in late October. It’s telling investors that it’s emerging from the Covid crisis stronger than ever and argues that customers are increasingly looking for flexible offices to accommodate workforces that want to split time between home and the office. At an investor presentation on Oct. 7 the company said it brought in $228 million in revenue in September, its best month of the year, and its occupancy has inched back up to 60%.
WeWork is also eager to highlight all the ways it’s broken out of the Neumann chaos spiral of 2019. In early 2020 it named a new CEO, real estate industry veteran Sandeep Mathrani, who is best known for his turnaround of mall giant General Growth Properties and has little of the spotlight-grabbing, hard-partying, barefoot-on-the-sidewalk proclivities that made Neumann infamous. The overarching task for Mathrani is to prove to investors that WeWork’s core idea was always sound, even if its original management wasn’t. “Flexibility is at the core of what the future of the office is,” he said at a recent investor day.
Under Mathrani’s more frugal guidance, the company has shed many head-scratching Neumann-era investments and side businesses, such as an elementary school (where some of Neumann’s children were students) and an indoor wave pool company.
WeWork has also hacked away its 500 worst building leases, either by exiting them entirely or renegotiating the deals, and says it’s trimmed its lease expenses by $400 million and administrative expenses by $1 billion. It’s started handing off lease liabilities overseas by signing franchise agreements with other operators instead of running its own buildings. The company now counts enterprise customers—who tend to be stabler, longer-term clients than individual workers—as more than half of its tenant base.
Even as its revenue model tilts away from individual workers, WeWork’s appeal still relies heavily on the idea that it provides fun working experiences for freelancers and entrepreneurs who’d otherwise be toiling from coffee shops or at their own kitchen tables. In some cases the pandemic increased the appeal of WeWork’s key selling points: convenience and community.
Adam Cohen-Aslatei, the founder and CEO of dating app S’More, used to have a small office in a Midtown Manhattan WeWork location for his eight employees. The office was shut down temporarily for a scrubbing after a Covid exposure in March 2020, and Cohen-Aslatei was the only one to return when it reopened. WeWork had six floors of offices at that location, but most days it was he, a few others, and the cleaning and administrative staff. “I really felt like I was fancy,” he says. “I had a whole six floors to myself. I could run around here naked, and no one would ever know.”
Cohen-Aslatei walked to his WeWork location every day, mostly as a refuge from his one-bedroom apartment, where he and his husband were too crammed in to work together. After a few weeks he befriended the one other person consistently coming in, the founder of a similar-size startup who worked across the hallway. The two started waving hello through the glass panels, began asking each other for advice on which attorneys to hire and which analytics tools to buy, then progressed to after-work beers. “For a year it was just us two, and we became best friends,” Cohen-Aslatei says. The two startups moved their 15 employees into a shared office at a different WeWork location in August.
The office in Midtown started to fill up with WeWork employees who were working there while the company’s primary location was being renovated. The office perks returned in May—kombucha, lime seltzer, passion fruit iced tea, and nitro coffee, Cohen-Aslatei says—albeit without some of the excesses of WeWork’s previous incarnation. “There’s no more beer, which is fine,” he says.
Companies are still uncertain about what to do as they settle into a new reality, where many employees would prefer a mix of working from home and in the office. WeWork has introduced products such as on-demand and all-access passes, which allow for spur-of-the-moment co-working drop-ins.
It’s also courting real estate companies whose businesses have been complicated by the pandemic. It recently joined with Cushman & Wakefield to provide flexible office space to tenants uncertain about how much they’ll need in a post-Covid future. WeWork has started to explore deals to convert underused retail space into company-branded co-working spaces, including a recent one with Saks Fifth Avenue, allowing it access to more real estate without having to take on new leases.
Whatever the solution, WeWork will need to make sure its offices are exciting enough to be worth the money and the commute. Tommaso Tosi, founder of the startup Titanss, says he was disappointed early in the pandemic when he tried WeWork offices and was the only person on three empty floors. But more recently he came to San Francisco from London and found what he was looking for: some friendly office networking.
In May, at a WeWork location in San Francisco’s Financial District, tenants were ready to mingle, the coffee was flowing, and, most important, there was a pingpong table and willing paddle partners. By summer the office felt crowded again. That was fine with Tosi, who was hungry to meet other entrepreneurs. “I go and work at a hot desk, and we meet other founders there, doing their own startups,” he says. “Silicon Valley-style, you know?”
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