WeWork wants to become a real estate investor

UPDATED: Oct. 14, 1:02pm WeWork is preparing to launch an investment vehicle to buy its own real estate properties, in a major strategic shift for the $16.9 billion co-working company.

“The moment WeWork comes into a building, you’re creating value,” Michael Gross, the firm’s vice chair, said at the Cornell Real Estate Conference Friday morning. The company is “right now in the process of working on a vehicle” that would acquire buildings for WeWork and WeLive, Gross said, adding that such a vehicle could be created in partnership with outside investors.

“We’re looking at multiple companies where we’re looking at sale-leasebacks,” he said. “They’re looking to sell us buildings. We would come, refit it out and give it back to them.”

WeWork has always touted its so-called “asset-light” model: The firm doesn’t actually buy any of the spaces it builds out and then rents to short-term office tenants, meaning it spends less on up-front capital investments for every dollar of revenue it makes. It also hasn’t had to deal with acquisition costs, interest payments on mortgages, and so on.

The new vehicle doesn’t necessarily mean a departure from that model. If WeWork ends up buying properties through a dedicated investment fund with outside capital – much like fund managers like Blackstone Group already do – it wouldn’t actually spend its own capital. A WeWork spokesperson declined to comment.

Such an investment vehicle could, however, put WeWork in direct competition with some of the office landlords it partners with. These include Rudin Management and Boston Properties at the Brooklyn Navy Yard, where the developers are planning a 556,000-square foot building anchored by WeWork, property records show.

WeWork has certainly shown a prodigious ability to raise money. On Thursday, the Wall Street Journal reported it picked up another $260 million from investors, bringing its total venture funding to $1.7 billion and valuing the company at $16.9 billion. The firm currently operates 123 co-working locations in 38 cities and 13 countries, according to its website, as well as two WeLive shared living spaces. Its investors include U.S. behemoths such as JPMorgan and Wellington Management, as well as Asian conglomerates such as Legend Holdings and Shanghai Jin Jiang International Hotels.

In July, The Real Deal broke down the logic behind WeWork’s valuation, which stood at $16 billion at the time.

But the company has struggled to keep with its own lofty expectations. Earlier this year, it slashed its 2016 profit forecast by 78 percent, amid slower-than-expected growth and high buildout costs. Launching a real estate investment vehicle could add another revenue channel.
Another potential new revenue channel would be managing corporate headquarters or large-scale office campuses for corporations keen on offering their employees a more social working environment. WeWork has had preliminary talks with major companies about such a model, according to a source familiar with the firm.