Convene’s deal with Saks owner not as rosy as it sounds

Department store powerhouse Hudson’s Bay Company is combining its co-working business with startup Convene to become a major provider of flex meeting, event and office space.

Hudson’s Bay, along with private equity firm Ares Management and Convene’s existing investors, will put in hundreds of millions of dollars to grow Convene’s business. The move expands Hudson’s Bay’s presence in flex space after it partnered with WeWork last year to convert former department stores into co-working space.

But the deal is not as rosy as it sounds for Convene. Hudson’s Bay is buying a majority stake in Convene, in a deal that values Convene at $500 million, the Wall Street Journal reported. That’s the same amount Convene was valued at in 2018 after its Series D funding round, according to CB Insights.

Some of real estate’s biggest players participated in that $152 million fundraise, including RXR, Brookfield Property Partners, and the Durst Organization. At the time, the firm’s estimated revenue was $75.5 million, according to CB Insights.

Convene’s stagnant valuation could be a sign of the diminished demand for office space as well as a broader reckoning in tech startup valuations that’s being keenly felt in proptech.

Venture capitalists rushed into the nascent sector as young firms look to disrupt and modernize real estate. Proptech startups raised $12.2 billion in venture capital in 2021, data from CB Insights show, up 34 percent from the previous record set in 2019. But many of the biggest ones have taken a shellacking in the public markets, especially those affiliated with SPACs.

Others have struggled to make money at all. WeWork, a competitor of Convene, comes to mind. It lost $803 million in the fourth quarter. Data firm Reonomy, which was recently acquired by Altus Group for $200 million, posted an annual loss of $16.9 million last September and had revenues of just $18.3 million.

In Convene’s case, the stake sale does come with the promise of growth and access to Hudson’s Bay sprawling real estate portfolio.

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Convene will now operate Hudson’s Bay’s portfolio of SaksWorks flexible work, event, restaurant and meeting spaces, where all will be rebranded under the Convene brand.

Hudson’s Bay  — the owner of Saks Fifth Avenue, the Hudson’s Bay department stores and the real estate tied to bankrupt Lord & Taylor — said Convene will own a lot of the real estate it manages, according to the Journal. The firm has raised over $250 million and has 26 locations under management with dozens more under development across the U.S. and London, including meeting spaces and flexible workplace.

Convene co-founder Ryan Simonetti will continue to lead the firm after the deal.

“We will see consolidation, and we’ll continue to see deeper and deeper alignment between the companies like us and either the vertically integrated owner-operator or some of these bigger real estate services companies who need the capability that we’ve built,” Simonetti said in an interview with The Real Deal in December.

Co-working and flex space firms have been partnering with traditional office brokerages and leasing firms. Last year, WeWork tapped JLL to market and lease its spaces in 38 locations in seven cities nationally. Also in 2021, CBRE acquired a 35 percent interest in the co-working firm Industrious, making it the largest shareholder at the time.

Hudson’s Bay Company did not make an executive available to comment.