Yardi’s Plan for WeWork Might Be a Fix-and-Flip

When WeWork emerges from bankruptcy, it will likely have a surprising new owner.

Yardi Systems, a software firm based in Santa Barbara with no experience in the landlord business, will run WeWork if its plan is approved by the bankruptcy court.

Why would Yardi, a firm in the property management software business, want to buy a co-working company that has failed since its founding to make a profit?

Much has been speculated about Yardi’s intentions. Some think the firm, led by media shy Anant Yardi, will somehow combine WeWork’s real estate and Yardi’s software business. It’s all a grand plan by Yardi. WeWork will finally become a tech company. Hooray!

But the more likely scenario is that Yardi saw a bargain, wants to recoup its initial investment, and has some familiarity bias, having worked with WeWork for two years.

According to industry sources, Yardi is “in for a penny, in for a pound” — that is, the firm was already invested in WeWork, so it doubled down rather than cut its losses.

Yardi initially partnered with WeWork in 2022 to help launch an app, then, through its investment arm Cupar Grimmond, pitched in as WeWork restructured. (A steak dinner to whoever figures out the backstory of this obscure, wholly owned subsidiary.) Yardi was the third largest WeWork shareholder last year.

Yardi was also a senior secured lender during the bankruptcy, so its agreement to lead a $450 million rescue of WeWork did not come out of left field.

Yardi will keep the company for a year, maybe two, the thinking goes. WeWork’s value is so low — around $765 million — that it can only increase. Yardi would then flip it to another flex-space firm, perhaps IWG, that can combine the companies, reduce overhead and achieve economies of scale. Bam! Yardi is out, back to selling software with a little extra cash in its pocket.

Is that feasible? WeWork former CEO Adam Neumann, who claims WeWork’s sale to Yardi is an inside job, already offered $650 million to buy his old firm. So at least there’s one potential buyer.

Sources said investment firms previously looked to partner with Industrious to acquire WeWork and that IWG also considered buying it.

Scooping up the bankrupt firm and the desirable leases it kept is also not a bad bet if you think the office sector has bottomed out, or at least that hybrid work has legs.

According to CBRE, about 50 percent of real estate executives believe co-working space will make up more than 10 percent of their office portfolios by 2025. The theory is companies with hybrid work schedules prefer flexible leases with coworking providers rather than long-term deals.

Bondholders also believe in the plan: They are contributing $112 million in financing. That’s a good sign.

WeWork will look better outside of bankruptcy. It shed about 150 out of 450 locations. It will carry no debt (the bondholders’ buy-in will be converted to equity). It shed $8 billion in future liabilities.

“We will have the best portfolio, lease terms, and capital structure to operate this business sustainably into the future,” a spokesperson for WeWork said in a statement.

But profitability is no sure thing. The company projects occupancy to increase to 85 percent in five years at its locations, but Neumann and others call that unrealistic. New York’s office attendance hovers at just 50 percent in buildings with Kastle Systems card-swipe technology, although it is higher mid-week.

WeWork claims to have a “path forward” on 90 percent of its leases. But it’s unclear what that corporate lingo really means. WeWork has not disclosed its concessions from landlords, making the firm’s value difficult to evaluate. It does not plan to add locations, which limits its membership growth to its existing ones.

WeWork has been the “it” co-working company for some time. Under Neumann, the firm was the largest private office tenant in Manhattan. Even after main investor SoftBank pushed him out, the firm still claimed to have brand power.

Other co-working firms, such as Industrious and IWG, also grew, but more judiciously. While they continued to expand, WeWork had to do the opposite. Restructuring was essential, but makes its pitch to customers is that much harder. Gone is the cool spot for startups with free beer and “collective consciousness.” In its place is a cost-efficient flexible workplace provider operating as a fiduciary to creditors. Sound enticing?

Yardi, for its part, has said next to nothing about its strategy, beyond that it plans to set up a separate entity to manage WeWork at arms-length from Yardi’s core business.

“We believe the company’s fundamental value proposition remains intact and that it can have a successful future,” Yardi said in a statement.

WeWork forecasts that it will more than double revenue by 2028 and net income — something it has never had — will reach $343 million.

But here’s the rub: That’s not much for a company with 24 million square feet of exposure to office. The upside is limited, and the business model — leasing and then subleasing office space — is tricky.

In the 2010s Neumann pitched his real estate company as a tech company. Now, a tech company, Yardi, is acquiring a real estate company. And who wants that?