Last year, WeWork failed to go public after a series of scandals were exposed. But a year later, after the ups and downs of the epidemic, this shared office space company not only did not fall, but miraculously hoped to make profits by taking advantage of the post epidemic trend of shared office, and if it can maintain such a good momentum, it will launch another IPO.
WeWork is a company that rents well decorated private office space. The main business model of WeWork is to rent the whole office building or office space in the building from the landlord, and then decorate the rented space to create the office atmosphere of the start-up company. Then, the office desk, office, the whole floor or the whole office building will be subleased to individuals and companies at a price higher than the price when WeWork rented them. During the epidemic, most people stayed at home and worked remotely. WeWork has made a series of important adjustments to overcome the epidemic crisis. But in fact, before the epidemic hit, WeWork had taken some of the most important measures to avoid falling down before the epidemic hit.
Last year, the company had distanced itself from its founder, Adam Neumann. The corporate culture created by the founder is closer to the crazy and absurd corporate culture of some technology companies, but far from the traditional culture in the real estate field. When he blindly pursued the high valuation enjoyed by technology companies for office leasing companies, Neumann's enthusiasm for parties, extravagant consumption and poor judgment made the company increasingly deviate from the original goal, and even nearly destroyed WeWork. The new CEO Sandeep Mathrani was appointed in February this year. His job is to help the company return to the right path, cut costs, and eradicate the toxic corporate culture, so as to bring the highly anticipated unicorn back to life.
WeWork's strength proves the strength of the flexible office market. The flexible office market segment belongs to the new real estate industry. In addition to the characteristics of shared office, this market segment focuses more on short-term rental and readily available office space. Considering that the so-called flexible office space, to a certain extent, is equivalent to cramming as many people as possible into that little space, the adaptability of this market segment during the epidemic is really surprising.
At present, with the launch of vaccines, the value proposition of flexible office space has become attractive for companies that are struggling to cope with the uncertainty brought about by decentralized labor.
recently Google In the 10K report submitted to the regulatory authority, it was mentioned that the negative impact of long-term telecommuting during the new crown includes the reduction of advertising revenue and the decline of office efficiency. Google mentioned that it will experiment with mixed working modes, including re arranging offices and developing more long-term telecommuting options.
"According to our data and history, we believe that flexible office space will be a very feasible choice when people are interested in shared office space again." Commercial real estate company CB Richard Ellis Julie Whelan, global director of owner research at CBRE, said recently when talking about flexible office space, "After the epidemic, this industry will be stronger than ever."
To understand the miraculous revival of WeWork, we first need to understand the entire flexible office space industry and its prospects.
01 Is the flexible office segment in the ascendant?
It is a fact that the epidemic has seriously affected the owners and operators of office space (including flexible office space). Only a small number of people are now back in the office. In Manhattan, the largest office market, only 10% of office workers return to work in the company, and some may not return to work in the company in the future.
However, although the number of new leases has decreased, few people have given up flexible office space. According to the data of commercial real estate service giant Gaowei Property, as of the end of the third quarter of last year, the leasing area of flexible office space in the top 23 markets in the United States was about 67.1 million square feet, an increase of 2.5% compared with the end of 2019.
Another competitor of WeWork, Knotel, a flexible space provider, provides services for Twiilo in London WeWork and its competitors (such as Knotel and Industrial) rent out ready to use office space to individuals and companies. The rapid growth of these companies has begun to slow down, but has not shrunk. They have retained enough business to maintain operations during the epidemic, and wait for the best time to come - an era when flexible office space is more attractive than traditional long-term rental offices. Industrious said that it would try its best to find new customers for the existing office space next year.
The attraction of flexible office space is that enterprises can more easily cope with mixed office and other trends. In the mixed office mode, the frequency of people entering the office is lower than before, and the reasons are no longer the same. The flexible office space also provides an opportunity for those companies that are still pondering the future trend to stop and watch for a while.
Real estate experts said that companies - especially large companies - did not avoid flexible office space, but planned to gradually increase their flexible office space area and make flexible office space occupy a larger proportion in their future product portfolio. A CBRE report surveyed 80 companies around the world. According to the report, about 86% of them plan to make flexible office space an important part of their real estate strategy in the future. They are also more likely to sign lease contracts with office buildings that provide flexible office space.
Jones Lang LaSalle (JLL), a commercial real estate service company, predicts that by 2030, flexible office space will account for 30% of all office space. Jonathan Wasserstrum, CEO of SquareFoot, a digital commercial real estate brokerage company, believes that this trend will happen faster. In 2020, the demand for flexible office space services on the company's platform increased by 15%. There are many reasons for choosing flexible office space. In general, they represent that the trend that has emerged before the epidemic is accelerating.
What's more surprising is that real estate experts believe that the shared space will not be as unpleasant as it was during the epidemic, thanks to the widespread adoption of security measures and, more importantly, the upcoming launch of vaccines.
Julie Whelan of CBRE said: "Anyone who manages the office environment, including flexible office space suppliers, must develop a set of guidelines to provide safety in the working environment, such as air filtration, maintaining social distance, strengthening cleaning, using masks, etc. As long as safety rules are formulated and strictly observed, we believe that flexible office space is no different from other types of office space. "
In fact, the epidemic has made flexible office space more popular.
Paul Leonard, executive consultant of CoStar Advisory Services, said: "For business owners who need office space, it is just the epidemic that makes them pay attention to flexible office space."
In other words, if an accident happens, the company hopes that they can withdraw the rent more quickly than signing a traditional office lease contract. They are more willing to pay a certain premium to reduce uncertainty.
David Smith, director of owners' research in the Americas of Gaowei Property, said that flexible office space was in the ascendant when enterprises began to rethink the use of offices.
In other words, enterprises still need office space, but the reasons for the need for office space have changed. Companies like WeWork, in a special position, can provide choices for people and companies who have doubts about the future.
02 Miracle turning point of WeWork
Nobody expected that WeWork would still be at the forefront of the office trend in 2020. Considering the bad situation in the past and the pile scandals that have occurred, the new prospect of WeWork to become profitable and even to be listed again is particularly surprising.
At one time, WeWork, in the name of a science and technology company, was in the heart of Silicon Valley, with a valuation of up to 47 billion dollars. The largest investment banks have volunteered to help WeWork go public. Unfortunately, the listing process mercilessly exposed the company's shocking financial disaster and toxic corporate culture.
The year before WeWork plans to go public, the company's revenue was $1.8 billion, but its loss was $1.6 billion. It is not uncommon for technology start-ups to lose money, but WeWork's losses stem from more serious problems such as corporate governance and bad behavior.
While the company is trying to prove its value to potential market shareholders, Adam Neumann, the co-founder of WeWork, is surfing, absent from company meetings, and using the company's funds to enrich his own and his family's pockets. It is said that there is also a "hot spring and ice bath" in Neumann's office. He also spent a lot of money on investments that had nothing to do with WeWork, including a school and a startup that created artificial waves. He didn't need to rename the company We Company.
Facts have proved that private investors may tolerate such behavior, but the public market is not.
Due to tight cash flow, WeWork's Manhattan private school WeGrow will close at the end of 2019 At the end of 2019, WeWork cancelled its listing plan and fired Neumann. Neumann, who personally pushed the company into the abyss, still received a huge severance compensation of 1.7 billion dollars when he left. Softbank, the main investor of WeWork, said it intended to save WeWork even though it had lost billions in this company. Remedial measures include reducing spending, slowing the pace of investment in new real estate, and reassessing the real estate already owned. WeWork also laid off thousands of employees and sold off many non core businesses, including the artificial wave manufacturing company. Then WeWork invited Maslani, an executive famous for helping the company turn the corner. Finally, we Company changed its name back to WeWork.
Although the company is still in trouble, at least WeWork is trying to get back on the right track. WeWork has halved its losses. In the third quarter of last year, WeWork lost $1.2 billion. In the same period of this year, the loss was reduced to 500 million US dollars. Although the amount was still huge, it was at least controlled. The number of members and income of WeWork are also declining, but the decrease is less than 15% compared with the same period last year. Considering that many members of WeWork are monthly subscription members and can cancel the subscription at any time, this performance is not bad.
In addition, the proportion of WeWork members with 500 or more employees is increasing, from 43% last year to 54% this year. These companies sometimes rent the whole floor or the whole office building, which is more valuable and stable than individual members.
WeWork also added some meaningful income items. In October, the company launched "Business Solutions" to help SMEs in its office space deal with human resources, salary distribution and other matters. In addition to the rent, enterprises can subscribe to these services on a monthly basis.
Prabhdeep Singh, the global marketing director of WeWork, said in an interview in October: "This move has transformed WeWork from a pure shared office space company into a company that truly provides end-to-end enterprise solutions. I will not say that this is our ultimate vision and plan, but it is undoubtedly our first step."
WeWork also added in office advertising to allow advertisers to find their potential customers through thousands of screens in WeWork's office space.
03 The other side of the matter
WeWork has solved some important problems and is in a promising industry, but this does not guarantee the future success of WeWork. WeWork will still face some serious challenges before the end of the epidemic.
The main business model of WeWork is to rent the whole office building or office space in the building from the landlord, and then decorate the rented space to create the office atmosphere of the start-up company. Then, the office desk, office, the whole floor or the whole office building will be subleased to individuals and companies at a price higher than the price when WeWork rented them. One of the biggest challenges of this business model today is that most of the lease contracts signed between WeWork and landlords occurred before the epidemic. When the real estate market was at a high level, the rent price was at the peak. However, WeWork now needs to sublet these spaces, and at this time the expected rent is lower than the original level, because there are more choices in the market and we are in a recession. New offices are also less likely to be rented out. Because it takes time to attract tenants, these new offices have less rental income than mature offices. In other words, WeWork cannot make ends meet at the new office.
The same is true of the actual situation. In the past few months, WeWork has cut prices several times in the United States, indicating that it still takes time for office space rental to recover after the epidemic.
According to the data compiled by James Harling, an independent researcher, WeWork reduced the unit rent of most individual workstations and small office spaces twice in early November last year and January this year. The data shows that the overall average price decline is 10%, and in some regions, the price decline has reached 25%.
Harling said that the price information was included in the source code of the WeWork website, but was not displayed to users visiting the website. A WeWork spokesman declined to comment. However, Maslani, CEO of WeWork, promised that WeWork would be profitable by the end of this year.
Not only WeWork, but also in the United States, the overall rental price of office space has been falling sharply. In the largest cities in the United States, by the end of last year, less than 20% of employees had returned to the office. CBRE expects that by the beginning of 2022, the asking price of the owner may be reduced by 7%, and then it may be restored. In addition, according to the research of Green Street, a real estate research company, markets such as San Francisco and New York may be hit hardest.
One of WeWork's biggest competitors, Industrious, has abandoned the original leasing model and is sharing revenue with the owners of office buildings. In other words, Industrious no longer pays rent to the landlord, but gives part of its income to the landlord. This kind of agreement allows Industrious to continue to expand new office locations during the epidemic, while minimizing losses - because when the company's revenue decreases, its share of the landlord will also decrease accordingly. CBRE said that it is expected that there will be more similar agreements in the future.
In addition, the owners of the office building are also starting to enter the shared flexible office space. In this way, intermediaries like WeWork may be eliminated.
Finally, most of WeWork's business actually comes from the traditional shared office, where many people share public office space. It remains to be seen whether people are still willing to choose private offices in flexible office spaces after the epidemic ends. At present, if WeWork wants to continue to make great efforts in the field of flexible office space, WeWork must first survive in the remaining stages of the epidemic.
As Leonard of CoStar said, "If you can survive, the concept of flexible office space is really great. Survivors after the epidemic will perform better in the future, ushering in a second opportunity for vigorous development."
04 Back door listing
"When Sun Zhengyi first chose to invest in me, he only spent 28 minutes."
Recently, a person familiar with the matter disclosed that Adam Neumann, the former CEO of WeWork, was about to reach a settlement with Softbank Group, and the settlement content might include the cost paid to Neumann by Softbank, the latest owner of WeWork, reduced by $500 million.
Under the new proposed terms, Softbank may spend about $1.5 billion to buy shares held by WeWork's early investors and employees.
In October 2019, after WeWork failed to go public, Softbank initially agreed to acquire about US $3 billion of shares belonging to current and former employees of Neumann and WeWork. Softbank then objected to the rescue plan. Softbank's repudiation led to a court battle between the company and the directors of Neumann and WeWork.
If the long legal dispute between the two parties can end after this settlement, WeWork may be expected to hit the public market again, but it will be listed through another way - special purpose company acquisition (SPAC).
People familiar with the matter said that BowX Acquisition is a blank cheque institution, which raised 420 million dollars in August's IPO. This company took the initiative to contact Softbank, the largest shareholder of WeWork, to discuss the possibility of acquiring WeWork. This acquisition may give WeWork a valuation of about US $10 billion.
Now the negotiations between BowX and Softbank are still continuing, and the two sides are expected to reach an agreement in the coming weeks. However, negotiations may also break down. Considering that the newly listed company must be able to attract investors to buy its shares, whether the lawsuit filed by Neumann and others can be resolved is considered to be the key to completing the merger and acquisition transaction with BowX.
Before the listing failure, WeWork's valuation in the last round of private financing reached $47 billion, much higher than the valuation of this acquisition. Even though the valuation fell sharply, this acquisition may also represent the market's recognition of WeWork's business model - although many shared office space businesses faltered during the epidemic. At the same time, it also shows that the rise of SPAC is changing the capital market.
It is said that in order to clear the obstacles to relisting, Softbank has communicated with a special committee composed of Neumann and the company's independent directors in the past two weeks, hoping to reach a settlement on the dispute over the previous US $3 billion rescue plan.
The solution being negotiated may eventually lead Softbank to pay a fee of $1.5 billion to Neumann and other investors including Benchmark Capital, which is 50% of the previous fee. According to the 25% shares held by Neumann, he can get 480 million dollars. In addition, after the company is listed, he can also continue to retain 75% of the shares he currently holds.
People familiar with the matter said that the negotiations were still ongoing, and the specific amount available to Neumann and others might still change.
"When Sun Zhengyi first chose to invest in me, he only spent 28 minutes," Neumann once recalled.
05 Moving to the screen: "WeCrashed"
Apple TV+has agreed to produce a new TV series about the ups and downs of WeWork in the past few years.
The name of this play is "WeCrashed". Based on the podcast "WeCrashed: The Rise and Fall of WeWork", Jared Leto, Oscar's best male partner, and Anne Hathaway, Oscar winner, play Neumann and his wife respectively.
Lee Eisenberg and Drew Crevello, screenwriters of the American TV series The Office, will co write the script and serve as executive producers.
Apple The company wrote in a statement on its website: "'WeCrashed 'will tell about the crazy rise and inevitable decline of entrepreneurial unicorn WeWork, as well as the narcissists behind all this." (Jun Lin)
