Japanese holding company Softbank Group Corp. agreed to spend up to $8 billion to bail out WeWork: a co-working giant bleeding money.
WeWork is the largest brand in the flexible office market. Dror Poleg, real estate researcher and author of Rethinking Real Estate, told us that despite the former CEO’s hasty decision to grow for growth’s sake, WeWork is still in a good position.
“The demand for this type of product, I see it as insatiable,” said Poleg. “I still think that there is a huge gap between what landlords offer and what tenants want, whether it’s the flexibility or the service mentality.”
Poleg noted that by investing in WeWork, billionaire Masayoshi Son—Chairman & CEO of Softbank—has indicated to businesses, landlords, and others that he is willing to do whatever it takes to keep this company alive. The company had a $47 billion valuation in January; it is now valued at $8 billion by Softbank.
“Now, I see no reason that in five years, why there wouldn’t be a $40 billion or $50 billion company—a branded office provider, the first of its kind.
“Whether it will be WeWork or not, I don’t know, but I think WeWork still has a good shot at getting there,” said Poleg.
New Management
As part of Softbank’s rescue package, then-CEO Adam Neumann was to step down as CEO. Neumann’s hasty and global expansion of the company resulted in its cash crunch.
Despite its optimistic expansion, ultimately, the climate changed, and investors doubted WeWork’s $47 billion valuation. WeWork then abandoned its highly-anticipated Initial Price Offering.
Marcelo Claure, Chief Executive Officer at Softbank, is now the company’s Executive Chairman. However, it was under Son’s guidance that Neumann expanded at such a pace.
In an interview with Forbes, Neumann said WeWork Co-Founder Miguel McKelvey joined him at the closing of a deal in Tokyo when Son asked him a question: “In a fight, who wins—the smart guy or the crazy guy?” Neumann answered, “I say, Crazy Guy.” Son turned to him, said he was correct, and added, “but you and Miguel are not crazy enough.”
Nonetheless, Poleg said there a few things Claure can do to make WeWork profitable again, such as slowing down expansion. He said the company may look like it continues to expand for a while because of leases it signed before its bailout.
Poleg underlined the way WeWork uses technology.
“WeWork is not a software company, but it does use technology extensively, and it does use it in ways that can help it make more money or achieve better margins than traditional real estate landlords, and that’s something WeWork should be very careful not to lose,” he said.
Reuters contributed to this article.
