WeWork launches subsidiary that will own its properties

WeWork, the shared office-space provider, is set to become its own landlord with the launch of its subsidiary, Ark.

948_MW_P28_Inv-Prop

Adam Neumann makes up for losses with parties

2019 Michael Kovac

WeWork, the renter of shared office space, is set to become its own landlord with the launch of its subsidiary, Ark.

Office-space leasing group WeWork lost $264m in the first three months of 2019. This came as a surprise to no one, given the company's reputation for burning through cash. However, the loss is slightly lower than the one in the same period in 2018. The group also doubled sales to $342m, while its locations and members also rose by 100%, to 485 and 466,000 respectively.

WeWork's business model involves taking on long-term leases in buildings, and then sub-letting to companies looking for office space. The fact that its losses have begun to fall is certainly a tentative step in the right direction, and a more tangible sign of success than in 2017, when WeWork chief executive Adam Neumann told Forbes that the company's valuation had less to do with its revenue than its "energy and spirituality".

If it intends to go through with its proposed stockmarket flotation, WeWork must demonstrate to interested investors that it does have the potential to be profitable one day. This should be possible if it slows growth, said Artie Minson, WeWork's president, recently.

Shaky foundations

He has previously been criticised for the fact that he owns buildings in which WeWork is a major tenant, the implication being that this creates a conflict of interest, because Neumann's company is paying rent straight to him. Presumably partly in response to this, WeWork has now come up with a new wheeze, says the Financial Times. "The most controversial real-estate start-up on the planet figured out a way to become its own landlord."

Its new subsidiary, Ark, will raise money to buy property that it will then rent back to WeWork. Neumann has said he will sell the properties he owns back to Ark, for the amount he paid for them, even if they are now worth more. The idea, apparently, is that the value of Ark's buildings should go up because having WeWork as a tenant makes the buildings more attractive.

Ark will be run as a separate entity, but "there's obvious room for conflict: if real-estate rates fall in a city, WeWork will want to reduce leases, but Ark may have other ideas", says Robert Cyran on Breakingviews. There are potential benefits, including the ability to sell a building if WeWork needs money. But ultimately, "the main challenge for WeWork hasn't changed. Many of its expenses are locked in for the long term, but much of its revenue isn't".

Recommended

Which house-price index is the best?
Property

Which house-price index is the best?

Britain is obsessed with house prices, and we have at least four house-price indices to choose from to measure the rate of increase in the value of ou…
23 May 2022
The world’s hottest housing markets are faltering – is the UK next?
House prices

The world’s hottest housing markets are faltering – is the UK next?

As interest rates rise, house prices in the world’s most overpriced markets are starting to fall. The UK’s turn will come, says John Stepek. But will …
23 May 2022
Retail therapy: two of Britain's biggest commercial landlords set to merge
Property

Retail therapy: two of Britain's biggest commercial landlords set to merge

Shaftesbury and Capital & Counties, two of London’s leading leisure landlords, are planning to merge – if they can get the deal past regulators. Matth…
11 May 2022
This property fund should thrive even amid high inflation and wobbly growth
Property

This property fund should thrive even amid high inflation and wobbly growth

The UK property market looks increasingly shaky. But one sector stands out as a safe haven – life sciences property. Rupert Hargreaves picks the best …
9 May 2022

Most Popular

Imperial Brands has an 8.3% yield – but what’s the catch?
Share tips

Imperial Brands has an 8.3% yield – but what’s the catch?

Tobacco company Imperial Brands boasts an impressive dividend yield, and the shares look cheap. But investors should beware, says Rupert Hargreaves. H…
20 May 2022
Everything is collapsing at once – here’s what to do about it
Investment strategy

Everything is collapsing at once – here’s what to do about it

Equity and bond markets are crashing, while inflation destroys the value of cash. Merryn Somerset Webb looks at where investors can turn to protect th…
23 May 2022
Barry Norris: we’re already in the 1970s. Here’s how to invest
Investment strategy

Barry Norris: we’re already in the 1970s. Here’s how to invest

Merryn talks to Barry Norris of Argonaut capital about the parallels between now and the 1970s; the transition to “green” energy; and the one sector w…
19 May 2022