As WeWork expands in all directions, it faces persistent questions about its business model and the value investors have put on it. With some 200,000 members and revenues expected to top $2.3 billion this year, it’s expanding into living space, recreation and education.
NEW YORK — On a cold February morning at the Brooklyn Navy Yard, the skeleton of a modern 15-story building was rising from a muddy construction site along the East River. As long and as tall as a cruise ship, the sleek glass structure loomed above rusty, century-old dry docks, serving notice to the industrial neighborhood that the new economy was coming.
The project, known as Dock 72, is the brainchild of WeWork, the fast-growing New York startup valued at a whopping $20 billion. In just eight years, WeWork has built a network of 212 shared working spaces around the globe. But WeWork’s chief executive and co-founder, Adam Neumann, isn’t content to just lease out communal offices. Neumann — a lanky, longhaired 38-year-old Israeli — wants nothing less than to radically transform the way we work, live and play.
When Dock 72 is completed this year, if the aggressive timeline holds, it will represent the fullest expression of Neumann’s expansive vision to date. There will be an enormous co-working space, a luxury spa and large offices, for other companies like IBM and Verizon, that are designed and run by WeWork. There will be a juice bar, a real bar, a gym with a boxing studio, an outdoor basketball court and panoramic vistas of Manhattan. There will be restaurants and maybe even dry-cleaning services and a barbershop.
It will be the kind of place you never have to leave until you need to go to sleep — and if Neumann has his way, you’ll sleep at one of the apartments he is renting nearby.
In the Seattle area, WeWork has been growing quickly and is set to expand further in the coming years. It recently opened five locations with space for 4,120 total desks in downtown Seattle, South Lake Union, the Denny Triangle and in Bellevue’s Lincoln Square. By the end of the 2018, that local footprint is set to double with four more locations in downtown and next to the stadiums. WeWork is also planning to lease part of a new office project underway at 15th Avenue Northwest and Northwest Market Street in Ballard in July 2019, and is planning to open a WeLive and WeWork tower in Belltown in May 2020.
It’s an all-encompassing sort of ambition, and Neumann is the brash and idealistic pitchman. Simply by encouraging strangers to share a beer at the office, he argues, WeWork can heal our fractured society.
“How do you change the world?” Neumann asked in a recent interview. “Bring people together. Where is the easiest big place to bring people together? In the work environment.”
It may sound simplistic, but around the globe, companies are buying whatever it is that Neumann and his co-founder, Miguel McKelvey, are selling. WeWork has rapidly expanded to 20 countries, assembled a formidable executive team and attracted some 200,000 members. Big companies like JPMorgan Chase and Siemens are signing on as tenants, and revenues are growing fast, expected to top $2.3 billion this year.
WeWork last year bought the iconic Lord & Taylor building on Fifth Avenue in Manhattan, which is being transformed into the company’s new headquarters. That deal was made possible in part by a recent $4.4 billion investment from SoftBank, the Japanese technology group led by the enigmatic billionaire Masayoshi Son.
Already the company has started WeLive, its residential offering, and Rise, its gym. It acquired Meetup, a social network that facilitates in-person gatherings, and the Flatiron School, a coding academy. Still to come: WeGrow, the company’s for-profit elementary school, set to open in September. WeWork has even invested in plans to create giant wave pools for inland surfing.
Is it all a bit much for a young company still trying to build out its core business? “I’ve made that argument,” said Bruce Dunlevie, a WeWork board member and partner at the venture-capital firm Benchmark. But, he said, “great entrepreneurs like Adam don’t listen to guys like me.”
As WeWork expands in all directions, it faces persistent questions about its rich valuation and the durability of its business model.
Critics argue that the company does little more than corporate real-estate arbitrage — leasing a space, spiffing it up, then subleasing it to other tenants. The company owns hardly any properties, giving it precious few hard assets. Its growth projections strike many as unattainable, and it has missed expectations before. A number of upstarts loom as potential competitors, seeking to replicate WeWork’s success. And many WeWork tenants are unproven startups that could quickly fold.
IWG, a publicly traded co-working company that has more members and more real estate than WeWork, is valued at $2 billion. Yet Neumann has convinced investors that WeWork is worth 10 times that figure.
“He believes there’s an energy behind the brand, and he’s gotten people to invest at that valuation. He has not tried to explain it in traditional financial terms,” said Chris Kelly, co-founder and president of Convene, a company that offers flexible event spaces and is backed by major real-estate firms.
Son, WeWork’s largest investor, is betting that the company will grow exponentially in the years to come, making his multibillion-dollar investment a veritable bargain.
“Make it 10 times bigger than your original plan,” Son told Forbes late last year. “If you think in that manner, the valuation is cheap. It can be worth a few hundred billion dollars.”
WeWork didn’t invent co-working spaces, of course. IWG, better known as Regus, has been around for decades. But Neumann and McKelvey quickly hit upon a recipe that drew throngs of startups: an industrial chic aesthetic, some big common areas with comfy couches, free beer and piped-in pop music.
Individuals pay as little as $45 a month for occasional access to a desk in a common area. Startups can pay a few thousand dollars for a private room on a month-to-month basis, and some big companies pay millions of dollars a year for spaces that hold thousands of employees over multiple locations.
It’s a formula that has caught on from New York to Tel Aviv to Shanghai. In New York alone, WeWork has 49 spaces, most of them nearly full. At the WeWork in Harlem, dance companies share space with hair-care startups in a common area adorned with murals of jazz musicians. At a WeWork in Tribeca, fashion designers and alcohol distributors work shoulder to shoulder in a Spartan space decorated with neon lighting.
For WeWork to really succeed in changing the way we all work, it is going to have to win over big corporations seeking space for thousands of employees. The strategy is an odd reversal for WeWork, which made its name catering to freelancers and startups.
The Weather Channel recently moved its ad sales team into an enormous WeWork in Midtown Manhattan. Barbara Bekkedahl, who runs the group, said the transition was easy and the space comfortable and stylish.
But Bekkedahl had a complaint, too, one that highlights one of the downsides of communal work space. She suggested that the hygienic and sartorial habits of some of her new office mates were lacking.
“As a TV sales team, we groom and dress for outside sales,” she said. “Some of the techie and startup types housed at WeWork aren’t facing customers all day so don’t always have the same standards.”
Gripes about grooming are unlikely to slow down WeWork’s business with corporate clients, especially if Neumann makes good on his promise to save them money. Because WeWork is building out so much space and buying so much furniture, Neumann says, he can renovate and operate an office for a fraction of the cost that companies would normally spend.
“We have economies of scale,” he said. “I’ll cut your operational costs between 20 to 50 percent.”
More and more companies — GE, HSBC, Salesforce and Microsoft among them — are signing on.
For years now, big companies have outsourced payroll processing, janitorial services and security. It’s not a stretch to imagine more of them outsourcing the design and maintenance of their offices to a company like WeWork.
“We only have 200,000 members,” McKelvey, 43, said. “That’s ridiculous. We need to have 2 million and then 20 million.”
“Once you choose to enter a WeWork, you choose to be part of something more ‘we’ than ‘me,’ ” Neumann said. “People start coming together. They’ll see each other in the elevator, they talk in the stairways. There’s a thousand other things they do.”
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More than most companies, WeWork promotes the consumption of alcohol as an inherent virtue. Posters on the wall encourage people to have a drink. There are wine tastings at WeLive. Company parties feature top-shelf liquor. Neumann has a well-known penchant for tequila, and a well-stocked bar is prominent in his office.
On a recent Tuesday at 4:07 p.m., the community manager of a WeWork in Midtown Manhattan sent an email reading: “It’s time to get your creative juices flowing! Join us on the 5th floor to drink some wine & paint a beautiful picture.”
Although alcohol is a social lubricant for some, it can be off-putting to many others. Many women have shared stories of feeling uncomfortable with what they described as a frat-house culture at some WeWorks, prompting some to leave.
As WeWork has grown, minor scandals have rattled it. In 2015, the company grew ensnared in a complicated legal dispute with a group of former janitors who tried to unionize at a subcontractor that WeWork used. The next year, WeWork drew scrutiny for its use of arbitration to settle workplace disputes and for its firing of an employee who refused to adhere to a related policy.
But so far nothing — not alcohol, labor disputes, questions about the business fundamentals or bad publicity — has managed to alter the company’s trajectory.
“We’re a disrupter of the way people view the spaces they work in on a day-to-day basis,” said Dunlevie, of Benchmark. “And we’re in the early days of taking advantage of that phenomenon.”
In September, WeWork will open its most ambitious project to date: a kindergarten. It may also be the effort that tests whether WeWork is flying too close to the sun.
The creation of Neumann’s wife, Rebekah, 39, the school is known as WeGrow. It promises a well-designed space with a curriculum that emphasizes socializing and entrepreneurship for 3-year-olds on up.
WeGrow won’t scale as rapidly as WeWork has, so the financial upside is limited. Yet should something go wrong, the fallout could be devastating: It’s one thing to be responsible for the internet going out or paper running low at the communal printer. It’s another thing to take responsibility for the health and development of someone’s child.
Although Rebekah Neumann has no background in education (on the website, she describes herself as “an avid student of life” and says her “superpower” is “intuition”), she has applied for accreditation from the state, has hired a team of career educators and is accepting applications for the coming school year. Tuition for toddlers: $36,000 a year.
“We all understand how complicated and regulated school is compared to the simpler business that we are already in,” Adam Neumann said. “But we decided we’re going to go into education. If you really want to change the world, change kids when they’re 2.”