The Fallen King Of RE
In early October of 2019, WeWork’s board of directors walked into a brick building in lower Manhattan where the startup had an office. After they took their seats around the conference room table, Mark Schwartz started addressing the gathering.
The 65-year-old former Goldman Sachs partner told the six other men on the board that he had stayed silent for too long, including WeWork’s co-founder and chairman, Adam Neumann.
Mr. Schwartz vented out his frustrations about the state of the company, which was dangerously low on cash after years of freewheeling spending and had become the butt of jokes on Wall Street.
He told the others to come out of their fantasies as they now needed to make decisions that would save the company.
Even more remarkable than the content of the banker’s blistering rebuke was the fact that it came so late. He had stayed silent so long that the story was almost over.
We Co., as the parent company is officially known, was already a distressed asset by then, undone by conflicts and the dawning realization that it was just a hip real- estate sublessor—not a tech company.
A few weeks earlier, WeWork had shelved its disastrous attempt at an initial public offering and Mr. Neumann had subsequently stepped down as chief executive.
It was a spectacular fall for the company that months before had been America’s most controversial and valuable startup.
Little of WeWork’s trajectory would have been possible were it not for the collection of veteran executives and financiers from the upper echelons of Wall Street and Silicon Valley who enabled Mr. Neumann, a charismatic 40-year-old with little prior business experience.
Mr. Neumann mesmerized them with his pitch, which offered a vision for the property- leasing company as a tech startup with limitless potential to transform how people work and live.
Masayoshi Son, (Adam Neumann fondly called him Yoda ) the CEO of SoftBank Group Corp., who helped inflate WeWork’s valuation to $47 billion, pushed an already wild- spending Mr. Neumann to act bigger and crazier.
JPMorgan Chase & Co. CEO James Dimon and other bankers, instead of injecting a dose of reality, spent years championing Mr. Neumann and the company as they battled for the coveted IPO assignment.
For startup investors, the 6-foot-5 Mr. Neumann has always had the qualities they crave in Silicon Valley founders, despite being based in New York. He is intensely ambitious and a masterful storyteller with a magnetic personality who can inspire and sell.
Adam Neumann was once flying high. Literally.
His office-rental giant WeWork was months away from being valued at $47 billion. Revenue was doubling annually. And Mr. Neumann was zipping across the Atlantic Ocean in a Gulfstream G650 private jet with friends, smoking marijuana, little did he know, conquering public markets was not as easy it seemed.
Since Mr. Neumann co-founded WeWork— renamed We Co.—with Miguel McKelvey nine years ago, he has led with unusual exuberance and excess. His combination of entrepreneurial vision, personal charisma and brash risk- taking helped the company surpass $2 billion in annual revenue, and made it the country’s most valuable startup.
Public investors were increasingly skeptical of the formula that had worked for Mr. Neumann : his pitch that We was far more than a real- estate company. With its rapid growth and use of technology, he argued, the company deserves rich valuations normally reserved for tech companies.
Following mounting pressure from investors based on disclosures Neumann resigned from his position as CEO of WeWork and gave up majority voting control as of September 26, 2019. WeWork also delayed its planned stock market listing until the end of 2019 amid growing investor concerns over its corporate governance, valuation, and outlook for the business. On September 30, 2019, WeWork formally withdrew and postponed the IPO.
Prior to founding WeWork, Neumann founded a children’s clothing company, Krawlers.
Neumann and McKelvey began working together after having previously met through a mutual friend. A shared interest in community upbringings and design led them to create Green Desk in 2008, a shared-workspace business focusing on sustainability, which served as the precursor to WeWork, which they founded in 2010. The pair sold their interest in Green Desk and using the funds along with a $15 million investment from Brooklyn real estate developer Joel Schreiber for a 33% interest in the company, they founded WeWork in 2010.Neumann stated that with WeWork, he intended to replicate the feeling of togetherness and belonging he felt in Israel and that he thought was lacking in the West.
In 2018, WeWork faced a lawsuit from a former employee who identified issues of sexual harassment and other inappropriate behaviors within the company workplace. In her statement, she mentioned that Neumann
“plied [her] with tequila shots during her interview with the company.”
Shortly after this claim was made, WeWork put an end to its unlimited beer and implemented a policy of only four beers per day in the New York office.
On September 22, 2019, there were reports, from outlets such as The Wall Street Journal, that various WeWork directors were planning on asking Neumann to step down as CEO, after “a tumultuous week in which his eccentric behavior and drug use came to light” prior to a planned IPO. On September 24, 2019, he resigned and Artie Minson and Sebastian Gunningham were instated as co-successors.
In October 2019, The Wall Street Journal reported that Neumann would receive close to $1.7 billion from stakeholder SoftBank for stepping down from WeWork’s board and severing most of his ties to the company.
Adam Neumann’s relationship with Softbank’s Masa had come to an end with his exit from Wework.
In his first venture since leaving WeWork last year, Neumann is investing $30 million in Alfred Club, Inc., a startup that provides services — such as dog- walking, maintenance requests and rent- processing — in apartment buildings. A venture similar to a division ‘We-live’ in Wework that was shut down.
With financing available from the Middle East and Goldman Sachs and his own family office, Adam Neumann is returning to the world of real estate. Alfred’s co- founder and chief executive officer, Marcela Sapone, said that when she met Neumann this year, they shared a vision for reinventing real estate, a traditionally slow-moving industry. They both hold
“the perspective that real estate can do more for people, that we should demand more from our greatest expense,”
she said. In addition to providing services such as dog-walking and rent processing, Alfred works to build community within its apartment buildings by hosting happy hours or educational events such as bread- making, Sapone said.
Alfred operates in more than 100,000 apartments and is now backed by close to $100 million in total funding. It’s a sizable sum, though far from the billions Neumann raised for WeWork. However, Sapone speaks about Alfred in similar metaphors as Neumann used at WeWork. He often called WeWork’s expertise in managing spaces its “WeOS.” Sapone, in turn, said Alfred
“is the operating system for what we think are next-generation buildings that are looking at themselves as a true home rather than a sterile apartment building.”
Unfortunately, the debacle of We is not the end of Neumann and he is aggressively back in the Real Estate industry. Only time will tell as to if he is going to build a billion dollar holding company with investments in multiple start-ups.
Mr. Neumann muses about the implausible: becoming leader of the world, living forever, amassing more than $1 trillion in wealth.
Sources: The Wall Street Journal, Bloomberg, Fortune, Wikipedia
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