By: Hadassa Kalatizadeh
WeWork is struggling to get back on its feet, after losing CEO Adam Neumann, and after scrapping its long awaited Initial Public Offering. After its valuation nose-dived by $39 billion, SoftBank, its largest investor, agreed to save the company from the possibility of bankruptcy by extending an estimated $9 billion lifeline, and appointing a new chairman, Marcelo Claure, formerly the CEO of Sprint. Now, not only does WeWork need to work on salvaging its image, but also on finding ways to cut costs and most likely lightening its load of real estate.
New co-CEOs Artie Minson and Sebastian Gunningham are dedicating their efforts to saving WeWork’s core office-space business, and offloading side ventures. The company is trying to sell properties that the company had purchased, in transactions that are now being scrutinized for conflicts of interest and a culture of excess. This includes a $60 million Gulfstream jet, which the company had purchased and is now up for sale.
Most notable of the big-ticket real estate purchases during WeWork’s days of yore is the Lord & Taylor building, at 424 Fifth Avenue, purchased for $850 million. As reported by the Real Deal, six current and former WeWork employees familiar with the transaction said that WeWork overpaid by upto $200 million for the property, and that the deal was tainted by potential conflicts of interest. The landmark building was appraised for $655 million by HBC in 2016. After the deal, Lord & Taylor ended up leaving its anchor position as tenant at the 10-story, 105-year-old building. At which time, WeWork unrelentingly had to take over the entire property to placate lenders for the purchase. It then had to negotiate a lease with its real estate investment vehicle which was purchasing the property, WeWork Property Advisors, a joint venture with board member Steve Langman’s Rhône Group. The company’s investment venture for buying real estate, later known as ARK, went on to buy plenty of other real estate “gems” across the country, after that initial purchase.
The iconic Lord & Taylor building is now a construction site, undergoing renovations, which are costing roughly another $200 million. The outlook for the building’s future looks bleak, however. Efforts to draw other tenants have thus far been fruitless, and with considerable job cuts going on at WeWork, the vision of its employees filling up the building now seems improbable. A sale of the building has been rumored, but again being that it was overpaid for in the first place, the company would have to take a big hit to unload it.
In a statement, WeWork said it “remains committed to 424 Fifth Avenue,” and that it is “excited” to reopen the building next year after renovations are complete.
