WeWork needs Adam Neumann, not Adam Neumann.

Posted by Breakingviews

Adam Neumann knows three things. He knows how to encourage investors to value companies at exorbitant prices. He knows how to get paid for himself. He also founded the now-bankrupt WeWork (OTC:WEWKQ).), I know about office real estate. Neumann wanted his new investment firm to restructure and acquire his old idea, and was annoyed that WeWork’s new managers wouldn’t give him the opportunity, Neumann said. new york times On Tuesday. WeWork’s new guard could probably use a believer like Neumann. It couldn’t be Neumann.

The company, once valued at $47 billion, is a prime example of the vitality fueled by low interest rates. Neumann tapped funders including SoftBank Group, which was vying for high growth and huge profits in the late 2010s. He convinced investors to increase WeWork’s valuation. dominated the office market. There were disturbing stories as the company’s cash burn failed to keep up with debt repayments. Among other things, Neumann owned a stake in the building that WeWork leased. The company agreed to part ways, but paid him a very large sum for the privilege.

WeWork filed for Chapter 11 in November. In his letter, Neumann said his move to WeWork was unwelcome. He even names hedge fund boss Dan Loeb, saying he works with reputable firms. According to Reuters, Loeb’s fund may not be as interested as the letter claims.

There is a case for investing in companies like WeWork at the right price. Commercial real estate valuations have plummeted. Shares of Vornado Realty Trust, one of the largest office owners in the U.S., have fallen nearly two-thirds in five years. This suggests that companies like WeWork can be affordable. Landlords are willing to sign long-term leases at low prices to get people through their doors. Businesses prefer to pay for short-term flexibility. WeWork provides a distribution between the two, creating a sweet spot. In fact, IWG, WeWork’s competitor based in Switzerland, is expected to record its highest ever sales this year thanks to ‘structural growth’.

But WeWork’s busy days are taking things too far. Lenders agreed to convert about $3 billion of secured debt into equity. But there was still more than $13 billion in long-term leases. Without a major renegotiation, it’s hard to see how the buyer can make everyone whole. Let’s say WeWork’s revenue this year is $3.4 billion. This is roughly the pre-bankruptcy level. At IWG’s multiple, it would be worth about $2.5 billion at 0.7 times earnings.

WeWork needs someone willing to capitalize on the business at a valuation that is so high. Unfortunately, Neumann has burned outside investors once. With him he cannot rebuild from the ground.

Contextual news

Adam Neumann’s new real estate company, Flow Global, sought to acquire WeWork or its assets or provide debtor-in-possession financing to the company in bankruptcy, according to a letter published by the New York Times. Neumann founded a workspace sharing company but left the company in 2019. Neumann’s lawyers sent a letter to WeWork saying Third Point, a hedge fund run by Daniel Loeb, would help finance the deal. Third Point said it had only had preliminary discussions with Neumann and his company, according to Reuters. WeWork filed for Chapter 11 bankruptcy protection in a New Jersey court on Nov. 6, four years after a financing round valued the company at $47 billion. About 92% of lenders have agreed to pay off about $3 billion in debt by converting secured debt into equity. WeWork has long-term leases worth more than $13 billion, which it asked to renegotiate in bankruptcy. As of June, it has offices in 777 locations around the world.

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