WeWork Co-Founder Has Cashed Out at Least $700M Via Sales, Loans

[kediz]

I heard he purchased a bunch of real estate and then lease them to WeWork and made a killing.

Maybe he would later sell those real estates whose price have been inflated because of WeWork's presence.

It is indeed a real estate company.

[robocat]

"WeWork is a weird company because it is a real estate company that thinks it’s a tech startup; it seems to have the culture and New-Age-y patter and grandiose ambition and valuation of a tech company. But what if, deep down in its heart, it really is a real estate company?"

"Multiple investors of the privately held company said the arrangement concerned them as a potential conflict of interest in which the CEO could benefit on rents or other terms with the company."

Mr. Neumann "is WeWork’s largest individual shareholder and has voting control over the company, so it is not clear that the board can say no."

https://www.bloomberg.com/amp/opinion/articles/2019-01-16/we...

[Waterluvian]

I might sound super ignorant. But isn't this standard business style for the former soviet nations? It seems unsurprising to me to see a complete capitalization of the opportunity in every legal or legally gray way. Ie. The long game is super risky. Take everything that isn't bolted down while you still can.

Maybe these things are exactly what happen everywhere and I'm just applying a perception of corruption-as-usual.

[gibybo]

Do the investors in WeWork just allow him to do this? Did he hide it from them? This seems like an obvious self-dealing situation any experienced investor would be watching out for.

[usbseeker]

Is he leasing them the properties at fair market rates? If so he might be preventing gouging by not forcing we work to bid against the rest of the market.

[YayamiOmate]

It reminds me of the movie about McDondals start. Not the same mechanism but similiar modus operandi.

It seemed even more ingenious/mischeviois, because in exchange for franchise deal they leased land to franchisers, not even the parent company. So they didn't milk their company.

Im not sure if thats the whole of mcd corporation income structure, but the movie hinged on this one.

Hope I didnt spoil too much, there's more to the picture anyways.

[elamje]

I would like to see a source for this because I heard the same thing, but don’t want to spread disinformation.

If it’s true, that’s not a good look for him or the company.

[debt]

"I heard he purchased a bunch of real estate and then lease them to WeWork and made a killing."

Clearly an ethical guy we're dealing with here. I'm sure this will all pan out well down the road.

[Tiktaalik]

The CEO of Hootsuite did this too.

[diafygi]

Isn't this exactly how McDonald's did it?

[mmastrac]

> He has also taken out loans of several hundred million dollars backed by his WeWork shares, people familiar with his finances said.

That's not really "cashing out". The portion of your shares that you've sold, sure, but leveraging investments is just an option that's available once you hit a certain point and it just makes sense to take advantage of it.

[bduerst]

It's not the cashing out that's unusual. In a vacuum, sure, using investments as collateral for loans is SOP.

Using the controlling share of a company that's planning to IPO in less than six months? That's a bit more unusual. It makes you wonder about the terms, or fuels your imagination with who's fronting the cash for something that risky and what types of situations justify it.

[rolltiide]

Super tax efficient too. The loan is not taxed and the interest is often times deductible. You'll probably make money too, but if you don't you can still deduct the expenses you bought, and if it was an investment you can get capital losses against when he really does cash in the shares at a gain.

NY Times might say you "lost $700M" though, to sell some newspapers. Almost no benefit in explaining unless you want the law to get changed - which would benefit nobody.

[toomuchtodo]

I would be interested in the terms of the loan in the event of a rapid depreciation of his WeWork stock (the collateral), or default. Borrowing against funny money (stock being valued by a non-independent entity, Softbank) isn't any more legit.

EDIT: To the replies, your home and publicly traded stock can be valued and are semi-liquid. WeWork stock is not in the same class of asset.

[lanrh1836]

I’ve been playing around with the idea of building on demand phone booth conference rooms (the ones you see in coworking spaces) but reservable in 15m blocks that open with a code from an app. Could partner with coffee shops or even cities for people who need some sound proof time while out and about to take a call, zoom into a meeting while out in public, etc.

[dmix]

Two person conference rooms with a fee would be in demand at any urban coffee shop, since tons of people meet and even do job interviews there.

The big question is real estate because most coffeeshops are already maximizing their space so you’d be limited to the bigger ones.

[crikli]

This concept was on Shark Tank a while back: https://www.prnewswire.com/news-releases/phone-booth-entrepr...

[privateSFacct]

If I could short wework I would.

Softbank is basically setting its own valuations because of the amounts it has to invest.

Wework has a ton of red flag.

Softbank is a major wework investor.

Could I short softbank?

[harryh]

I'll sell you WeWork shorts at a 40 billion valuation. We'll resolve the short 30 days after the IPO.

How much would you like?

[jpalomaki]

Even if you are right and market is wrong, market can keep its view longer than you can afford to keep yours.

(There was a smart quote saying the same, can’t find it)

[vkou]

Whatever Softbank burns on this investment may be lost in the noise of the rest of their business.

[frenchman99]

Isn't Softbank way to diversified to make any shorting strategy close to impossible ?

[icelancer]

You absolutely can find a private arrangement for a short position if you hold sufficient funds. This kind of thing is incredibly common.

[opportune]

You theoretically could enter a short position on wework by creating a custom contract with a shareholder or option-holder

[luckydata]

What number of red flags is going to be enough for the tech/business press to start asking questions about how WeWork is being run?

From the outside it looks like another Theranos waiting to happen.

[barce]

You rent a desk, and they get the money. I can assure you, the desks and the wifi included are real.

[Traster]

It doesn't look to me like a Theranos. Theranos lied, WeWork doesn't seem to be lying - they're completely open about their business model and financials. Its just people don't seem to be valuing it correctly.

[baby]

Are people spreading such FUD shorting Wework? They are selling a very real service and people seem to pay a lot of money for it. How is this not a good business?

[blairanderson]

thats 5% of his equity if sold at the same valuation of the last funding ($47B).

Its easy to point fingers at rich people, but this seems like a fairly logical cash-out.

More stakeholders means more legitimacy.

[unreal37]

His net worth is listed at $4.1 Billion in Forbes, making this "cash out" about 25% of his net worth. Not 5%.

The concern is that he's cashing out a large $ amount ($700 million) before the IPO, more than he needs to live, which may signify that he values the cash now over holding the stock. Which is not a good look considering the IPO is trying to get people to trade their cash for stock.

[anigbrowl]

Have fun suck- I mean, investors. I don't have much sympathy for them since they had the means to assess this before piling in.

[neilv]

How is WeWork valued at $47 billion? Is that a value based on business fundamentals, or on what various finance people will collectively play along with?

[nemothekid]

How is anything valued today?

https://thereformedbroker.com/2019/06/13/when-everything-tha...

[throwaway1535]

I believe WeWork wants to compete with LinkedIn.

After initial signup, which includes charging your credit card, they force you to enter your personal information, your company information including company contact and phone number, and at least one skill on their list of approved professional skills before you are allowed to cancel.

[xhgdvjky]

basically SoftBank said so

[brianwawok]

Is there a way to get out how much $ in property they own?

47 billion is a lot for an app startup, but if they owned say 40 billion in property, it's a lot less of a stretch...

[ngngngng]

I know nothing about equity or cashing out, but a wework recruiter is trying very hard to get me to come write software at their new office in Utah. Would it be a good move financially? Could I make a bajillion dollars off it?

The only competition is a company with Amazing paternity leave that would really suit my skill set and life style.

[fuzz4lyfe]

It says he's investing the money in real estate and start ups, why not invest in his real estate start up?

[frostyj]

I think WeWork is just a real estate company somehow.

[formercoder]

They are really just trying to price the risk spread of taking on long term debt (their leases) and re-lending with short term leases at a higher interest rate.

I would guess this is super high beta (overall market exposure). When the next downturn comes we'll see if they have the capital to survive the credit event.

[baby]

Why? I see this argument all the time without real backing. The CEO is renting some of his apartment to wework, and that makes wework a real estate company how?

[tdumitrescu]

At least he plows it back into his industry... "Since 2013, Mr. Neumann has bought four homes in and around New York City and last year paid $21 million for a 13,000-square-foot house in the Bay Area with a guitar-shaped room."

[geodel]

Seems he has solved housing problem at least for one person in bay area.

[snissn]

good for him

[e40]

Paywall... alternate link?

[xxcode]

It's investor money