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WeWork lines up RE fund

As the co-working and co-living company prepares to move beyond leasing space, one major investor has words of caution for the startup’s real estate ambitions.

WeWork, the New York-based shared working and living company, is setting its sights on becoming a real estate investor, vice chairman Michael Gross said last week.

In response to a question from PERE at Cornell University and Hodes Weill’s annual real estate conference Friday, Gross said that the company is setting up a fund to acquire assets for WeWork, its co-working platform, and WeLive, its residential offshoot. Previously, the firm has worked with traditional office owners to lease floors or buildings, which it then remodels into co-working spaces with amenities including conference rooms, beer on tap and social programming.

Gross declined to comment further after his speech, and a WeWork spokesman likewise declined to comment. WeWork has not yet filed any fund forms with the Securities and Exchange Commission.

“Institutional capital has been a tremendous supporter and really a growth enabler of this business,” Gross said during his speech, noting that institutions have invested in the company and have partnered with WeWork as landlords.

“To date, we haven’t done a product where we’ve looked to own our own assets,” he said. “We are right now in the process of creating a vehicle that would be more of a partnership, raising capital to have the ability to look to acquire assets for WeWork and WeLive.”

The company is considering sale-leasebacks for multiple companies, in which WeWork would buy a property, refit the space in line with its creative office ethos and lease it back.

Bill Tresham, the president of Ivanhoé Cambridge, noted that WeWork has been a positive tenant for one office building that the real estate arm of Caisse de dépôt et placement du Québec owns in Montreal. Tresham said the 2.5 million square foot building was just 7 percent occupied, but after WeWork leased space last year, tenancy shot up to 94 percent. Despite the firm’s success, Tresham was wary of WeWork’s real estate ambitions.

“Better off that you go into these larger places where you have landlords with lots of capital,” Tresham said from the audience. “I’d say ‘Don’t waste your money on real estate,’ because there are lots of people with real estate capital… I’d make sure what I’m doing is convincing them of what you can achieve for their real estate.”

Last week, the Wall Street Journal reported that WeWork, which was founded in 2010, raised an additional $260 million in funding, bringing its total valuation to $16.9 billion. The company has 124 offices in 38 cities and two apartment buildings, one in Washington, DC and the other in New York City, according to its website.