WeWork’s $20 Billion Dream: The Lavishly Funded Startup That Could Disrupt Commercial Real Estate

WeWork is a real estate company valued like a tech company.

At least, that’s the rap on WeWork from critics who think it can’t support its $20B valuation in private markets.

Backed by Japanese tech and telecom giant SoftBank Group, WeWork specializes in rent arbitrage — leasing and developing properties at one price, then turning around and renting them out at much higher prices. Its recent run-up in funding — raising some $4B in 2017 alone — has given the company the firepower to expand quickly without worrying too much about fundamentals.

Companies traded in public markets that follow the same business model trade at much lower sales multiples than WeWork. Detractors say WeWork has earned its valuation by putting hipster touches on formerly drab spaces and positioning itself as a startup incubator, then charging sky-high rent.

On top of that, critics point to WeWork’s investments in seeming distractions — like its upcoming WeGrow elementary school and a wave pool company — as more examples of a tech company with overreaching ambitions.

But WeWork’s recent shift to safer real estate commitments and its emphasis on longer-term renters and enterprise clients suggest the company could have legs.

WeWork claims it’s amassing a trove of data on ideal office locations and layouts, and using software to determine everything from ideal desk layout to optimal conference room size.

The company is leveraging this data not only to improve its own locations, but also to become an outsourced facilities manager, at a time when big enterprises are trying to shed real estate management from their portfolios. Already WeWork has secured companies like IBM and Verizon for its Powered by We offices in Dock 72, an upcoming high-profile commercial property in Brooklyn.

In addition, WeWork is pursuing new lease agreements that could help it shed some of its biggest risks, and purchasing high-profile properties outright, giving it much more visibility and real assets. Notably, the company purchased the Lord & Taylor building in Midtown Manhattan in October 2017.

In this report, we’ll show you how WeWork is:

• Shedding risk by shifting from long-term leases on its properties to real estate deals with much less risky commitments.
• Using its data and tech advantage to create a blueprint for optimal office design and superior worker productivity that can’t be easily replicated by other real estate companies.
• Turning itself into a real estate services company targeting enterprises.

Below, we analyze WeWork’s strategy and the health of its business to better understand whether it is another overvalued unicorn, or an innovative company that has taken an existing business — commercial real estate — and updated and scaled it for the tech age.

Table of contents

• • How WeWork aims to dominate co-working
    • WeWork’s rapid growth
    • Shedding lease risk
  • Signing & designing with data
    • Data speeds new lease agreements
    • Architecture & construction
    • Enterprise initiatives, Powered by We
  • Strategic initiatives
    • Services & expanding core WeWork
    • Extending the WeWork brand
    • Global expansion
  • Investors, leadership, & competitors
    • Valuation & funding history
    • Investors
    • Hiring & leadership
    • Competitors
  • Concluding thoughts

 

How WeWork aims to dominate co-working

Since opening the first WeWork location in New York in 2010, co-founders Adam Neumann and Miguel McKelvey have grown the company into a national and global brand.

The company’s corporate marketing centers strongly on an ethos of entrepreneurialism. Slogans cover the walls of rented WeWork office spaces, urging workers to “do what you love” and “create your life’s work.” The company’s executives position WeWork not as an office provider, but a community.

But underneath this aspirational culture is a fundamental business truth. The company makes money primarily through rent arbitrage: charging its members more than it has to pay its landlords.

The principal means of accomplishing this is by packing a lot of people into its locations.

In WeWork’s buildings, the average square footage per person hovers around 50 square feet. This compares to 250 sq ft for commercial offices industry-wide. Despite this small footprint, members pay an average of $8,000 per year, with WeWork capturing a healthy 30 – 40% operating margin, according to the company.

WeWork has touted frequent engagement with other co-working colleagues as a perk of working within a creative community, and less a reality of just how crowded its workplaces are.

At an event celebrating WeWork in 2014, Steven Roth, the chairman and founder of Vornado Realty Trust (one of WeWork’s landlords), toasted WeWork’s CEO, saying,

“Adam always says, ‘No schmucks and no assh*les,’ but the definition of a schmuck is someone who rents a property at .5x and then turns around and rents it at 1.5x.”

Neumann reportedly held up two fingers, indicating he actually charges members double.

WEWORK’S RAPID GROWTH

Despite its high membership costs and crowding, WeWork has successfully grown its membership base, positioning itself as a home to new-economy business activity. Through a combination of amenities, partnership agreements, and, of course, office design, WeWork has provided a compelling “starter kit” to entrepreneurs and small companies seeking a place to work.

In May 2017, Adam Neumann reported that WeWork employed 2,200 people, 800 of whom were based in New York City. A Forbes article published just 5 months later reported that the company’s headcount had increased to 2,900, and today a simple search on LinkedIn shows a number near 3,500.

In the beginning of February 2018, WeWork welcomed its 200,000^th member, compared to 130,000 members in May 2017, representing 54% membership growth in 9 months.

With a huge funding jump (largely driven by Softbank investments) last year, WeWork has been able to significantly scale up square footage, which has in turn provided capacity for correspondent membership growth. The company adds between 500,000 to 1,000,000 square feet of new space every month. As of May of 2017, the company managed 180 locations. Since then its total locations have increased 64% to over 295.

Notably, the company can add space so quickly due to its construction chops and operational efficiency. After a location has been scouted and vetted, and a lease or co-management agreement is in place, the company can accept tenants in as few as 4 months, and on average does so within 9 months.

In 2017, WeWork’s top line revenue reportedly surpassed $900M.

For 2018, WeWork reported revenues of $342M in Q1’18 internally to its employees in June (a 110% increase year-over-year), with a full-year run-rate of $1.5B based on revenue from March. The company has separately projected revenue will grow to $2.3B for 2018, likely helped along by the opening of new offices.

A revenue driver is increased occupancy rates, which increased from 73% a year ago, to 82% in Q1’18.

SHEDDING LEASE RISK

While WeWork may seem like it’s found a magic formula in real estate, its model is actually quite risky. The long-term leases it signs with landlords can last 10 – 15 years and require WeWork to pay hundreds of millions of dollars in future rent, even during economic downturns and down cycles in the real estate market when the company may struggle to fill its buildings.

Over the course of a decade-long lease, there may be phases when small businesses and entrepreneurs find WeWork to be unaffordable, or competitors with lower rent obligations are able to provide a similar offering for less money to the customer.

In this regard, WeWork’s big selling point of office space flexibility is also one of the biggest threats to the long-term stability of its business, as members can pick up and leave if they want to, leaving WeWork on the hook.

The company has taken steps to reduce its overhead risk by focusing on the four strategic measures below:

• WeWork is targeting more enterprise clients for its office space and expanding into third-party office management via its Powered by We solution. To date, 24% of WeWork’s clients are enterprises (up from 14% in Q1’17), with some locating in WeWork buildings and others locating in real estate tailor-made by WeWork’s construction, design, and Powered by We management tools.
• WeWork is shifting from leases to co-management deals. In this scenario, landlords might pay for the renovation and buildout of offices and/or split membership profits 50/50, similar to the management agreement popularized by the hotel industry. Neumann says WeWork has followed this strategy nearly 100% of the time in markets like India and Israel.
• WeWork has begun purchasing properties. The company formed a real estate investment fund called WeWork Property Advisors in partnership with the Rhone Group. The fund was reportedly used to purchase the former Lord & Taylor building in New York City for $850M, and may be in the process of negotiating the complete purchase of a 12-building campus in London’s Devonshire Square from the Blackstone Group for a reported $785M.
• The company is moving towards longer lease terms for its members. WeWork has restructured the incentives of its broker referral program to reward brokers who place members for a year or more instead of month-to-month, according to The Information.

It’s worth pointing out that according to research conducted by Emergent Research, the coworking industry more broadly is also changing, moving away from individual entrepreneurs and towards small businesses and companies employing fewer than 100 people.

Signing & designing with data

DATA SPEEDS NEW LEASE AGREEMENTS

Aaron Fritsch, WeWork’s Head of Product Systems, has said that the “single biggest blocker to our ability to expand is plainly and simply how many leases we can sign.”

Given the importance of a fast-paced global expansion, WeWork has a calculated way of scouting its locations for buildings.

WeWork addresses the bottleneck in location vetting by leveraging data on a target neighborhood’s business composition. In a partnership with Factual, a location data provider, WeWork rates locations based on proximity to amenities and businesses, including coffee shops, shopping, restaurants, bars, hotels, and gyms. Factual claims its partnership with WeWork drove a 95% increase in WeWork locations in a 12-month period between 2016 and 2017.

Interestingly, the proximity of other WeWorks is also a factor. In cities where there are numerous WeWork locations, each additional location serves to drive down membership churn. Artie Minson, WeWork’s former COO and current President, has noted, “in cities where WeWork opened more locations, membership cancellations declined.”

While the vast majority of WeWork’s membership plans assign its members to a location, it does let members switch between locations.

ARCHITECTURE & CONSTRUCTION

Once WeWork signs a lease and begins building out its office to maximize both revenues and office culture, technology takes an even bigger role.

Its acquisitions of architecture technology firm Case Inc. and of construction management platform FieldLens to form its Physical Products team has been essential to improving the design and build out phase.

Before being acquired by WeWork, Case was a technology consultancy for the architecture industry. Its team specializes in building information modeling (BIM), in which buildings are scanned and shown in 3D to provide insight into the time and cost of projects. WeWork acquired the company in August 2015.

In June 2017, WeWork acquired FieldLens. FieldLens offers a platform for communication between stakeholders in the construction of buildings. Its technology allows project managers, foremen, architects, owners, and supers to manage construction sites in real time on their phones, documenting conversations and tracking and assigning issues.

WeWork intends to integrate FieldLens into its complete building management lifecycle, including post-construction management.

WeWork’s goal is to maximize space usage while also providing ample common space, meeting rooms, and natural light. The company measures the usage of its offices so each new location is informed by data from prior offices.

Using Case’s core technology, one of the first things WeWork does after signing a lease is 3D scan and map a space. The process, which takes an hour per floor, lets the physical products team capture square footage, window mullions, door sizes, slab flatness/thickness, and ductwork and piping.

Small decisions in space usage can lead to a large financial return. According to David Fano, WeWork’s Chief Growth Officer, “these old buildings might have drawings, but they might be off by a foot or two. If that happens, a desk might not fit, and that changes our performance; we make revenue projections on that.”

Fano argues the BIM process has increased space efficiency between 15 and 20% while saving 10% of building cost. After all, just one extra desk adds $80,000 in revenue over 10 years, according to Forbes.

Fano also likes to point out that WeWork “is in a unique position as one of the only true end-to-end solutions that is involved in every phase of a building’s life cycle — from identifying, leasing, and designing to building and managing.”

The below graphics show a BIM plan script mapping frames and assemblies. Notably, WeWork tests different layouts and office sizes, using information from existing locations to predict where members will gather in a new location, how many phones should be installed, etc.

One of the ways WeWork achieves maximum efficiency in planning is through its use of machine learning. To decide how many meeting rooms to construct, researchers at WeWork created a neural net that collects information on its existing buildings’ layouts and meeting room usage.

Based on knowledge of its building layouts and meeting rooms utilization, the company can predict meeting room usage for a layout that has yet to be constructed.

In a test of the neural net system, the program estimated room usage 40% more accurately than WeWork’s human designers did. The graphs below show the number of hours a meeting room was utilized vs its predicted hours, with the neural net achieving far more linear correlation.

According to Nicole Phelan, the design researcher who wrote WeWork’s blog post on its neural net, “The most powerful implication of this study is that before we begin construction, our teams can plan a space that fits the needs of the members that will one day occupy it. Using machine learning to uncover patterns in the interactions between people and space is information that can make better design and programming decisions.”

The end result is floorplans that are packed with a mix of private offices, meeting rooms, single-person rooms, open desks, and common areas.

The more buildings WeWork opens, the more data it collects, and the more its process improves — providing a strategic advantage over other coworking startups and incumbents.

This technology, combined with increasing buying power from constructing at scale, has lowered the cost of adding a new desk to $9,504 in September of 2017, from $14,144 a year prior, representing 33% savings.

This data advantage in building and managing office space is one of the major selling points to enterprise customers.

ENTERPRISE INITIATIVES, POWERED BY WE

To folks in the venture capital industry, the prospect of getting a slice of the commercial real estate industry via an office management technology platform play is attractive. What’s more, major headwinds are blowing in the company’s favor.

Corporations across the globe are searching for ways to lower their total square footage to cut costs. In addition, in the US a rule mandated by the Financial Accounting Standards Board set to go into effect in 2019 will require public companies to add real estate lease obligations as a liability to their books. The rule is likely to make companies with large leased footprints appear significantly more leveraged than their reporting currently reflects, and thus will spur companies to lower their real estate footprints.

But workspace design isn’t just about tax efficiency and cost savings. Workplace design is increasingly correlated to measurements of employee health and productivity. Subsequently, companies are installing measurement tools to ensure office spaces are well-ventilated, receive enough natural light, are not noisy, and are optimized for other aspects of productivity and wellbeing.

Some buildings are being retrofitted with HVAC systems that automatically respond to high CO2 levels and pollutant levels in the air, preventing employees from becoming drowsy. Renowned architecture firms like Zaha Hadid Architects are installing wall sensors like the one below to measure and monitor offices, producing “evidence-based design.”

“Buildings are literally becoming giant computers,” Joshua Emig, Head of Product Research, told FastCompany.

WeWork’s building design team knows how to maximize square footage and amenities so that employees do not feel crammed. From a cost-savings perspective, WeWork estimates it saves enterprise clients between 25% to 50% in operating expenses, according to The Atlantic.

Sensors and other measurement tools like facial recognition software let WeWork track how its office space is used, down to data as granular as how members adjust their desks, what parts of the office see the highest foot traffic, and eventually, maybe even how focused members are in meetings.

WeWork both designs its own spaces for enterprise clients and redesigns enterprises’ existing office space. Corporations that use the Powered by We solution are offered WeWork office management software to help book conference rooms, host guests, etc. A community manager also sits within the space, to assist as needed. FastCompany reports that its enterprise solutions are designed for companies with at least 1,000 employees taking up 50,000 – 60,000 square feet.

Doug Chambers, head of Powered by We, told Wired that clients “want to know how their space is being utilized, how they cut down on that space in places where it’s not being utilized efficiently, and at the same time get that cultural community aspect happening inside of their buildings.”

The below graphic includes some of the notable corporates that are using WeWork for office space.

WeWork’s acquisition of Unomy, an Israeli enterprise sales tool that lets salespeople track leads, aligns strategically with WeWork’s goal to increase enterprise customers. Unomy had previously raised from AltaIR Capital, JANVEST Technologies, Leta Capital, and Microsoft Accelerator.

WeWork’s recent acquisition of marketing services company Conductor also shows a focus on enterprise clients. Conductor offers search engine optimization (SEO) services to companies intent on increasing their profile and visibility on the web. WeWork COO Artie Minson described the acquisition as “an opportunity to offer another product and service our member companies can use to grow their business.”

That said, Conductor will also operate as a separate business for WeWork with the intent to “cross-sell their brands.” Minson emphasized that Conductor’s existing client base offers an opportunity to engage with and sell to large enterprises.

Strategic initiatives

Armed with heaps of capital from its $4.5B in funding, WeWork is rapidly expanding across the world, adding new locations and amenities in a bid to scale its membership count and diversify its brand.

The company has added amenities and service offerings to its core customers (individuals and companies alike) via M&A and partnerships. It is also developing new types of WeWork brands, including dormitory housing and fitness facilities (some more promising than others).

WeWork CFO Artie Minson described WeWork’s investment scope as including companies that “make WeWork stronger or can make our member companies stronger,” according to the WSJ.

Additionally, Chief Growth Officer David Fano is optimistic about the company’s M&A future, saying that WeWork is actively looking to “buy, build, [and] partner” and noting that “at the pace we’re looking to scale and the expertise we’re looking to bring on, I would imagine we’ll be looking at companies that could potentially come on board.”

SERVICES & EXPANDING CORE WEWORK

Services Store

WeWork’s services store offers members discounts on software and office services, including basics like Microsoft Office, Slack, and InVision. The store can be accessed with the lowest WeWork membership package, which lets customers pay as they go for coworking space. The store underscores the company’s intent to position itself as an office services provider.

Flatiron School

WeWork’s acquisition of the Flatiron School offers its members an educational amenity. Flatiron School is a coding academy which has recently had to close a number of its coding boot camps. The acquisition will integrate Flatiron School’s courses and programs into WeWork locations and online.

2U 

WeWork’s partnership with 2U falls into the same category as other acquisitions and partnerships that increase the company’s menu of amenities. 2U is an education technology company that offers customers online courses from top universities and colleges. WeWork’s partnership terms included $5M in scholarships paid for by 2U to WeWork members over 3 years. Additionally, 2U will be licensed Flatiron School’s Learn.co technology.

SoFi

WeWork’s partnership with fintech startup SoFi is a service offered within the WeWork Services Store. WeWork members in the United States receive 0.125% rate discount on student loan refinancing or Parents PLUS loans.

Meetup

The company’s acquisition of Meetup, a platform that connects groups of people with similar interests, ties in with WeWork’s core offering of networking space. Since 2013, more than 100,000 have attended a meetup at a WeWork.

Techstars 

WeWork’s partnership with Techstars gives the global accelerator office space and access to WeWork services in Toronto, Kansas City, Boston, and New York City. Additionally. Techstars and alumni are offered discounted membership.

WeWork CFO Artie Minson commented on the partnership, saying,

“Techstars entrepreneurs represent some of the world’s best innovators on the front lines of the industries of the future. By welcoming more of this next generation of creators into the WeWork community, our members — everyone from entrepreneurs, freelancers, and small businesses to middle-market and Fortune 500 corporations — will have new opportunities to connect and collaborate.”

EXTENDING THE WEWORK BRAND

WeLive

WeLive is WeWork’s vision for membership-based housing. Like WeWork’s office, WeLive offers dorm-style apartments that can be rented on a month-to-month basis. TV, internet, concierge, housekeeping, access to community events, refreshments, and communal kitchens are all included in the pricing.

Unlike WeWork’s office locations, WeLive has not seen much growth. The company currently has two WeLive locations, well short of its goal to expand to 68 locations, which account for 20% of the company’s revenue since WeLive’s debut.

Private studios start at $3,050 per month in New York City and $1,500 per month in Washington DC, while four-bedroom apartments start at $7,600 in NYC and $3700 per month in DC.

Rise by We 

In October of 2017, WeWork announced the opening of its spa and gym, Rise by We. The facility, currently only offered at one location in New York City, is open to WeWork members, with a non-WeWork members fee starting at $180/month. WeWork intends to build out similar gym/spa offerings in other locations.

The addition of exercise facilities seems like a well-timed decision, as fitness companies like Equinox are blurring the lines between recreational spaces and hotels, with plans in the works to launch an Equinox hotel in New York City’s Hudson Yards development in 2019.

WeGrow

One month after its announcement of Rise by We, WeWork announced plans to start a private elementary school called WeGrow. The school is set to open in September of this year in WeWork’s Chelsea headquarters in New York City.

The school’s mission is centered around “a conscious entrepreneurial approach to education.” Students would eventually be partnered with WeWork members for apprenticeships. The initiative has drawn quite a bit of press — and a fair amount of skepticism.

WeLabs

WeWork’s WeLabs is a partnership program with local accelerators and incubators to assist small companies with “space, community, and programming” for a fee (not an equity stake). Currently, the program is available in one location in New York City, with two more NYC opening in March and April and one location opening in Sao Paulo, Brazil, on April 1. More locations are planned for Seoul, Tel Aviv, Shanghai, and Gurugram, India.

GLOBAL EXPANSION

WeWork is quickly expanding in the US and abroad, with 295 locations and counting.

To date, WeWork has focused on the United States with 154 US-based locations — just over 50% of its global total. Within the US, the company’s locations are largely concentrated within New York City, which is home to 49 of the 154 US offices. Second to New York City, San Francisco and Los Angeles have 15 locations apiece. Washington DC is third with 10.

We analyzed the cost of membership throughout the US to see how prices stack up in each city, based on the city-wide average of WeWork’s starting membership fees for a “hot desk” (an unassigned seat somewhere within a common area) as well as starting prices for a private office at a WeWork.

As shown above, New York City and San Francisco lead as the most expensive in the US, while Austin, Boston, and Chicago round out the top 5. It’s notable that, while LA is tied for second in its number of US WeWork locations, it ranks sixth for average starting price of membership.

Looking beyond the US, London has the second most WeWork locations after New York City, while the average starting cost of membership in London is 20% higher than New York City.

WeWork has certainly made London a central strategic focus. According to the Financial Times, WeWork has become one of the largest office space tenant in central London, second only to the government offices of the United Kingdom.

Moreover, based on filings made by WeWork’s UK units, the company owes a minimum of $1.1B of future rent in London, some $318M of which will be paid out in the next 5 years.

In October of 2017, WeWork was also reportedly in talks to purchase a 12-building warehouse campus in Devonshire Square from the Blackstone Group. The buildings were originally owned by the East India Company. Terms of the deals were undisclosed, but the price was rumored to be $785M for 620,000 square feet.

Expansion in emerging markets

Beyond London and the US, WeWork is also expanding in emerging markets with burgeoning tech scenes, especially China and India. We took a look at average prices in cities in these countries to see how they compare to other markets.

China’s country-wide average of $757 for a private desk aligns with major US cities like Chicago or Los Angeles, but when you remove Hong Kong — with a city-wide average of $975 for a private office and $455 for a hot desk — averages in locations like Beijing and Shanghai fall significantly, dropping down to $648 for a private office and $341 for a hot desk.

This has not deterred WeWork from expanding within Shanghai, likely because margins in the city are still favorable for WeWork, in addition to considerable expansion potential. WeWork has 8 locations in the city, and in 2017 it leased the largest Class-A office in Shanghai, a 290,000 square foot building in Huangpu District. (Class-A is highly prestigious office space.)

Compared to China, India has significantly lower membership fees, with a $398 county-wide average for a private office, and $180 for a hot desk.

To boost expansion in Southeast Asia, WeWork also purchased coworking startup Spacemob in August 2017. The Singapore-based company had previously raised $5.5M from Vertex Ventures SE Asia, Alpha JWC Ventures, and Temasek Holdings. The acquisition also brought on Spacemob’s founder and CEO Turochas Fuad to manage its expansion through Southeast Asia.

WeWork’s former CFO and Managing Director of WeWork Asia, Christian Lee sees co-management and Powered by We as a major driver to expansion in the region. “Landlords in Asia are coming to us and asking for help or a cultural upgrade,” Lee told TechCrunch. “It’s one of the biggest opportunities in Asia — we take everything we learned as a package and bring it into a landlord building or company building.”

Investors, leadership, & competitors

VALUATION & FUNDING HISTORY

Since its founding, WeWork has raised a mountain of money in the private market. Total capital raised to date includes $4.6B to WeWork’s US entity, with another $1.4B spread between its Asian entities formed in partnership with SoftBank.

At the time of its $40M Series B financing in May 2013, WeWork had reached a $318M valuation. In February 2014, the company raised a $157M Series C and reached a $1.6B “unicorn” valuation.

Since then, each successive round has raised added billions to its valuation, which, following a number of large rounds from SoftBank Group, has most recently ballooned to an astounding $20B, roughly 20x the company’s reported 2017 revenues.

Much if not all of WeWork’s valuation is based on its historical and forecasted revenue growth. Compared to comparable publicly traded companies like IWG, WeWork’s revenue growth is far higher. (For more on WeWork’s valuation, check out our valuation analysis.) 

In June of 2018, SoftBank Vision Fund CEO Rajeev Misra let slip at a conference that WeWork was raising new capital at an eye-popping $35B valuation, opening the door to plenty more speculation as to if such a valuation is justified.

INVESTORS

WeWork’s investor composition weighs disproportionately towards larger, institutional money managers like mutual funds, endowments, and banks, including the Harvard Management Company, JP Morgan Chase, Goldman Sachs, and Fidelity Investments, as well as traditional venture firms like Benchmark.

The company is also backed by some notable Chinese investors, including Legend Holdings, parent company to Lenovo, and Jin Jiang International, with ties to the Chinese government.

However, WeWork’s most influential investor is surely SoftBank Group. In 2017, SoftBank Group closed $93B to form the Softbank Vision Fund, aimed at buying significant equity in market-leading technology companies.

“I told Adam not to be proud that WeWork was growing organically without a large sales force or spending big marketing dollars. Make it ten times bigger than your original plan.” — Masayoshi Son, CEO, SoftBank Group

WeWork was one of the Vision Fund’s first investments. The terms of SoftBank’s deal were allegedly sketched out by Neumann and Masayoshi Son, SoftBank’s CEO, in the backseat of Son’s car as he departed from a mere 15-minute visit to WeWork’s offices. The terms set out a $3B investment into WeWork — a mix of equity buyouts ($1.3B) and new capital ($1.7B) — with additional investments made to new Asian entities WeWork Japan, WeWork China, and WeWork Pacific.

Based on WeWork’s recent geographic expansion, it would seem Neumann and his team are putting SoftBank’s money to use.

As SoftBank continues to deploy its Vision Fund, it’s worth keeping an eye on the office locations of Mr. Son’s portfolio companies. The WSJ reported that Son has suggested he would urge portfolio companies to find office space within WeWork locations, and SoftBank’s subsidiary Sprint is a WeWork enterprise client.

HIRING & LEADERSHIP

WeWork’s hiring has declined of late. Its publicly available jobs listings have decreased 26% in the past month, and 19% in the last six months. However, hiring in the trailing 12 month period is up 8%.

We put together a blueprint of the company’s top ranks. While WeWork’s leadership structure is fuzzy, here are the executives who either directly report to CEO Adam Neumann, or have his ear.

COMPETITORS

Private startups are cropping up to compete

Nearly 4,000 coworking locations operate in the US. While none are as well capitalized as WeWork, the company has nonetheless been aggressive in weeding out competition, poaching members with offers of months of free membership.

Knotel is one example. The New York City-based company has raised just $25M from investors, including Bloomberg Beta, 500 Startups, and Rocket Internet, among others. In 2017, the company (and two others) accused WeWork of spying on its operations, sending employees to pose as potential customers.

In San Francisco, RocketSpace is a well-capitalized office space company designed to help startups grow, offering offices and accelerator services. The company notably also has enterprise clients. Founded in 2011, it raised $336M in 2016 in a corporate minority round from HNA Group, a Chinese conglomerate.

Convene provides space for corporate events, offering meeting and conference rooms with production support and top-notch amenities and technology. Convene manages amenities for the Durst Organization in One World Trade Center, among other locations.

Other coworking companies have a more specific focus area. Neuehouse, for example, focuses on “solopreneurs” and teams of less than 10, particularly in the film, fashion, and design industries. To date he company has raised $40.5M.

The Wing, meanwhile, offers an all-women social, co-working, and networking club. WeWork participated in a $32M Series B to the startup in Q4’17. The Wing’s first location in the Flatiron neighborhood in New York opened in 2016, while its second in SoHo opened last year. Additional locations are planned to open in Washington DC and Brooklyn later this year.

Some companies, such as Croissant and Spacious, have carved out spaces in other unique ways. Croissant grants members access to coworking offices around New York City, San Francisco, Los Angeles, Chicago, and Washington DC, while Spacious partners with restaurants in New York City during no-service hours.

As WeWork expands into Asia, a few players have emerged as notable competitors as well. Beijing-based Ucommune (fka URWork, before being sued by WeWork) has raised $524.8M from Sequoia Capital China, among others, at a valuation of $1.4B. As of August 2017, Ucommune had 7,500,000 square feet and 100 locations in China.

Similarly, Shanghai-based naked Hub has 44 locations open or set to open in China, Vietnam, Australia, and the UK, according to Deal Street Asia.

Publicly traded real estate companies are also taking note 

Major real estate incumbents are angling to make competing investments with WeWork. In January 2018, Brookfield Asset Management and Onex Corp, Canada’s largest asset manager and private equity firm, respectively, bid on IWG Plc, a flexible office space provider. The $3.7B bid was rejected.

IWG’s $2.2B market cap is roughly one-tenth WeWork’s private market valuation, despite having 3,000 locations compared to WeWork’s 295. Its coworking sub-brand Spaces has 39 locations in the US open or set to open in spring of 2018. Moreover, it plans on expanding the Spaces brand to 25% of its locations worldwide.

In December 2017, IWG negotiated an agreement with Brookfield to lease seven floors within the Hudson Yard development — an indicator of how important Brookfield thinks coworking is to its own leasing strategy.

The Blackstone Group has also made its foray into the coworking industry, purchasing a majority stake in The Office Group, a flexible office space provider at a valuation of roughly $695M. Blackstone is the largest landlord in the US and one of the largest landlords in the world, with $219B in gross real estate assets under management (as of9/30/17). Blackstone is also a landlord to WeWork.

Rob Harper, head of US asset management in BX’s real estate group, said coworking “is certainly something we’re spending a lot of time focusing on in our office space business.”

“The way towers were built in the 1980s, they were a monument to the corporation. Now, if it feels corporate, that’s the kiss of death.” — Lisa Picard, President & CEO Equity Office (Blackstone)

Traditional commercial real estate landlords are surely feeling squeezed.

In the UK, an industry-wide decline in lease lengths occurred for the first time in six years, and landlords feel obliged to make changes. One of the UKs largest REITs, British Land Co., has even started its own coworking brand called Storey.

In addition to putting a stake in the coworking game, landlords are building out their amenities to compete with the likes of WeWork: major commercial landlords are aggressively constructing communal spaces, happy hours, game rooms, and more to make their buildings more attractive to corporate tenants.

Naturally, some competitors have decided that it is better to work with WeWork than against it. Major real estate developers like the Rudin Management Company and Boston Properties have bought in on WeWork’s value-add to a building.

The companies’ new joint building in Brooklyn, Dock 72, is a 675,000 square foot Class-A building. WeWork will occupy 222,000 sq ft, while 35,000 sq ft of the building will be devoted to amenities designed by WeWork, including a 13,000 sq ft food hall, a 15,000 sq ft wellness center, lounges, conference rooms, and a rooftop conference center and event facility, among other amenities.

The building also will have its own app to assist in building security, conference center booking, food deliveries, and transportation updates. Powered by We offices for companies like IBM and Verizon have already been earmarked.

Concluding thoughts

To date, WeWork has proven two things. First, it can quickly expand at scale, opening between 500K – 1M sqare feet per month. And second, it can design spatially efficient offices in non-identical locations, from brand new offices to spaces so old they were once operated by the East India Company.

Both of these accomplishments rely on defensible strategic advantages, namely, a control of the complete building lifecycle and a mastery of data-informed design.

The cost savings WeWork can then pass on to corporate clients are a massive accomplishment in technical efficiency, as well as a compelling outsourced service. This makes WeWork’s Powered by We a significant competitive business — so long as the company can continue to deliver and improve on its technological capabilities.

WeWork’s enterprise business is vital to its long-term strategy. If the company continues to add co-management deals that cater to large corporates, it has a strong shot at living up to its sky-high valuation. However, if enterprise growth stagnates, and it appears that companies are using their WeWork partnerships more as a marketing tool than an office solution, WeWork may stumble.

Moreover, WeWork’s accounting risk is still high. The company’s short-term risk of default on its lease obligations seems low, but only given the strength of its balance sheet and deep-pocketed investors. Driving that risk down will likely require WeWork to limit the numbers of new locations that are leased, as opposed to co-managed.

With all this in mind, if WeWork can continue to improve its efficiencies in office design, the highly funded company could create a new paradigm for enterprise real estate management.