Adam Neumann was poised to become one of the world’s richest people this year, crystallising a personal fortune of as much as $14bn (£11.3bn) from the flotation of WeWork, the shared working space company he co-founded with a mission to become “the world’s first physical social network”.
But in a bruising fortnight Neumann has been forced to pull the float, quit as chief executive, halt all of WeWork’s lease expansion plans, and seen the company’s credit rating cut to “junk” status. He has also had to fend off a series of increasingly damaging allegations about his personal conduct, including the revelation that he smoked marijuana on a private jet. The company is now selling the $60m Gulfstream G650 plane that Neumann had used to fly around the world to attend tequila-fuelled parties with the likes of the Red Hot Chili Peppers, Jared Kushner and Will Smith’s son Jaden.
When Neumann, a 6ft 5in 40-year-old Israeli with a mane of dark hair worn to his shoulder or lower, announced plans to launch an initial public offering (IPO) on the New York stock exchange, bankers at Goldman Sachs reckoned the heavily loss-making but fast-growing company could be worth up to $65bn (£53bn).
That would have made the firm – this year rechristened the We Company – worth 15 times the value of the 135-year-old Marks & Spencer, and seen Neumann’s 22% stake crystallised at $14.3bn. And it could have slotted him in at number 94 in the Bloomberg Billionaires rankings of the world’s richest people, several places above the vacuum cleaner magnate James Dyson and Hugh Grosvenor, the 28-year-old Duke of Westminster, whose family owns vast tracts of London’s Mayfair and Belgravia.
WeWork has grown to become the single biggest office tenant in Manhattan, and the second in London after the government. It has expanded from offices to student halls-style communal living blocks, private schools and luxury gyms and boot camps. The Guardian US is among WeWork’s tenants.
This summer Neumann suggested that if only it could grow enough, WeWork could solve the world’s most difficult problems, such as the refugee crisis. “I need to have the biggest valuation I can, because when countries are shooting at each other, I want them to come to me,” he said, according to a profile in New York Magazine.
At a company party last year he told his staff that WeWork’s mission was to “to elevate the world’s consciousness” and that “there are 150 million orphans in the world. We want to solve this problem and give them a new family: the WeWork family.”
However, Neumann’s arrogance did not go down so well with Wall Street investors when WeWork published its flotation prospectus in August. It warned potential investors that: “Adam’s voting control will limit the ability of other stockholders to influence corporate activities and, as a result, we may take actions that stockholders other than Adam do not view as beneficial.”
The prospectus, which mentioned “Adam” 169 times ( by comparison, Apple’s IPO prospectus from 1980 mentioned “Steve” Jobs three times), demanded that each of his shares should carry 20 times the votes of ordinary shares, and that his wife should have a say in selecting his successor should he die. The documents also showed that WeWork’s board would include no women.
Anger from potential investors caused WeWork to change all of these policies, cutting his voting rights to 10 times and later three times those of other investors. The role of his wife Rebekah – a cousin of Gwyneth Paltrow – in succession planning was dropped, and the firm added Frances Frei, an academic at Harvard Business School, to its board.
The company’s losses were revealed to have ballooned from $900m in 2017 to $1.9bn in 2018, and the filings showed that WeWork had paid out $20.9m in rent to buildings in which Neumann personally held a stake. Investors were also vexed by $5.9m the firm paid to Neumann in exchange for his trademark of the word “We”. Following pressure from Wall Street, Neumann, who lives between five luxury homes spread across the US and Israel, returned the money.
Investors were still not convinced WeWork was worth as much money as Neumann and his bankers thought it was. The expectation of the valuation at IPO steadily fell to $47bn, then to $25bn, before suggestions that it might attract just $10bn led to the IPO being postponed while the company evaluated the “optimal timing” for the float. On Thursday, the credit rating agency S&P downgraded WeWork’s debt, while the Financial Times reported that the company has halted the signing of new lease agreements with property owners in a bid to curb costs.
The president of the Boston Federal Reserve Bank, Eric Rosengren, has warned that the business model of co-working companies like WeWork could make the next recession worse by sparking a run on commercial real estate. WeWork has signed long-term rental commitments worth $47bn with US landlords alone. If WeWork were to go bust, its landlords will struggle to collect the promised lease payments they are owed. That could leave property companies struggling to pay their bank loans, and in turn leave banks facing losses.
WeWork lets most of its space on short-term lets to startups and small companies, which are more vulnerable in a recession. That means that WeWork itself could be more vulnerable to collapse in an economic downturn.
The disastrous IPO attempt not only cut a huge chunk out of Neumann’s expected fortune, but also those of WeWork’s biggest investors including Japan’s SoftBank, which had pumped in $11bn (£8.8bn).
Until recently SoftBank’s billionaire founder, Masayoshi Son, had been Neumann’s biggest financial backer and public promoter. Neumann had convinced Son to invest in WeWork at a $20bn valuation in a 12-minute walk around the office, before signing the deal on an iPad in the back of a cab.
“I thought the valuation had been too high for a company its size and that someone could easily copy it,” Son said in an interview with Forbes in 2017. “But no one could. The idea was easy to talk about but hard to execute – Adam proved he can do what he says.” Son’s $20bn valuation worked out at $133,333 per member, even though WeWork’s model allows members to leave at any time.
WeWork’s prospectus had said: “If Adam does not continue to serve as our chief executive officer, it could have a material adverse effect on our business.” Son, and WeWork’s other investors and board members, thought otherwise and last week began attempts to oust Neumann as chief executive.
Finally, late on Tuesday, Neumann stood down, telling staff that “the scrutiny directed toward me has become a significant distraction, and I have decided that it is in the best interest of the company to step down as chief executive”. His wife, her brother-in-law and about 20 other high-level employees who are close friends of Neumann are expected to also leave the firm, according to the Wall Street Journal. Internally they were referred to as Neumann’s “oval office”. Now, the firm must prove it has a long-term future without them.
