Adam Neumann Handing Over Part of Property Holdings to Fund Startup -- WSJ

Dow Jones2022-09-13

By Konrad Putzier

 

Adam Neumann's new rental-apartment startup recently received a $350 million investment from venture-capital firm Andreessen Horowitz. That big check came with an unusual catch.

Mr. Neumann, the co-founder and former chief executive of WeWork Inc., agreed to effectively hand over part of his vast real-estate holdings in return for the money, according to people familiar with the matter.

Since leaving WeWork in late 2019, Mr. Neumann has bought stakes in thousands of apartments, largely in the Sunbelt. These stakes are now held by his new company Flow, according to people familiar with the matter.

By investing in Flow, Andreessen Horowitz also acquired stakes in the buildings. For a venture-capital firm to receive in effect a stake in thousands of apartments in return for an investment is very rare, in part because there are so few venture-funded firms that own real estate.

The structure of the funding raises the stakes for Mr. Neumann, who walked away with a more than $1 billion exit package in cash and loans when he left WeWork even as his efforts to pull off a big initial public offering floundered and his biggest investor lost billions.

Now, if his new company were to fail, he stands to lose part of a real-estate mini-empire that he has spent more than two years assembling and that people familiar with the matter say is valued at hundreds of millions of dollars.

Andreessen Horowitz's investment -- the largest individual commitment it has ever made in a round of funding -- also turns one of Silicon Valley's best-known venture-capital firms into a de facto apartment-building landlord.

The Covid-19 pandemic has created a new opportunity in the sector as apartment rents have surged to new highs in many cities and Americans are spending more time at home.

Mr. Neumann intends for Flow to become something akin to a WeWork for rental apartments, offering plenty of common space and social activities to create a sense of community, say people briefed on the matter. Part of his aim is to appeal to workers who are cooped up in their apartments and miss the office camaraderie. Mr. Neumann is also considering offering rewards to tenants who stay for a long time, these people said.

His company faces competition from a number of other startups, including a company backed by Iconiq Capital LLC, a wealth manager with more than $80 billion in assets that counts Facebook founder Mark Zuckerberg among its investors.

Flow is a property owner but plans to also manage those apartment buildings and offer management services to other landlords for a fee, according to people familiar with the matter. The company is in talks to take over management of Society Las Olas, a multifamily building in Fort Lauderdale, Fla., these people said, which would be its first management contract.

The Iconiq-backed apartment manager Sentral launched last year and currently oversees more than 4,000 units. Its chief executive, Jon Slavet, is a former employee of Mr. Neumann who served as a WeWork executive until early 2020. Like Flow, Sentral wants to appeal to a new generation of renters by offering plenty of common amenities. The company is also offering shorter-term stays alongside one-year leases.

Unlike Flow, Sentral doesn't own any real estate. So far most of the units Sentral manages are owned by Iconiq, Sentral's majority investor, but the company plans to branch out to other landlords.

When Mr. Neumann co-founded WeWork more than a decade ago, it offered short-term leases for furnished space and brought tenants together over beer kegs. Mr. Neumann raised more than $10 billion from investors, primarily SoftBank Group Corp. WeWork is primarily a real-estate business, but Mr. Neumann convinced investors it could achieve the kind of explosive growth that turned tech companies like Airbnb Inc. and Uber Technologies Inc. into global behemoths.

WeWork spent heavily on leases, salaries, furniture and other expenses, leading to big losses. After a botched attempt at an initial public offering in the fall of 2019, WeWork narrowly avoided bankruptcy. Mr. Neumann was pushed out of the firm amid concerns over his management style.

Mr. Neumann has dabbled in the apartment business before. While at WeWork, he launched a furnished-housing venture dubbed WeLive that opened two locations before closing. After leaving the company, he began buying stakes in multifamily buildings, according to property records and people familiar with the matter.

In 2020, he bought a major stake in residential property-management technology company Alfred. Mr. Neumann had regular discussions with the company's founders, Marcela Sapone and Jess Beck, about turning the company into a major apartment brand, according to a person familiar with the matter.

Alfred acquired a property-management business, and Mr. Neumann set out on his own to compete with Alfred instead.

Write to Konrad Putzier at konrad.putzier@wsj.com

 

(END) Dow Jones Newswires

September 13, 2022 08:00 ET (12:00 GMT)

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