WeWork is expanding into property acquisition and management, raising US$1-billion from Canada’s Ivanhoé Cambridge to buy real estate in major cities around the world.
The U.S. company’s new commercial real-estate unit, called Ark, will use the US$1-billion investment from Ivanhoé along with roughly US$1.9-billion from other investors to buy and develop commercial property in big urban centres such as Toronto, London and Paris.
WeWork’s decision to launch Ark marks a strategic shift for the coworking business and its parent The We Company. Until now, The We Company has largely focused on subleasing office space rather than owning commercial properties outright. But the nine-year-old company is losing money as it adds more office sharing locations in upward of 27 countries, including in Canada, underscoring the need for new revenue streams.
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The We Company’s move into property acquisition and management comes at a pivotal time. The privately-owned parent of WeWork is contemplating an initial public offering to fund future growth amid weak performance from recent IPOs by ride hailing startups Uber Technologies Inc. and Lyft Inc.
“We think the opportunity is significant” said Ark’s managing partner Richard Gomel.
For Ivanhoé, the real estate company owned by Caisse de dépôt et placement du Québec, the investment in Ark is a big bet on shared office spaces and The We Company brand. Ivanhoé was the first landlord in Canada to open a WeWork location here.
The Quebec-based company, which manages more than $65-billion in real estate assets in the Americas, the U.K., Australia and China, also rents space to other office-sharing operators such as Breather, Spaces and Convene.
“We don’t think it is a passing trend. We think collaborative space is only going up,” said Sylvain Fortier, Ivanhoé’s chief investment and innovation officer. “We have to be humble and recognize that is not our expertise,” he said.
Under the terms of the investment, Ivanhoé will work with Ark to buy properties that will be turned into WeWorks and other related businesses like short term residential spaces called WeLive. “Very rarely do you see a tenant and owner buying together,” said Mr. Fortier.
Ivanhoé said it will be flexible in what its investment with Ark could buy and said it could be anything from office towers to apartments to a portfolio of real estate. Ark said it could buy properties that WeWork already leases.
When asked if Ivanhoé would provide Ark with another cash infusion, Mr. Fortier said it was too early to say. “I would love to be able to follow with more capital later, but it is so much money that I have to also consider portfolio allocation and diversification,” he said.
Ark builds on The We Company’s relationship with private equity firm Rhone Group, which in 2017 provided WeWork with major capital to acquire the main Lord & Taylor department store property in Manhattan.
Mr. Gomel said having the US$2.9-billion in equity to buy properties will help other parts of The We Company’s business grow.
“We have not had a demand problem, we have had a supply problem, getting access to physical space. [Buying properties] would help that,” he said.
Currently, there are about 25 employees dedicated to Ark, including a former chief executive of a New York real estate investment trust, Wendy Silverstein. Mr. Gomel, also a former executive with real estate investment company Starwood Capital Group, will report directly to WeWork founder Adam Neumann.
The new asset management unit was called Ark because it invoked the “idea of a strong vessel that can ultimately weather all storms,” according to Mr. Gomel. It will be the fourth pillar for The We Company, which developed out of its main business WeWork and also includes WeLive and early childhood education called WeGrow.
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The We Company has grown rapidly, mostly through WeWork. There are now over 400 WeWork locations in 27 countries. It is one of the biggest tenants in New York and London.
Its business model revolves around rent arbitrage, where WeWork signs long term leases and then subleases the same space at a premium for any amount of time usually to tech startups and other entrepreneurs.
However, the company has yet to turn a profit and analysts have questioned its $47-billion valuation. It is unknown whether Ark will help improve overall profitability.