WeWork parent The We Company continued its drive to expand beyond its co-working roots today as it announced the formation of a real estate investment and management platform backed by Canadian fund manager Ivanhoe Cambridge.
“Ark will focus on acquiring, developing, and managing real estate assets in global gateway cities and high-growth secondary markets that will benefit from WeWork’s occupancy,” the New York-based real estate firm said in a statement unveiling the new venture.
The fund management initiative, which kicks off with an initial capitalisation of $2.9 billion, is being announced just over two weeks after reports surfaced that WeWork had filed for an IPO last year, and could bring a new source of revenue to the serviced office phenomena.
The transaction also allows WeWork to avoid questions regarding potential conflicts of interest involving property investments made by its owners in buildings leased to the company’s office operations in the run-up to that stock market listing.
WeWork Board Members to Steer Property Investment Business
The We Company expects its Ark venture to build on a model that it pioneered with its WeWork Property Investors fund, which acquired the Lord & Taylor building on New York’s Fifth Avenue in a $850 million deal which closed in February this year after a nearly two year acquisition process.
The new initiative is being formed by combining WeWork Property Advisors, the WeWork offshoot which partnered with New York-based private equity firm Rhone Group to form the joint venture WeWork Property Investors fund in 2017.
The new entity, which will be majority owned by the We Company, will initially manage $2.9 billion in equity capital, with Ivanhoe Cambridge, the real estate investment unit of Canada’s Caisse de dépôt et placement du Québec (CDPQ) the only new investor to be named so far.
“Like The We Company, we believe there is enormous upside in disrupting traditional norms of real estate,” Sylvain Fortier, chief investment and innovation officer at Ivanhoé Cambridge said of the venture. “We share the same vision, commitment to social responsibility, and long-term approach towards real estate making this a natural partnership and one that we are confident will be transformational for both companies.
Fortier stressed that Ark’s management team, chaired by Rhone Group managing director and We Company board member Steven Langman, alongside WeWork partner and former Starwood Capital executive Rich Gomel, who will serve as Ark’s managing partner, would help the new venture to succeed.
In addition to Langman and Gomel, former New York REIT and Vornado Realty Trust executive Wendy Silverstein will serve as Ark’s chief investment officer.
Betting on WeWork’s Ability to Renovate and Lease Out Buildings
Key to the investment fund’s success appears to be the potential for WeWork business model to add value to existing real estate assets.
“We have seen first hand the value that the WeWork ecosystem can create for landlords and real estate partners,” Gomel said, adding that, “Ark has been set up to capitalize on that opportunity and allow us to provide different partnership options for the real estate community to participate in the growth and expansion of the We Company.”
WeWork has long argued that opening one of its co-working centres can change market perceptions of a building and that the halo effect of have one of its facilities can boost the value of a commercial asset. Now, by using the its fund business to purchase the buildings where it operates, the company’s approach is to offer a slice of that value-add to investors.
WeWork anticipates that it will be able to immediately stabilise leasing of Ark-owned buildings by using its space-as-a-service model and growing network of enterprise clients to support its investments.
In the statement, The We Company also said that Ark would benefit from its site selection resources and industry relationship in accessing a broad range of real estate opportunities.
CEO to Sell Properties to New Fund
In addition to potentially adding a new revenue source, WeWork’s fund deal involves CEO Adam Neumann selling a set of properties which he had acquired, together with partners, and subsequently leased to the co-working operation, before the company endures the scrutiny of a public listing.
WeWork indicated, according to an account in the Wall Street Journal, that Neumann would be selling the property portfolio to Ark at the cost spent to acquire them.
The spectacle of the shared office startups’s CEO making what were reportedly millions of dollars in gains leasing office properties to the money-losing WeWork business had become a source of controversy as the company prepared to sell shares to the public.
Adding Revenue Streams in Run-Up to IPO
The fund management initiative, which has been the subject of press reports since WeWork began building a team of real estate investment specialists in mid-2018, is being officially announced as the company, which was valued at $47 billion in its most recent funding round late last year, prepares for an IPO which could take place this year.
While a fund manager’s typical take of 2 percent of assets under management and 20 percent of profits, could provide a lucrative new revenue stream for the We Company, the post-IPO slide of Softbank stablemate Uber Technologies is already leading to press speculation regarding the potential future listing of a company which lost $1.9 billion in 2018.