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Has Adam Neumann, WeWork founder, pulled off a huge fraud? That’s the allegation doing the rounds as Wall Street analysts ponder a delayed initial public offering. As Associated Press points out, WeWork was having trouble drumming up interest in the offering after revealing massive losses in its IPO filings. WeWork’s revenue rose sharply to $1.8bn in 2018, but the company lost $1.6bn the same year. The company has built an impressive brand around its shared office space, with attractive buildings conspicuous in global capitals – from Edinburgh to Johannesburg. Neumann and friends billed the company as a tech company, but this analyst says it is nothing more than a property rental company and that Neumann and associates have misled investors. – Jackie Cameron
Is WeWork a fraud?
By Henry Hawksberry, first published on Medium
So in a nutshell, this is what we know about this charade so far, apologies:
- It’s not a technology company in any way, shape or form. No income is derived from the sale of a product or service delivered by a technology. They owe $47bn in lease commitments. Claiming WeWork is a technology company is one of the many indicators that illustrate how Adam & Miguel intentionally seek to mislead and defraud existing & potential future retail investors. The product is physical space.
- When asked what inspired him to create a shared workspace company, Adam said that when he was growing up in Israel he used to live in a Kibbutz and was so mesmerised by the ‘sharing ideology’ that he invented Co-Working. Mark Dixon founded Regus in the 1980’s. LEO, Workspace Group, The Office Group, ServCorp, MWB, HQ and many others were around way before Adam thought up of this ponzi.
- WeWork post full year invoices for the year ahead this year to inflate their revenues. They then heavily discount those invoices they’ve already raised and treat them as expenses. They then pay whichever broker secured that lead 100%, yes 100% of the contract value. Note the industry standard commission is 10%. Neither the discounts nor the 100% in commission payments appear in their Financials as they are ‘community adjusted’. They also do the opposite, they turn expenses into revenues so imagine a landlord agrees to discount their rent by £250,000 to offset a portion of their build costs, standard practice, WeWork treats that £250,000 as revenue. They also charge members even after they’ve vacated, then credit them later. It’s not difficult to boost revenues on a blank cheque. Revenues are not what you’ve actually cleared through your bank, it’s the total tally of invoices raised in a given period, a big difference.
- The expenses as detailed in their accounts & S1 disclosure is not accurate. To hide two crippling cost groups; fit-outs & marketing, they invented a brand new accounting principle which they called ‘community-adjusted EBITA’S’. If they hadn’t they would have had to post actual accumulated losses in the region of $6bn instead of the $4bn reported. Why don’t we all do this. This is another strong indicator, they are hiding actual losses to mislead, knowingly. For somebody that can’t go a sentence without throwing in ‘community’ twice it’s interesting he’s never tweeted, his instagram features four landscape google images and he’s non-existent on LinkedIn.
- A brief search on any review site should show you the extent to which they couldn’t care less about what their customers think. Despite rolling monthly contracts being sold with 3/6 month rent free periods for peanuts, with all the promotional freebies they provide, the free beer & festivals, 100% commission rates to brokers, billions in instagram adverts, 3 PR articles a day, none of their buildings are even near full and they are already experiencing falling occupancy rates. They even sent teams to walk into their competitor’s Centres to take photographs of tenant directory’s. That’s how desperate it’s become. Regus is currently engaged in legal action accusing WeWork of poaching customers and they are not the only ones who have accused them of engaging in this.
- Adam & Miguel have already collectively cashed out in excess of $1bn in loans, royalties, salaries to extended family, private jets and who knows what other instruments (e.g. selling the We trademark he secretly purchased back to WeWork for a cool $6m), they’re chilling, and reportedly less and less involved in the day to day running. Miguel is more involved in a range of other businesses and has already demoted himself from Co-Founder to Head of ‘Global Culture’, quietly positioning himself for a quick exit post-IPO. Adam on the other hand fancies himself as the next Masayoshi, he has his own ‘venture capital’ firm investing in genuine entrepreneurs. Why would either of them care what happens to their remaining holdings, they’ve already cashed out enough to set up their grandchildren for life.
- Adam & Miguel then used the funds extracted from WeWork and funnelled it through privately controlled offshore investment vehicles and almost overnight built an asset-rich portfolio of prime commercial real estate (not an asset-light illusionary hustle). It doesn’t end there. Adam & Miguel then lease those buildings they privately acquired. back to their very own ‘spiritually’ valued WeWork at a ridiculously high yield. Even the very founders are bleeding their own ponzi scheme dry. Are these guys something or what. Further buildings were then acquired with loans (from JP Morgan) totalling $500m hedged against their already saddled collateralised. junk obligation WeWork. It’s not enough that they’re making $230m in fees flogging this ponzi.
- When they got caught, Adam tries justifying it by claiming he acquired the buildings years ago as a way of proving the concept works. An outright lie, and very insulting. If Adam can do and then conceal all of these things, imagine what else we don’t know.
- With pressure mounting, he arranges to appear alongside his actor friend Ashton Kutcher in an ‘exclusive’ interview on CNBC. Ja Rule, sorry I mean Ashton Kutcher, in his trademark goofy-like character plays his part to perfection… ‘When I realised it was a technology company I also realised that this company, through its technology, has the greatest capacity than any other company in the entire world to bring people together’. He’s using an actor to convince people his act is for real.
- The only reason it was valued at $47bn is purely because one individual in Japan bafflingly and solely invested a total of $12bn, in 9 separate funding rounds, each at double the price (and valuation) he (and he alone) paid less than 6/12 months prior. Since Softbank first invested in 2012, nobody else has invested. The only two people who claim WeWork is worth $47bn are Masayoshi Son and Adam Nuemann. As long as we’re debating, and continue doing so until after the IPO Adam & Miguel are loving it.
- Why would Masayoshi, an intelligent individual, invest so many billions into this barefaced fraud, for the life of me I can’t figure it out. Maybe Adam & Miguel deceived Masayoshi & Softbank too. Or it could actually really be as simple as it looks. It’s impossible for Adam and Miguel to sell their shares on the secondary market or post-IPO for $100bn+ if Masayoshi didn’t allow Adam & Miguel to parade WeWork in the press as being worth $47 billion, using purely Softbank’s 9 sole investments & revaluations. Once they exchange, media outlets can run headlines that project an aura that they are indeed worth what two people have decided to value it at. Everybody in the loop benefits, from the early investors that hope to offload their investments to later stage mugs, to the media outlets and banks Goldman Sachs’ & JP Morgans who earn hundreds of million in share sale commissions. Everybody wins. No one is accountable.
- Even Adam’s wife Rebekah, persuaded Masayoshi to sink $100m into her very own pet-ponzi, WeGrow, ‘the future of education’. Cute no, his and hers.
- It was only until the Saudi’s threatened to pull their funds out of the Vision Fund when Masayoshi reconsidered and decided to pull a proposed further investment of a whopping $16bn (which would have brought the total amount invested in/borrowed by WeWork to a laughable $30bn, 15x what Facebook raised). This is what may have alarmed Adam to quickly initiate the IPO. He may now be afraid that if he agreed to delay the IPO he wouldn’t be able to re-submit later without providing a more scrupulously drafted breakdown of WeWork’s finances. He may also be worried that if a permanent suspension of the IPO happens, the company may not survive.
- Adam & Miguel have consistently been way off any of their forecasts made in their original pitch deck to investors (available online). He forecasted profits of $14m in 2014, $64m in 2015, $237m in 2016, $542m in 2017 and $1bn in 2018 (on revenues of $3.6bn, a 36% profit margin). Their ‘community-adjusted’ accumulated losses amount to over $4bn, their actual losses are much higher. WeWork sued a whistleblower who raised alarm bells in 2016 when she revealed how WeWork had slashed their profit forecasts by 76%. When Bloomberg revealed this, WeWork claimed that it had ‘over-estimated’ what landlords would be willing to front in build out costs. But according to Adam ‘Because we have 40% margins, we can choose when to become profitable’.
- Two profitable serviced office groups, the largest IWG (Regus & Spaces) and the most luxurious LEO, who collectively manage in excess of 3500+ centre’s have been on the market for close to 2 and half years now and they have not been approached by anybody willing to pay a multiple of more than 1.25x revenues, which would make IWG valued at between $3/4 billion. SoftBank could have acquired four Regus’s for their $12bn and still have enough change to sprinkle some fairy dust on top. Instead they’re losing one Regus a year.
- Facebook raised $2.2 billion pre-IPO. Google raised $130m pre-IPO, Ebay $6.9 million. WeWork has raised $14 billion so far, 7x what Facebook required pre-IPO, 140x what Google needed and they’re not even a technology company. Where has that $14bn gone? They raised $14 billion, have less than $1.5bn cash and have nothing to show other than $47bn in lease commitments and a portfolio of supersized Starbucks’s which are beginning to look outdated and in need of urgent refits. Airbnb on the other hand is a technology company, has raised $4bn and posted profits of $93m last year on $2.4bn in revenues. No money has been swindled out of Airbnb, they’re fiscally responsible and taking their time, waiting for the right moment to IPO. No rush.
- Serviced Offices as anybody in the industry will tell you generates almost as much yield as your traditional commercial landlord, typically 2/3%. Serviced Offices used to be very profitable when there were few half decent ones around but today they’re everywhere and desk prices have collapsed whilst conventional leasing rates have held steady. It’s not just been around since the 1980’s but now everybody’s getting into it, even developers British Land & Boston Properties are beginning to include it as part of their offerings. Now it’s purely a landlord play. Cafe’s and Hotels are jumping in too, even brokers are building their own platforms where they act as operator, Knotel, Instant Managed, CBRE to name a few. Even Google have a platform, ‘Campus’, very cool place. Adam though doesn’t think they’re come close to being a threat, ‘Our biggest competitor is work itself’.
- Serviced Offices is like the hotel industry only many times simpler, it’s just desks, chairs, simple decor in common areas (plants & picture frames), wifi, electricity, daily cleaning, plates and cutlery, and maybe a plug in telephone handset. Or you can just hire one of the many contractors WeWork use (John Robertson Architects, Oktra etc) although most floors are just glass partitioned boxes (they don’t do stud walls). LEO, Spaces and some of TOG’s centres have always been more beautiful with a far higher build quality than any of WeWorks offices. Now that’s it’s a landlord play, you have a avalanche of landlords with far a deeper understanding of interior design and office fit outs than WeWork will ever be able to outsource.
- The Co-working side of the Serviced Office industry is not at all profitable. Nobody makes money from co-working. Most operators provide a little co-working alongside a largely 3/6 person partitioned multi-office layout or around dead spaces. WeWork took out entire floors and dedicated it to open-plan co-working.
- How did this even begin? The earliest shareholders including a gentleman called Mortimer Zuckerman were not just their landlords and seed investors. They also happened to own Fast Company and NY Post which were instrumental in propping up WeWork in the press before anybody knew who they were. The headlines they spun about WeWork’s valuation and ‘meteoric’ rise was basically the shareholders advertising their investments. Even Wikipedia’s page (throughout 2015 and 2016) introduced WeWork as the ‘most innovative company of 2015’, citing a Fast Company article.
- WeWork even thought about setting up WeCafe’s, they want to be the first ever to disrupt the ‘working-in-a-coffee shop-as a-service-space’. An internal report revealed people are working at spacious, trendy hipster designed coffee shops where they get not just a free table but also a chair (and free wifi) all for the price of a cup of tea. If WeWork charged their members a fraction of the market rate, half will vanish overnight. Or put another way, when they want to start becoming profitable and all the freebies come to an end it will feel like a rug has been pulled from under WeWork’s feet, by which time Adam & Miguel will be long gone.
- WeWork doesn’t pay the appropriate property taxes due on their UK based centres. If you look at their Business Rates schedules of the respective boroughs in which they operate in (available online) you’ll notice that split their entire space into tiny cubicles. By doing so WeWork avoids paying property taxes and earns tax rebates originally intended for small businesses, $2.4m to date. So they’re effectively being financed by Her Majesty’s Government & the UK taxpayer too.
- WeWork spends more on PR than anything else. They are carefully written with the subtle intention of building an impression that the company is a roaring success, they pay for many of these articles. Some are even co-written by WeWork’s PR team. Every month they pay these new breed of digital financial news tabloids like Fast Company to write sensational headlines like ‘The Rise of WeWork’ & ‘How WeWork become a $47bn company’.
- If you are not already acutely aware that Adam Neumann and Miguel McKelvey are fraudsters, count the number of times the word ‘Hustle’ is plastered in neon lights at every one of their tacky ikea-designed offices (or just google the words: WeWork hustle and click on images).When asked whether how they could come up with a $47bn valuation, he replied ‘”No one is investing in a co-working company worth $20bn. That doesn’t exist. Our valuation and size today are much more based on our energy and spirituality than it is on a multiple of revenue.”. When Miguel was asked about their $20 billion valuation (before it was almost tripled to $47bn), Miguel McKelvey answered ‘Who gives a s***?’.
- There are many people out there who give discreetly to charity, some give generously but only with the fanfare, some ‘pledge’ to be charitable largely for the PR impact but have no intention of giving, this is something new. Adam, his wife Rebekah & Miguel have ‘pledged’ to give $1 billion they don’t have and yet to swindle out of WeWork (not the last billion, the next billion) so they can acquire more land to help mankind and support environmental causes ‘close to their heart’. Is this the twilight zone? Where did the first billion go? Why do they feel the need to use meaningless philanthropic pledges to make themselves appear to be good wholesome folk, generous not greedy, charitable and tax-free. WeWork’s cleaners have twice protested over wages. Everything is fake.
WeWork will never ever, in its short history, generate a profit, let alone the tens of billions in revenues necessary to generate anywhere near the $3bn in earnings required to (even then generously) value the company at £47bn.
A lot of people could have done what Adam Nuemann & Miguel McKelvey did, they don’t because they’re not prepared to engage in a fraud. They can play dumb all they like but when you fiddle with your financials, invent accounting principles, secretly acquire IP and double deal it for millions of dollars back to your own company, market yourselves misleadingly as a ‘technology’ play, cash out close to $1bn and use that to acquire buildings to lease back to WeWork, employ half your family etc, etc, etc… please for heavens sake don’t try and convince me that they are unaware of what they are doing. They know exactly what they’re doing. Adam and Miguel purposefully choose to hide those costs under ‘Community-Adjusted EBITA’s’. Why are they still parading WeWork as a technology company, does anybody believe as cunningly intelligent as they are, that they genuinely think WeWork is a ‘technology’ company? Why have they cashed out, and not just a few million dollars as a deposit on a big mortgage but hundreds of millions to buy buildings that they used to further bleed their own ponzi scheme with?. They have cashed out $1bn whilst posting losses of $1.9bn.
Since their S1 release, Adam & Miguel have slashed their proposed post-IPO valuation by 86% in 4 re-valuations. The price started at $67bn, then they quickly dropped it to $30/$40bn before again looking down at their calculator and punching buttons quicker than you can blink and coming back with $15/20bn. As you’re about to click, it plunges 40% to $10bn. From $67bn to $10bn in 7 days. It’s pathetic seeing this kind of desperation. I don’t want to be in the room when he realises it’s not even close to being worth anywhere near $1bn. Within the last 10 days or so, his wife Rebekah has also removed from her extraordinarily unnecessary position, they’ve hastily elected their first female to their Board, halved Adam’s voting power, lost a Chief Communications Officer, their bonds are crashing, two landlords have begun legal proceedings, their principle investor Masayoshi has publicly called for Adam to delay the IPO, even Alexandria Ocasio-Cortez weighed in and warned vulnerable investors Goldman Sachs & JP Morgan are now targeting… ‘you’re getting fleeced!’. It’s not all bad news though, Adam agreed to return the $6m he swindled when he secretly sold ‘We’ back to his company The ‘We’ Company. Btw, if you’re wondering why he settled on the name. ‘We’ he pontificated recently ‘The ‘90s and early 2000s were the i decades. iPhone, iPads, the iPod – everything was about me. Look where that got us? In a terrible recession’.
To wrap up, if you were to contrast the key characteristics of what defines a ponzi scheme with what we already know about WeWork, I think we could safely assume beyond a reasonable doubt that WeWork is a fraud, both Miguel McKelvey and Adam Neumann seem to be knowingly engaging in a fraudulent ponzi-like scheme designed to mislead investors and they appear to be nothing more than your average, traditional, run of the mill fraudsters, or in their own words… ’Hustler’s’. The magnitude of this fraud and the unprecedented arrogance in which it’s being ruthlessly executed puts it in a league of its own. Now they’re hoping to hustle the big boys on Wall Street, and they will most likely get away with it.
The most discomforting element of this whole deception is that after perpetuating this fraud for so long, media outlets are now inviting these Hustlers to media-sponsored ‘leadership’ events where they’re put on podiums to teach us how to become visionary’s whilst they have now made it unnecessarily more difficult for genuine entrepreneurs and technology companies to raise capital in future. The future is farther because of them.
Note: Thank you for all your comments, very much appreciated. This is the first article I’ve ever written (and only because its beyond anything I have ever come across and it made me cross). Apologies for the grammar, punctuation and lack of citations, you should be able to find most if not all of the points made above by searching relevant keywords on Google. I learnt the majority of the above from the exceptionally brave journalists at the FT, Bloomberg, Wall Street Journal and The Real Deal who broke these stories.
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