
WeWork Co-Founder Has Cashed Out at Least $700M Via Sales, Loans - mkeeter
https://www.wsj.com/articles/wework-co-founder-has-cashed-out-at-least-700-million-from-the-company-11563481395?mod=rsswn
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kediz
I heard he purchased a bunch of real estate and then lease them to WeWork and
made a killing.

Maybe he would later sell those real estates whose price have been inflated
because of WeWork's presence.

It is indeed a real estate company.

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diafygi
Isn't this exactly how McDonald's did it?

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elamje
To some extent this makes sense for a franchise. It allows McDonalds to use
it’s real estate expertise to negotiate the best possible deal, then pass on
the deal to the franchisee. If this wasn’t the case, every franchisee would
have to become a real estate expert just to open a restaurant.

In the case of WeWork, this isn’t a franchise, WeWork has the ability to own
the property outright and lease it out. The CEO owning the property
effectively guarantees him a good return on his investment and his rent profit
goes into his pocket while WeWork the company passes him the profit.

If there are holes in the logic please elaborate. That is the best I can
compare the two.

I’m sure McDonald’s makes a bit of profit off of leasing to a franchisee,
although I can’t say. In the case of McDonald’s it seems it is providing a
valuable service to a franchisee. No need for a franchisee to try to negotiate
property deals, nor put up real estate capital to own the land. McDonalds is
effectively cutting out a 3rd Party landowner middleman that could arbitrarily
raise rent once the restaurant is opened.

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joezydeco
When McDonalds is the landlord it also gives them the power to evict the
franchisee if they are not following the franchise rules.

Compare to Subway, which also franchises but doesn’t lease property, to see
what difference that makes.

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elamje
So is Subway the good guy or the bad guy in your comparison? I can’t tell
based on your phrasing.

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servercobra
I'm not sure there's a good guy or bad guy, but anecdotally, I've been in a
lot more poorly-run Subways than poorly-run McDonalds, which is maybe the
point the OP is getting at?

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mmastrac
> He has also taken out loans of several hundred million dollars backed by his
> WeWork shares, people familiar with his finances said.

That's not really "cashing out". The portion of your shares that you've sold,
sure, but leveraging investments is just an option that's available once you
hit a certain point and it just makes sense to take advantage of it.

~~~
toomuchtodo
I would be interested in the terms of the loan in the event of a rapid
depreciation of his WeWork stock (the collateral), or default. Borrowing
against funny money (stock being valued by a non-independent entity, Softbank)
isn't any more legit.

EDIT: To the replies, your home and publicly traded stock can be valued and
are semi-liquid. WeWork stock is not in the same class of asset.

~~~
mmastrac
I'm pretty sure it'll be personally guaranteed. The bank takes a flyer that
the stock will be worth _something_ , but they are in first place to get paid
back if things go south.

It's no more "funny money" than me taking out a HELOC against my own house.
WeWork clearly is worth >0% of its current mark-to-market, so as long as the
bank picks a good ratio of loan-to-asset-value (10% of a 1B asset? Maybe),
it's a decent risk for their loan capital.

~~~
charlesdm
It won't be personally guaranteed. Overcollateralized, sure. Maybe he can take
out a $3-400m loan against $1bn worth of stock. Also mind that these loans
were taken out before the company was valued at $47bn.

Someone who built up that much wealth, even on paper? Every single bank will
want to lend him money, at competitive rates. He's going to need / want debt
for life to do future deals, even after his WeWork days. You want to be the
preferred bank to that person.

Banks would much rather lend out $100m than $1m 100x, as it takes a lot less
effort. Hence they like these clients. I think you'd be surprised on the terms
he got on those loans.

The more money you need, the easier generally it is to do a deal.

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jjeaff
It does take less effort, but it sure doesn't diversify your risk very well.

And if they are giving excellent rates, it makes you wonder if they really
have such a surplus of money that they can't find enough good risks to loan
smaller amounts to at much higher rates.

I think it's more, as you mentioned, getting in the good graces of someone
that is going to be wealthy the rest of their life.

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charlesdm
Yes, banks have too much money (I'm not even kidding here, they have too much
money and not enough good transactions to lend money for). So if they find
someone potentially great (think Elon Musk, Patrick Drahi, John Malone, or
this guy) they are all over it.

In all honesty, small businesses are super high risk. This is generally lower
risk, because the legal / due diligence / etc will have been done better. Also
the likelihood of plain fraud is less.

It's a combination of both. At the end of the day, there are always things
that need to be financed. That's whether you're worth a million or a billion.
So might as well build up a good relationship. It's easier to establish those
relationships with big accounts, but it's also a more competitive environment
(so you need to give good rates and not waste time with bullshit offers --
like they often do in retail).

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lanrh1836
I’ve been playing around with the idea of building on demand phone booth
conference rooms (the ones you see in coworking spaces) but reservable in 15m
blocks that open with a code from an app. Could partner with coffee shops or
even cities for people who need some sound proof time while out and about to
take a call, zoom into a meeting while out in public, etc.

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dmix
Two person conference rooms with a fee would be in demand at any urban coffee
shop, since tons of people meet and even do job interviews there.

The big question is real estate because most coffeeshops are already
maximizing their space so you’d be limited to the bigger ones.

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lanrh1836
Yep, true. The single person booths would still be interesting for most remote
workers though and don’t take up much space at all

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takanori
Interpreter booths!

[https://www.congressrentalusa.com/equipment_rentals_sales/in...](https://www.congressrentalusa.com/equipment_rentals_sales/interpretation_booths/index.html)

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privateSFacct
If I could short wework I would.

Softbank is basically setting its own valuations because of the amounts it has
to invest.

Wework has a ton of red flag.

Softbank is a major wework investor.

Could I short softbank?

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jpalomaki
Even if you are right and market is wrong, market can keep its view longer
than you can afford to keep yours.

(There was a smart quote saying the same, can’t find it)

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harryh
"Markets can remain irrational longer than you can remain solvent." -John
Maynard Keynes

Though there is some evidence that the quite (like many) is apocryphal.

[https://quoteinvestigator.com/2011/08/09/remain-
solvent/](https://quoteinvestigator.com/2011/08/09/remain-solvent/)

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luckydata
What number of red flags is going to be enough for the tech/business press to
start asking questions about how WeWork is being run?

From the outside it looks like another Theranos waiting to happen.

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Traster
It doesn't look to me like a Theranos. Theranos lied, WeWork doesn't seem to
be lying - they're completely open about their business model and financials.
Its just people don't seem to be valuing it correctly.

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Invictus0
Not disagreeing, but don't forget about community adjusted ebitda.

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blairanderson
thats 5% of his equity if sold at the same valuation of the last funding
($47B).

Its easy to point fingers at rich people, but this seems like a fairly logical
cash-out.

More stakeholders means more legitimacy.

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unreal37
His net worth is listed at $4.1 Billion in Forbes, making this "cash out"
about 25% of his net worth. Not 5%.

The concern is that he's cashing out a large $ amount ($700 million) before
the IPO, more than he needs to live, which may signify that he values the cash
now over holding the stock. Which is not a good look considering the IPO is
trying to get people to trade their cash for stock.

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anigbrowl
Have fun suck- I mean, investors. I don't have much sympathy for them since
they had the means to assess this before piling in.

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neilv
How is WeWork valued at $47 billion? Is that a value based on business
fundamentals, or on what various finance people will collectively play along
with?

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throwaway1535
I believe WeWork wants to compete with LinkedIn.

After initial signup, which includes charging your credit card, they force you
to enter your personal information, your company information including company
contact and phone number, and at least one skill on their list of approved
professional skills before you are allowed to cancel.

~~~
robbiep
I am aware of a co working space/incubator with a number of sites in Australia
making bulk $$ on selling information on the startups in residence to other
firms.

The case that was described to me: a travel company paying around $100k pa for
intelligence on travel related startups in residence- they use the data to
determine rate of growth and strategic threats so they can either compete,
ignore or make an offer to these new businesses.

If we work isn’t monetising their business intelligence then they would be
leaving a lot on the table

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underwater
Why wouldn't you call them out (anonymously)? That sounds highly unethical.

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robbiep
It wasn’t my co working space/I wasn’t working there and I suspect it would
have been buried in the t&cs.

I was in wework in sydney at the time and re read our t&cs, my reading was
that they could probably do the same but it wasn’t explicit, and if they were
they were being sloppy about it (ie they knew my headcount because we had to
get passes each time, but there wasn’t a strong program of engagement to find
out what each business did, just get on with your work).

This other space I reference actually had people in regular contact with the
businesses habiting the space, in order to connect with industry, government
grants and other programs etc, so it actually bridged the space a bit more
between a coworking space and incubator (without being any specific program)

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ngngngng
I know nothing about equity or cashing out, but a wework recruiter is trying
very hard to get me to come write software at their new office in Utah. Would
it be a good move financially? Could I make a bajillion dollars off it?

The only competition is a company with Amazing paternity leave that would
really suit my skill set and life style.

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dabeeeenster
I mean, probably no.

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fuzz4lyfe
It says he's investing the money in real estate and start ups, why not invest
in his real estate start up?

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gorbachev
Because his real estate start up isn't making a profit, so he can't personally
profit from it.

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frostyj
I think WeWork is just a real estate company somehow.

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formercoder
They are really just trying to price the risk spread of taking on long term
debt (their leases) and re-lending with short term leases at a higher interest
rate.

I would guess this is super high beta (overall market exposure). When the next
downturn comes we'll see if they have the capital to survive the credit event.

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danieltillett
Has this model ever worked for long? I wonder how many of these business
models are going to survive the next recession.

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Tehdasi
It's actually the reverse of how a bank makes money, they take on sell long
term debts and buy short term debts.

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danieltillett
Not exactly encouraging given the failure rate of banks before deposit
insurance.

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tdumitrescu
At least he plows it back into his industry... "Since 2013, Mr. Neumann has
bought four homes in and around New York City and last year paid $21 million
for a 13,000-square-foot house in the Bay Area with a guitar-shaped room."

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geodel
Seems he has solved housing problem at least for one person in bay area.

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snissn
good for him

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RIMR
I really hate this sentiment. The "if it makes you money it's good" mindset is
the core of most corporate moral-rot.

I don't care if what he did was legal, or if it benefitted him as a
capitalist. It's unethical, and makes us all question the value of the WeWork
ecosystem.

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alt_f4
He didn't say it is good for investors, shareholders, employees, whatever. he
said it is good FOR HIM. And it is, the dude is set for life, even if this
company goes down in flames. I doubt anyone (incl. you) in his shoes, given
the option, would not do it.

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e40
Paywall... alternate link?

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xxcode
It's investor money

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ceejayoz
Not any more it isn't.

