Analysis: SoftBank eyes $20bn WeWork investment as growth rate continues to accelerate

By James Wallace - Wednesday, October 10, 2018 13:08

SoftBank is reportedly in discussions to increase its stake in coworking giant WeWork by investing a further $15bn to $20bn, according to the Wall Street Journal. The move would effectively give the tech investor a controlling interest. CoStar News takes a look at how it came to this.

The proposed investment would be from SoftBank’s $100bn Vision Fund, which includes around $88bn in capital from Saudi Arabia and Abu Dhabi’s sovereign wealth funds as well as SoftBank itself, according to the Financial Times.

WeWork has been seeking to raise additional capital, priced off an astonishing $35bn valuation, according to Rajeev Misra, who manages the Vision Fund and is the chief executive officer of SoftBank Investment Advisors, speaking at a conference in London in June.

The 75% valuation spike – just 14 months after securing $4.4bn from SoftBank’s Vision Fund, priced off a $20bn valuation – is an enormous feat for the eight-year old coworking behemoth which is yet to make a profit or see its business model tested in a contracting economy, recession or worse.

The SoftBank investment could have significant implications for WeWork’s own ongoing capital raising ambitions through WeWork Property Investors, the company’s property investment subsidiary. The firm has raised $850m for a value-add global property investment fund in partnership with Rhone Capital, the private equity firm, as revealed by CoStar News in August.

If the SoftBank deal is closed, it could potentially accelerate WeWork property investment ambitions.

WeWork published its first-ever public results last month for Q2 2018. Total revenue rose to $421.6m from $198.3m in Q2 2017, as memberships jumped to 268,000 at the end of June from 128,000 a year earlier.  Over H1 2018, revenues jumped to $723m compared to $154m a year earlier. Annual revenue grew almost 100% to $822m in 2017, while annual net losses were $934m.

Earlier this year, in April, WeWork raised $500m in bond markets and in doing so revealed that Adam Neumann, CEO of WeWork, holds more than 75% of outstanding shares of Class B common stock, according to Bloomberg reporting, which gave him more than 65% of the voting power.

WeWork has 220,000 members globally, as of March 1, up from 7,000 four years ago, which have access to 251,000 desks in 234 locations spanning almost two dozen countries. The privately-owned firm is on the brink of overtaking JPMorgan as the largest tenant in New York, according to Cushman & Wakefield.

WeWork launched in the UK in 2014 and has rapidly built to 42 centres, including 40 in London and Manchester, where it has two. Of these UK centres, 28 are open and 14 have been announced. London is WeWork's second largest market behind New York and the group's fastest growing.

It has 33,000 members now in the UK with Moorgate the largest WeWork location, with eight floors and over 3,000 members. Globally, WeWork is in 287 locations in 77 cities and 23 countries with 268,000 members and 6,000 employees.

WeWork’s total lease commitments topped £3bn across more than 3m sq ft of office space, according to data first revealed by CoStar News in August. According to leasing information pieced together from CoStar data and a third-party source which did not want to be named, WeWork’s rental commitments in the UK – predominantly in London – now stand at £3.02bn over the next 24 years, £1bn more than in October 2017 when the company's UK accounts were last published.

That data showed that WeWork is now signed up to 42 leases in the UK, totalling 3.06m sq ft of office space. The total rent amounts to around £164m per year with an average lease length of circa 18.5 years. However, the data does not take into account any rent-free periods.

WeWork also entered the European CMBS universe in August, as anchor tenant and minority sponsor in the Bank of America Merrill Lynch issued £261.5m Taurus 2018-2 UK DAC transaction.

Paul Heaton, CMBS analyst at Deutsche Bank, in the bank’s European Asset Backed Barometer during the first week of August, wrote of his scepticism of the WeWork coworking model during stressed phases of the economic cycle. “When the business cycle turns, small tenants will reduce property obligations where they can – but the landlords cost remain the same.”

However, to try to understand WeWork – and its phenomenal valuation – through the lens of the company being just a provider of office space misses the point. WeWork is in a dominant position as a data company. The firm collects reams of data on their customer's space usgae and behaviour and this data has a multitude of applications which can be sold on to other businesses, from office design, to analytics on footfall, utilisation of offices services, wellness and much more. 

WeWork is an astonishing growth story that still divides opinion. That growth could accelerate even faster if SoftBank’s investment is closed.

The Vision Fund’s investors also include Apple, Qualcomm, Mubadala Investment Company, Foxconn, and Foxconn-owned Sharp, Daimler, the German Mercedes-Benz carmaker. In addition, three Japanese banks –MUFG, Mizuho and Sumitomo Mitsui Banking Corp – Oracle co-founder Larry Ellison and the sovereign wealth fund of Bahrain.

James Wallace is a freelance consultant and can be reached via Linkedin or email: jawallace32@gmail.com

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