Office-sharing space aggregator, WeWork Cos. has been inching into the territory of landlords and real estate brokers since its creation 2010, and they are starting to fight back.
WeWork, valued at as much as $42 billion, is getting a greater portion of its business from the large companies that property owners usually court. It’s also building an investment division to buy its own sites, according to people with knowledge of the matter.
At the same time, big real estate names like Blackstone Group LP and Tishman Speyer are venturing into flexible-space offerings of their own. Brokers, meantime, are growing wary that WeWork is cutting them out of deals.
WeWork’s widening ambitions threaten to further upend the industry it has already reshaped in its eight-year existence. Few in the property business are willing to talk openly about the company, given its clout. Privately, more than a dozen real estate and banking executives interviewed by Bloomberg expressed misgivings about working with the closely held startup. The question is whether WeWork can keep up its breakneck expansion -- and its lofty valuation -- if friction grows.
“By participating in virtually all the elements of the real estate food chain, WeWork will find themselves in deeply competitive situations with others,” said Cedrik Lachance, director of research on real estate investment trusts at Green Street Advisors. “It may limit their ability to have access to some buildings.”
Backed by Japan’s SoftBank Group Corp., WeWork has built itself into one of the world’s most valuable startups through a global leasing spree. It had more than 300 locations in 83 cities as of the third quarter, and says it’s the biggest private office user in Manhattan, London and Washington, D.C. In many ways, it’s been a boon to the real estate industry by helping landlords fill spaces and generating big fees for brokers.
The company started out taking 10- or 15-year leases, redesigning the interiors, and renting individual desks or small offices to startups. But in recent years, WeWork has expanded to much larger customers: more than 30 percent of its members now work at companies with 1,000 or more employees. It designs and operates entire multifloor offices for its biggest users as part of its enterprise business, blurring the line between it and traditional landlords.
“A lot of people originally thought of the shared office-space providers as bringing tenants,” said Tony Malkin, chief executive officer of Empire State Realty Trust Inc., owner of New York’s Empire State Building. “But I think now we’ve seen -- particularly with WeWork and other providers’ expansion into the enterprise solution -- that it’s really much more about disrupting the relationship of tenants to landlords, of tenants to brokers, of brokers to landlords.”
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