A Manhattan real estate tycoon predicted WeWork would run into problems

Adam Neumann WeWork CEO

  • The boss of a billion-dollar real estate group
    predicted WeWork would run into problems.
  • “We studied WeWork and we’re not comfortable with their
    business model and credit,” Paramount CEO Albert Behler said on the
    group’s earnings call this week, adding the coworking startup’s
    fall from grace “occurred a lot sooner than I
    anticipated.”
  • Behler emphasized the risk of WeWork’s tenants ditching
    their spaces in a downturn, leaving the company on the hook to
    landlords.

  • Read more of Business Insider’s WeWork coverage
    here
    .

The boss of a billion-dollar real estate group predicted WeWork
would run into problems.

Paramount, which owns skyscrapers
on Wall Street and Fifth Avenue in New York, has never rented to
the embattled shared-workspace group or other coworking businesses.
CEO Albert Behler described it as a “deliberate decision on our
part” during an earnings call this week.

“Thinking back a couple of years, coworking became all the rage
with the rise of WeWork,” Behler said. “It was the talk of the town
and most office landlords lined up to do deals with them. We,
however, stayed on the sidelines, and that wasn’t easy, especially
considering we had a lot of large block availabilities at the
time.”

WeWork’s strategy of renting properties on long-term leases,
splitting them into smaller units and refurbishing them, then
renting them out on a short-term, flexible basis didn’t sit well
with Behler.

“We studied WeWork and we’re not comfortable with their business
model and credit,” he said on the call. “We choose to remain
disciplined, and leased our space long-term to credit tenants.”

Despite his reservations, he didn’t expect WeWork to come undone
so quickly.

“While I was always certain that our discipline and judgment
would be proven right,” Behler said, “It occurred a lot sooner than
I anticipated.”

However, he recognized the value of coworking spaces, arguing
they can “serve a critical function” as part of a “properly
structured real estate business model” rather than a “hyper-growth
tech platform.”

“While we choose not to transact with WeWork, there are other
co-working providers that are much more thoughtful about their
business model,” Behler said.

Paramount’s boss has made similar comments about WeWork and
coworking in the past.

“We have been very skeptical from the get-go,” Behler said at a
property conference in March. “This model hasn’t been proven in a
normal recession, and that’s why we want to focus on credit
tenants.”

Paramount’s decision not to rent “one single square foot to
WeWork” reflects its goal of building a portfolio that’s
“bulletproof for our investors,” he said at a real-estate
conference in September 2018. He flagged the risk of WeWork’s
clients ditching their spaces during a downturn, leaving WeWork on
the hook to landlords.

“We are very suspicious of this use as being financially
stable,” Behler said at the time. “Even if you talk to the
corporates who take some space at WeWork, this is a space that they
would throw in the market as quickly as they can if the market
turns down.”

One of Paramount’s rivals, Empire State Realty Trust,
repeatedly sounded the alarm
on WeWork too. “I think it’s the
bright, shiny penny and the fact is if I thought it were a good
business with which we should engage, we’d lease to them. I don’t,”
CEO Anthony Malkin said in February.


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A Manhattan real estate tycoon predicted WeWork would run into problems