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The Great Real Estate Swindle

I don’t know much about Reeves Wiedeman other than he’s a contributing editor at New York magazine and has the perfect name for a New York butler. But having inhaled his Wall Street Journal bestseller Billion Dollar Loser, it’s clear ol’ Reeves doesn’t suffer fools gladly and there is no shortage of dullards throughout the book. The only way his subject, the execrable Adam Neumann who co-founded the house of cards WeWork, built his coworking company and ill-gotten wealth was by continually bullshitting the gullible. That includes staff which was lousy with “post-recession Millennials entering the workforce with Obama-era ideals,” recent yes-we-can grads who’d been convinced they were boarding a rocket ship (to where exactly later becoming an inside joke). Neumann was ruthless from the start in his demands of grunts and executives alike with everyone expected to paint walls and push brooms to keep the breathless pace of growth – which only accelerated staggering losses – on the supposed path to going public.

The key here is value or rather the shaky perception thereof. Having proven the flexible space rental concept in Brooklyn, Neumann started slithering his way through lower Manhattan, borrowing heavily ideas from up-start operators in the nascent industry. Embarking on a charm offensive, he got an otherwise savvy real estate developer to whom it seemed “there wasn’t much harm in throwing out an outrageous number” to take a stake at a $45 million level. That a real estate business without a single operating location was worth anything is of course beyond silly and yet it worked. Wiedeman calls this the original sin as every subsequent funding round was built upon (and further caused) an ever-rising valuation that made zero sense. To further justify itself as a so-called unicorn and continue to raise enormous amounts of capital, Neumann positioned it as a tech company of all things. While it had nothing innovative to offer outside of glass cubes and a hip vibe, WeWork focused on having its small team of engineers attempt to present “space as a service” because, well, SaaS businesses command the highest valuation metrics. Software, space… what’s the diff, really? Call it a platform, the cloud. Why not?

Welcome to the downside of a decade-plus bull market. Investors – most notably the SoftBank and Vision Fund founder Masayoshi Son, who it seems divides time between Japan and Pluto – wander farther & farther away from core fundamentals while falling prey to cults of personality. That combined with a fragmented industry like real estate where even the largest firms control only a tiny fraction of the market will lead many to forget their times tables. As growth continued at breakneck speed, most WeWorkers were counting on a successful IPO for the make-good on promised stock options. Whoops. If not for the pesky SEC and its insistence on a clean S-1 filing with generally accepted financial metrics and the elimination of conflicts of interest, loyal team members may have been able to cash out. Wiedeman skillfully builds to a crescendo at this point in the absurd tale with Neumann’s daft wife Rebekah at the center of it all, stuffing corny photos alongside disclosure documents. When the IPO was pulled in autumn 2019, the power couple was kicked to the curb by the board (with their riches intact, naturally). At present, WeWork is viewed no differently than other staid public competitors like IWG: flex space with copiers & coffee, only now run by the accountable adults in the room. Go figure.

If you have anything to say about this, kindly post it below (rather than emailing me). Thank you!

14 comments for “The Great Real Estate Swindle

  1. There is so much money out there looking for deals; it’s easy to imagine that anyone with plenty of chutzpah and energy can tap into it. Don’t shoot the piano player.

    • Ha! Fair point, John. Good call on chutzpah as alas that’s what it was all about…

    • Ken, this one managed to be entertaining as well as maddening. I do think you’ll enjoy. Please let me know!

  2. Thanks Chris,

    Also you would like Bad Blood- story of Theranos and Elizabeth Holmes and Sunny Bulwani. Fascinating story of fraud.

    • Oh, agreed Anina. Great book and the difference here is welcome humor where BB was just AARRGH!

  3. I enjoy all of your reviews, Chris, but this one was especially entertaining. I love the characterization of Son as a guy that splits his time between Japan and Pluto!

    I do feel bad – at least a little – for the eager-beavers that thought all their grunt work would pay off with a pot of gold at the end of the rainbow. Having worked for a couple of hot startups myself pre-dotcom crash, I can tell you I’ve never seen the pot of gold. In fact, I never even saw the rainbow.

    Seems we may both be suffering from the same malignant attraction to highfliers gone bad. I binged watched “Inventing Anna” and “Dropout” recently and am in the midst of “The House of Pain.” Most disturbing is that instead of living out the rest of their days in humiliation and disgrace, many of these shameless frauds will somehow rehabilitate their reputations. I won’t be at all surprised to see Adam Neumann crawl out from under a rock (on his private island) sometime too.

    • Peter, such a great point about the eager beavers to whom I surely gave short shrift. I’m guessing it’s not easy to resist the vision of all that gold. What’s crazy is people have to sleep at night (right? I think?) having misled all those fawning pawns who bought into the myth. Yikes. Thank you for weighing in so thoughtfully.

  4. If you want a similar book about a company founder going bad and deceiving her board, staff, investors, partners and clients, read Bad Blood by John Carreyrou about Elizabeth Holmes and Theranos. Fascinating how she and her COO got away with the deception and lies for so long. They should be going to jail for a long time I hope.

    • Look at this comment string, Dick for more on BB. That one clearly hit a nerve with like-minded folks alarmed by such naked fraud!

  5. Perhaps a more apt name for WeWork would be Space Up.
    Seems there’s no shortage of chicanery in the startup world and Neumann ranks with the best of them; he’d be run out of town if the investors weren’t so complicit.
    ‘nother great review, Chris. I count on your analysis of what’s worth reading. Thanks.

    • Thank you, John. Love your use of ‘chicanery.’ And for space reasons (pun intended) I didn’t pass blame around properly to those complicit investors. Spot on!

  6. After Bad Blood, I’m not sure I can take it. Thank you for the summary… and praying that more millions will go to worthy startups, and fewer to charlatans.

    • Cheers to that, Nicolas. Great point about celebrating worthy start-ups!

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