Key Takeaways
- • WeWork and private equity firm Rhone Group raised several hundreds of millions of dollars for a new real estate investment fund called WeWork Property Investors, following through on WeWork's October announcement to launch its own investment arm.
- • The $17 billion unicorn is pursuing a novel strategy to acquire buildings it currently leases, with the fund already approaching several New York landlords, though no deals were reported as close to completion at the time of announcement.
- • Fund success hinges on investor appetite for properties where a single tenant (WeWork) would occupy substantial space and investor confidence in WeWork's creditworthiness—a structural challenge for the business model.
- • The fundraising initiative coincides with WeWork's expansion into Onsite Solutions, a new business competing against established corporate real estate managers like JLL and CBRE, and a landmark deal with IBM to manage a full Manhattan office building where IBM would occupy 70,000 square feet of an 87,000 square foot space.
Summary
WeWork and Rhone Group closed a fundraising round of several hundred million dollars for WeWork Property Investors, a new real estate investment fund designed to purchase buildings where WeWork currently operates as a tenant. The announcement represents the execution of WeWork's October 2016 strategy to develop an in-house investment capability for real estate acquisition, shifting the company's model from pure leaseholder to property owner-operator.
The fund has begun preliminary outreach to New York landlords regarding acquisition opportunities, though sources indicated no transactions had advanced materially by early May 2017. The structure places WeWork in an unusual position within real estate investment: the fund targets properties where the co-working operator would occupy a significant portion of rentable space, creating a concentration risk that market observers identified as central to investor appeal.
Experts flagged two critical success factors for the fund's long-term viability. First, whether institutional investors would accept the concentration risk inherent in buying buildings where a single operator controls substantial occupancy. Second, investor perception of WeWork's credit quality—a question that would prove prescient given the company's subsequent evolution. The fund's ability to scale capital deployment from several hundred million to tens of billions (a stated ambition per supplemental reporting) depends fundamentally on resolving these investor concerns.
The fundraising launch followed WeWork's April 2017 execution of a landmark corporate occupancy deal with IBM. Under that agreement, WeWork would manage the entirety of 88 University Place, a 10-story Manhattan building totaling 87,000 square feet, with IBM committing to occupy 70,000 square feet. This high-profile anchor tenant agreement demonstrated proof-of-concept for WeWork's emerging Onsite Solutions division, a service line positioning the company as a competitor to established corporate real estate managers JLL and CBRE by offering customized co-working environments for enterprise clients. The convergence of property investment fund launch and enterprise real estate management expansion indicated WeWork's strategic pivot toward integrated real estate ownership, management, and occupancy.
The fund has begun preliminary outreach to New York landlords regarding acquisition opportunities, though sources indicated no transactions had advanced materially by early May 2017. The structure places WeWork in an unusual position within real estate investment: the fund targets properties where the co-working operator would occupy a significant portion of rentable space, creating a concentration risk that market observers identified as central to investor appeal.
Experts flagged two critical success factors for the fund's long-term viability. First, whether institutional investors would accept the concentration risk inherent in buying buildings where a single operator controls substantial occupancy. Second, investor perception of WeWork's credit quality—a question that would prove prescient given the company's subsequent evolution. The fund's ability to scale capital deployment from several hundred million to tens of billions (a stated ambition per supplemental reporting) depends fundamentally on resolving these investor concerns.
The fundraising launch followed WeWork's April 2017 execution of a landmark corporate occupancy deal with IBM. Under that agreement, WeWork would manage the entirety of 88 University Place, a 10-story Manhattan building totaling 87,000 square feet, with IBM committing to occupy 70,000 square feet. This high-profile anchor tenant agreement demonstrated proof-of-concept for WeWork's emerging Onsite Solutions division, a service line positioning the company as a competitor to established corporate real estate managers JLL and CBRE by offering customized co-working environments for enterprise clients. The convergence of property investment fund launch and enterprise real estate management expansion indicated WeWork's strategic pivot toward integrated real estate ownership, management, and occupancy.
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