WeWork And Ivanhoé’s $3B Property Buying Spree Is On Hold
As it went into the summer, WeWork had a big war chest of equity to spend on buying buildings it occupied. But as with much of its business, that strategy is now on hold.
WeWork said in May that it was raising just shy of $750M of equity from investors for its own property fund, and announced it was setting up a joint venture with Canadian pension fund Ivanhoé Cambridge to invest up to $2.9B of equity in real estate assets. Ivanhoé was to provide $1B to the venture, called Ark, which would be managed by WeWork.
But at a conference this week, Ivanhoé’s chief investment officer said the venture is on pause while WeWork stabilizes itself following its failed IPO in September and its subsequent cash crunch and bailout by SoftBank.
"Opportunities could come from existing owners with WeWork as a tenant, and we remain open to that, but in the meantime, we are in a wait-and-see mode," Sylvain Fortier told the audience at the Real Estate Forum in Toronto. His comments were first reported by CoStar News.
He said the partnership had undertaken a couple of small initial deals in Austin, Texas, and San Francisco.
He added there was a disconnect between the disruptive nature of WeWork and the valuation put on the company by potential investors in the IPO.
"We'll see how they reinvent WeWork to a smaller business model in major cities where they started," he said.
WeWork had bought about $1.8B of assets in London and New York before the two deals mentioned by Fortier were struck, Bisnow estimated. Because it brought in joint venture partners and used debt, WeWork deployed about $350M of equity in those deals.
In February, its fund, WeWork Property Investors, bought the Lord & Taylor department store building on Fifth Avenue in New York for $850M. That deal was completed using $600M of debt, provided by a consortium including JP Morgan and Starwood Property Trust. Another $300M of debt will go toward refurbishing the building, which will become WeWork’s HQ.
In London, WeWork also brought in equity partners as well as using debt to make its equity go further. In April 2018 the company completed a deal to buy Devonshire Square, a 620K SF office complex in London, from Blackstone for £580M ($770M). The acquisition was partly funded through a £240M loan from Bank of America Merrill Lynch, putting the total amount of equity in the deal at £340M. WeWork provided 10% of the equity, with the rest being evenly split between U.S. pension fund TIAA and Danish pension fund PFA Ejendomme, both advised by Nuveen.
This year it also bought another London office building, the 91K SF 99 Queen Victoria St., for around £65M, a 7% yield.