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WeWork Property Fund Raises $400M, Giving It Huge War Chest To Buy Buildings

Lord & Taylor's flagship store at 424 Fifth Ave. sold to a WeWork partnership for $850M.

A property fund set up by flexible workspace giant WeWork has raised $400M, giving it a platform to potentially buy billions of dollars in assets.

According to a series of Securities and Exchange Commission filings from March, WeWork Property Investors has raised $406M of equity. The fund is a joint venture between WeWork and private equity firm Rhône Capital. It started raising the capital in March 2017.

And the fund is not done yet — the filings indicate the fund has the ability to raise more equity, as there is no target for the total size of the vehicle.

WeWork has typically leased the buildings it occupies, but in the past 12 months has started purchasing buildings. And the structure of these initial deals indicates the equity it is raising could give it the ability to build up a multibillion-dollar portfolio.

In April this year the company completed a deal to buy Devonshire Square, a 620K SF office complex in London, from Blackstone for £580M ($770M).

Devonshire Square

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 further reduced the equity cheque it needed to write by bringing in two joint venture partners, U.S. pension fun TIAA and Danish pension fund PFA Ejendomme, both advised by TH Real Estate. WeWork only took a 10% stake in the equity, putting its outlay at £34M ($45M).

If other future deals are structured in a similar way, with WeWork putting in 10% of the equity, the $400M raised by WeWork Property Investors could be used to build up a portfolio of around $4B, or more if debt is added on to acquisitions.

WeWork’s other major property acquisition was of the famous Lord & Taylor’s department store on Fifth Avenue in New York, an $850M deal announced in October as an acquisition by WeWork Property Investors.

The 650K SF building will be converted to WeWork's HQ after the holiday shopping season in winter 2018, after which Lord & Taylor’s space will be renovated and redesigned, paring down to 150K SF of leased space on the first three floors. WeWork will occupy 500K SF on the top eight floors.

There is still the possibility that debt and joint venture partners will be brought in on this deal too. The building’s former owner, Hudson’s Bay, said in December that so far WeWork Property had put down a $75M deposit to secure the acquisition, which it expected to complete in August.

WeWork’s move into buying assets would have the beneficial effect of reducing the company’s significant rent bill. The prospectus for a high-yield bond the company issued earlier this year, raising $700M of debt, said that it is on the hook for more than $18B in rent between now and 2023.

Citi and Lazard raised the equity for WeWork Property Investors, and were paid around $20M in commission, the SEC filings show.