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Does WeWork's Stumble Herald A Bigger Collapse For Coworking? Miami Might Have The Answer

WeWork's failed IPO rollout and doubts about its underlying business model beg the question: Will the fallout spread to coworking, just as it has started taking up more and more of the office market?

For that answer, watch the city with the highest percentage of coworking in the country: Miami.

The interior of a WeWork coworking space in Miami

Location Ventures CEO Rishi Kapoor, who is based in Miami and has ambitious worldwide plans for coworking and co-living with his URBIN concept, moved quickly to highlight differences in his business model.

He sent a statement to investors: "We are not WeWork," he assured them. 

Coworking companies leased 270K SF of Miami office space in Q1 alone, according to a JLL report from June. Regus/IWC is the biggest coworking tenant with 769K SF in the market, followed by WeWork at 522K SF, Quest Space at 166K SF, the Nexus Workspaces at 106K SF and Cambridge Innovation Center at 70K SF.

WeWork has nine locations in Miami, Miami Beach and Coral Gables. In recent months, WeWork has reportedly signed leases to occupy 89K SF at Southeast Financial Center and 146K SF in a planned Miami office tower, 830 Brickell.

Much of WeWork's now-laughable $47B valuation was attributed to hype stirred up by its charismatic leader, CEO Adam Neumann. But after an initial public offering prospectus released in August revealed some of his self-dealing and other company risks, Neumann has stepped down to become nonexecutive chairman, and WeWork is moving forward to try to improve the company's bottom line.

With new co-CEOs in place, the company is reportedly firing 20 of Neumann's friends and relatives who had jobs at the company, selling his $60M private jet and dealing away three startups he acquired that weren't related to WeWork's core business.

Still, the company lost $1.9B last year. It could run into even more trouble in a recession: WeWork has $47B in lease obligations, most of which are 15-year leases without early termination rights, yet many WeWork members can cancel their memberships with just one month's notice. 

WeWork co-founder and former CEO Adam Neumann

Morning Calm Management CEO Mukang Cho doesn't expect widespread weakness in the office market, but said office buildings that have large a coworking presence "could endure some hardship" during a downturn.

"At a minimum, the recent spotlight on WeWork will likely make landlords think twice about funding the large [tenant improvement allowances] that most of these operators require as part of a new lease, and push harder to get the appropriate credit enhancement," said Cho, who will be a speaker at Bisnow's upcoming South Florida Office Market Update event Oct. 24.

Morning Calm owns 5M SF of commercial real estate around the country, including offices at 301 Yamato in Boca Raton and 205 Datura in downtown West Palm Beach. Cho said that while his company doesn't acquire or reposition a property with coworking in mind, it does have some coworking tenants. He said the WeWork debacle was bad PR for the coworking industry, but that models can be successful — he pointed to Regus/IWG's $5B market cap and profitability.

Cho suggested that coworking brings an intangible benefit to office markets.

They "do more than take space — they help energize and rebrand the asset," he said.

Morning Calm offices have free yoga, free boot camps, wellness lecture series and electric car charging stations.

"At one of our properties, we even harvest fresh raw honey for our tenants from our honey bee sanctuary!" Cho added. 

Location Ventures founder and CEO Rishi Kapoor

Kapoor, the CEO of Location Ventures, suggested that WeWork's debacle is a wake-up call for every coworking operator and landlord around the globe to honestly assess their business model and profitability.

"I think coworking has a place in every neighborhood center, but landlords need to be increasingly selective on who they sign leases or partner with, considering both financial and operational strength," Kapoor said. "For those that have a different business model, it's going to be a conversation of highlighting the differentiations." 

For his own company, which offers coworking and co-living in urban cores but develops, owns and operates its own real estate, thanks to a mix of private equity, opportunity zone funds and institutional partners, "steady is the course," he said.

"We are a hybrid real estate development and operations company — operations with enterprise value that are backed by real estate owned," Kapoor said. "We are not here to play the lease spread game. While leasing has enabled competitors to grow exponentially, I think it’s safe to say prudent growth, if not prudently aggressive growth (as I would prefer to say), with a clear path to profit per location, is a sounder policy."

Kapoor said WeWork had been pulled in too many directions and "distracted." He stressed that although URBIN does use technology and PropTech has been in vogue, his is not a tech company. And though it does incorporate wellness as a company value, "we’re not trying to 'elevate the world’s consciousness,'" Kapoor said — something WeWork declared it wanted to do in its prospectus.

"No jets. No nine-figure loans to the founder (I promise)," Kapoor added.

Several Miami-area office leasing experts and landlords with WeWork as tenants declined to comment for this article. Bisnow sought comment from WeWork Southeast General Manager Bobby Condon, but a spokesperson instead emailed the statement co-CEOs Artie Minson and Sebastian Gunningham released when the firm postponed its IPO Monday.

“We have decided to postpone our IPO to focus on our core business, the fundamentals of which remain strong," the statement says. "We are as committed as ever to serving our members, enterprise customers, landlord partners, employees and shareholders. We have every intention to operate WeWork as a public company and look forward to revisiting the public equity markets in the future.”

WeWork will definitely be a topic at Bisnow's South Florida Office Market Update Oct. 24.