The We Company, better known as WeWork, has filed its S-1 with intent to go public. The news comes at a time when innovative urban real estate models have become the mode. At the forefront of alternative accommodations is Airbnb. We see commonalities brewing, as commercial real estate undergoes a deeper transformation towards mixed-use.
The We Company’s office real estate arbitrage business model centers around flexible office space solutions for startups and increasingly enterprise. The company commits to long-term leases and then subdivides that space into smaller, more digestible and shorter-term leases for its tenants (at mark-up). With this model, the company has expanded globally by closing on commercial leases in both primary and secondary cities.
Learn more here: Future of Work
In January, WeWork re-branded to The We Company. This widened the scope of its value proposition and signaled that it’s accommodations division WeLive would, at some point, become a more meaningful component to its business model.
The S-1 filing came during the same week that Airbnb announced a partnership with RXR Realty to convert 10 floors of 75 Rockefeller Plaza in New York City from commercial space into hotel accommodations. Airbnb would have exclusive access to that inventory as part of the partnership.
Airbnb’s move into hotel-like accommodations and commercial-to-hotel conversions specifically, points to the in-road for The We Company to grow inventory under the WeLive brand, which has until now been slow to scale beyond its New York and D.C. locations.
How will The We Company scale WeLive? The theory goes… a mixed-use future where WeWork leverages its global commercial footprint to convert portions of under-performing office space into WeLive accommodations. The WeLive New York location occupies 21 floors atop five floors of WeWork space. The company signed its lease in 2013 and has 22 years remaining.
Commercial-to-hotel conversions in New York are allowed in areas zoned commercial. Is WeLive a hotel? Guests can stay for “a few days or move in for months”, as the website explains. This puts it into the less-than 30 days category which is the typical cut-off for space classified as residential.
WeWork is the biggest commercial property lease holder in New York and in many other key urban markets. See our World of WeWork Map for all locations. As the company grows, and as the co-working (flexible commercial real estate) market becomes increasingly competitive, we ask whether there is an opportunity for The We Company to adjust its property mix to include more accommodations using the co-live model.
The co-live model has become an attractive real estate asset class for investors with property management brands like Common, Ollie, Outsite, and others that are promising higher returns compared to classic multi-family or single room occupancy units. The question then becomes, can the WeLive division leverage some of those same economics to entice commercial property partners to convert certain portions to hotel-like accommodations.
Conversions are expensive but WeWork has proved its mastery with space design and scale. This is a moving target but one that could evolve as urban planning shifts in line with broader trends in tech, the sharing economy, etc.
The bigger implications here are for WeWork as the company moves toward IPO, and the future of real estate more generally. This is not a zero-sum game, although we see how the commercial-to-hotel conversion space could heat up, as city officials slowly pivot urban and zoning policy in line with what makes sense in the local context.
We posit that The We Company’s sluggish expansion into accommodations and WeLive has been a waiting game and the prioritization of commercial lease acquisitions globally. The WeLive division will further play into the company’s diversification strategy and competitive position with other flexible commercial real estate players e.g. Regus, Knotel, and others.
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