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With staff rushing for the exits, and the IPO on life support, Adam Neumann’s goal of being the world’s first trillionaire may be out of reach—but WeWork still has major real estate markets hostage. “It’s an all-around s–tshow,” said a WeWork executive.

BY GABRIEL SHERMAN | SEPTEMBER 23, 2019

Not long after Adam Neumann started WeWork in 2010 with a single coworking outpost on Grand Street in SoHo, the then-31-year-old Israeli entrepreneur showed up at a real estate industry conference on Park Avenue wearing his now-familiar uniform, T-shirt and jeans, with shoulder-length surfer hair that looked like it hadn’t been washed in days. Neumann, who is six foot five, was an instant object of fascination among the suit-clad executives in the room, many of whom were twice his age. But it was his hyper-confidence that one attendee recently recalled. “I remember Adam asked me what company leases the most office space in New York. I told him JPMorgan. They have about 3.5 million square feet. And he said, ‘Well, I’m going to lease more than they do.’”

The boast came true. Last September, WeWork surpassed JPMorgan to become New York’s largest private tenant, with more than 5 million square feet of office leases spread across more than 50 locations in the city. Fueled by more than $10 billion in venture capital from Japanese conglomerate SoftBank, Neumann grew WeWork to employ more than 12,500 people and was barreling toward an IPO this month that would have valued the company at $47 billion. On paper he was worth close to $7 billion. In the media Neumann was heralded as the millennial prophet who foresaw a new kind of office culture, one in which the beer and kombucha flowed and MacBook-toting freelancers would love coming to work (at WeWork’s headquarters, Neumann threw “Thank God It’s Monday” parties).

But for WeWork, the last two weeks have been comparable to the end of tulipomania, a complete phase-shift in the company’s prospects. There were stories about Neumann’s reported erratic behavior and drug use. WeWork’s IPO prospectus revealed that Neumann held ownership stake in buildings WeWork leased from, essentially paying himself, and that his wife, Rebekah Paltrow Neumann—Gwyneth Paltrow’s first cousin—was one of the people with the power to choose his successor. Investor demand for the stock dried up, forcing the company to slash its valuation by more than half, and then delay the IPO entirely. A string of high-profile executives walked out the door, including the chief communications officer, the co-head of WeWork’s real estate fund, and the global head of WeWork’s real estate partnerships. WeWork hemorrhaged almost $2 billion last year, which means the company desperately needs the IPO to happen to raise cash, or else must find other sources of funding. “I think this company may go down to zero unless they take drastic moves right away. They’ve gone from heroes to targets in 30 days,” said Scott Galloway, a marketing professor at NYU’s Stern School of Business.

WeWork’s board is expected to hold a meeting this week to discuss potentially removing Neumann as CEO. And inside the company, morale is sinking as fast as the share price. “It’s an all-around shitshow,” a WeWork executive told me.

It’s hard to overstate the degree to which WeWork’s business is built on the egomaniacal glamour and millennial mysticism of Neumann and his wife. Neumann sold WeWork not merely as a real estate play. It wasn’t even a tech company (though he said it should be valued as such). It was a movement, complete with its own catechisms (“What is your superpower?” was one). Many major players found this special sauce irresistible. After meeting Neumann, Mort Zuckerman, the billionaire cofounder of developer Boston Properties, told one real estate executive that Neumann was creating the future of work, according to a person briefed on the conversation. Rupert Murdochalso took meetings with Neumann, a source said. The big-money investors bought it, none more so than Masayoshi Son, CEO of Japan’s SoftBank Corp., who ran the $100 billion Vision Fund backed by Saudi Arabia and Abu Dhabi. In 2017, SoftBank and its Vision Fund invested $4.4 billion in WeWork, and would ultimately invest nearly $11 billion.

Last year Rebekah, a devout follower of Kabbalah, launched a school called WeGrow; WeGrow and WeWork hired a production company to film an interview Rebekah did with Red Hot Chili Peppers frontman Anthony Kiedis at a company retreat, a source said. (In an interview with her cousin that Paltrow posted to the Goop website, Rebekah said, “WeWork is a physical structure through which we can put positive energy and consciousness into the world.”) “He has a wife who wants to leverage this to be her own major character,” said a source who’s interacted with Rebekah. “If you hang around her, she acts as if she’s this fascinating spiritual woman of the world.” But employees bristled at Rebekah’s nebulous, free-ranging role at the company. In August, SoulCycle cofounder Julie Rice, who’d been recruited to WeWork to become the company’s chief brand officer, quit because Rebekah decided she wanted Rice’s title and took it, sources said. (A source close to Rebekah said that Rebekah, as a WeWork cofounder, had always had that title.)

In conversations with people inside and outside the company, Neumann’s pronouncements became wilder. Neumann told one investor that he’d convinced Rahm Emanuel to run for president in 2020 on the “WeWork agenda.” (Emanuel did not respond to a request for comment.) Neumann told another finance executive that JPMorgan Chase CEO Jamie Dimon was his “personal banker” and that Dimon might leave JPMorgan to run the Neumanns’ family investment fund, a person briefed on the conversation said. (A source close to Neumann denied this, and a source close to Dimon told me Dimon has no plans to leave JPMorgan.) Neumann told colleagues that he was saving the women of Saudi Arabia by working with Crown Prince Mohammed bin Salman to offer women coding classes, according to a source. “Adam’s fantasyland became a reality,” a former WeWork executive said.

WeWork’s core business—leasing office space to companies on a short-term basis—has already proven it can be viable. IWG, the parent company of WeWork’s main competitor, Regus, recorded a $130 million profit last year and is valued at more than $3 billion. “WeWork could be a nice little company,” Galloway said. Neumann had the foresight in the wake of the 2008 financial crash to see that landlords needed tenants, and that legions of underemployed professionals would pay for an appealing alternative to working in a Starbucks while they got back on their feet. “What Adam figured out is that people who were working solo or in small groups really want company. They want stimulation,” said a New York real estate executive. “He was the first to infuse these offices with communal elements. What he overlaid on that is the tech vibe of the moment. He was throwing in all the ingredients that were perfect for that moment.”

The ever-rising valuation of WeWork’s stock allowed Neumann to cash out some $700 million in the private market and buy five homes. When Neumann showed an executive his $35 million Gramercy home last year, he pointed out that the staff lived on the first floor. “He said the bottom floor is the servants quarters. What he’s learned is you have to separate the help,” the executive recalled. “It’s very difficult for anyone to control themselves if you have a sugar daddy like Masa,” a former WeWork employee recalled. In meetings with nonprofits to discuss philanthropy, Neumann claimed he would be the richest person they would ever meet, a person briefed on the conversations said. The Wall Street Journal recently reported that Neumann told people his goal was to become the world’s first trillionaire.MOST POPULAR

Being seen as a visionary is part of Neumann’s business model—but in recent months, he’s increasingly been seen as a flake. Neumann skipped crucial meetings or showed up late for no reason, according to two sources. They told me he basically stopped attending WeWork board meetings because he had control of the company. Neumann’s habit of going AWOL had consequences, though. Last fall Neumann was scheduled to meet Khaldoon Khalifa Al Mubarak, the head of Abu Dhabi’s sovereign wealth fund, at the St. Regis in Manhattan. Already, Mubarak was having doubts about SoftBank’s massive bet on WeWork and wanted to meet with Neumann to discuss the business. People familiar with the meeting said Neumann showed up late wearing sunglasses and looking hungover. Last December, not long after the meeting, the Journal reported that Abu Dhabi and Saudi Arabia were hesitant to participate in SoftBank’s planned $16 billion investment in WeWork. (Mubarak did not respond to a request for comment.)

The Vision Fund’s biggest backers weren’t the only ones growing skeptical of Neumann. Around the same time, Neumann came up with an idea to partner WeWork with Apple, sources said. Neumann flew out to Apple’s Cupertino headquarters and pitched Apple CFO Luca Maestri on doing a deal with WeWork. It’s unclear why Apple would want to invest in WeWork, and not surprisingly, the company passed. “This was the Hail Mary,” a source briefed on the Apple talks told me. “There was Adam’s idea that there was some way out.” (A source close to Neumann said the potential Apple deal was a small one.)

Without a white knight to bail out WeWork, Neumann needed the IPO to go off successfully. The stock sale was supposed to raise $3 billion, as well as unlock another $6 billion in loans. A WeWork source said the company plans to go ahead with the IPO next month, but a source close to the board dismissed that as unlikely. What happens next is being debated. The source close to the board said the company has no legal power to force Neumann out, given the scale of his voting shares. This could lead to a civil war for control of the company if Neumann digs in. Scott Galloway said WeWork could survive by getting Neumann to step aside, slashing costs, and trying to raise prices on current tenants. But Craig Deitelzweig, the CEO of Marx Realty, told me even if WeWork takes those steps, the fundamental business model of taking on long-term leases and signing up short-term tenants isn’t sustainable. When the next recession comes, WeWork tenants can walk away, but WeWork is on the hook for its leases. WeWork hasn’t come close to turning a profit in a bull market. “I do not think it’s a viable business, period,” Deitelzweig said.

Neumann’s bet may be that he will be able to force landlords into renegotiating his leases to lower prices. Essentially it’s a bet that WeWork is too big to fail and the real estate industry will have to cut it a break. Neumann recently made that argument himself. “In the major cities in the world, WeWork is propping up the office market,” he told a real estate executive. “If I say ‘pencils down’ to my people, the value of buildings will plunge and I can go in and buy them on the cheap.” The executive was chilled by the conversation. “We’re not talking about a Harvard Business School analysis here. This has a predatory aspect to it.”