Is This the Office of the Future or a $5 Billion Waste of Space?

WeWork’s Bryant Park office in New York. Photographer: Christopher Gregory for Bloomberg Businessweek

Adam Neumann, WeWork’s Israeli-born co-founder, has called the company a “physical social network,” and it makes every effort to lubricate connections. “We gave 90,000 glasses of beer last month,” he said in a recent onstage interview at TechCrunch Disrupt NY 2015, “which is a number we’re proud of.” Here are some other enviable numbers for WeWork: It currently has 23,000 customers working in 32 locations, about half of them concentrated in New York, where WeWork is the fastest-growing consumer of office space. Flush with $355 million in venture capital from its latest funding round, the company is now expanding internationally, moving into what Neumann calls “high IQ” cities. There are already WeWorks in locales such as San Francisco, Austin, London, and Tel Aviv. Portland, Ore., Toronto, and Berlin are on the horizon. WeWork plans to open three to five new locations a month.

Many traditional real estate investors are perplexed by WeWork’s $5 billion valuation. With that kind of money, you could build the world’s most expensive skyscraper—One World Trade Center, which at 3 million square feet has roughly the same cumulative amount of office space as WeWork—and still have $1 billion left over. And its business model—leasing space wholesale from landlords and then subletting it at a margin in small blocks—is a familiar and fairly risky one. Publicly traded Regus, which dwarfs WeWork with its 2,500 locations in 110 countries, is worth $1.3 billion less by market capitalization. Neumann says doubters don’t grasp the scope of his plans for the workplace. “We are not competing with other co-working spaces,” Neumann says. “We are competing with offices. And that is a $15 trillion asset class in the U.S.”


Photographer: Christopher Gregory for Bloomberg Businessweek

Self-employment was once considered vaguely disreputable, something you mumbled on first dates and struggled to explain to your parents. “It used to be we thought of freelancers as working in their pj’s at home,” says Richard Greenwald, a dean at Brooklyn College and the author of the forthcoming book The Death of 9-to-5. But white-collar professionals now represent the fastest-growing segment of the contingent workforce, he says, and they have driven demand for a new, flexible place to do business. “They’re looking for a Starbucks solution, without having to be in that Starbucks,” says Sean Black, a managing director at real estate brokerage JLL who has handled several of WeWork’s lease deals.

Neumann says his mission is to transform the workplace for what he calls the “We Generation,” providing his tenants—or rather, “members”—with all the bandwidth, printer toner, and (yes) beer they need, so they can concentrate on the parts of their jobs they enjoy. Neumann says he is not just providing space and office supplies, but “building a community of creators” that “inspires people to do what they love.” WeWork also offers valuable benefits like access to a group health insurance plan, and its app doubles as an online social network, where members post inspirational quotes, trade tips about the best barbecue in Austin, and seek professional help. (“Is there anyone who is a notary here?”) Each office location has a “community manager” who programs events: book clubs, Ping-Pong tournaments, yoga and meditation classes, technology talks, life coaching sessions, Easter egg hunts, wine tastings, and movie, salsa, and trivia nights.

That’s the intangible spirit, Neumann says, that distinguishes WeWork from a grubby real estate business. “I think there’s been a fundamental shift in expectations,” says Bruce Dunlevie, a founding partner of Benchmark Capital, the powerful Silicon Valley firm that invested early in the company. “Today’s 23-year-old in a decade will be a 33-year-old, and I don’t think they’re going to want to go back to the old model. They will have derived utility and created a habit around a WeWork-style workplace.”

WeWork’s ambitions don’t end at the office. Later this year the company is expected to launch WeLive, a total-immersion product that combines office space and micro-apartments. A kabbalah devotee, Neumann can get mystical when he talks about melding work and life for the We Generation: “When you have the intention of changing the world behind what you are doing,” he says, “when there is actual meaning behind your work, and when you truly love it, success will follow, money will follow, and happiness will be part of it.”

Neumann is tall and lanky, with a long mane of jet-black hair, and at 36 still looks young enough to play camp counselor to his millennial members. (In fact, WeWork does host an annual summer camp for entrepreneurs in the Adirondack Mountains.) His office, at WeWork’s “galactic headquarters” on Broadway in lower Manhattan, is decorated with a selection of books in English and Hebrew, a skateboard, and a well-stocked bar cart. When I ask Neumann about a report that he sometimes closes meetings with a round of shots, he laughs and says, “Only rumors.” Then he adds, apologetically, “I’m on a cleanse.”

According to company lore, WeWork’s convivial approach to capitalism has its roots in Neumann’s childhood experience of living on a kibbutz. “Even though I loved the communal aspect of it,” Neumann says, “I didn’t connect to the fact that different people put in different amounts of effort and received the same.” WeWork recaptures the cooperative element of the kibbutz, Neumann says, while jettisoning the socialist part. “On the one hand, community. On the other hand, you eat what you kill.”


Hunting your own sustenance can be a scary way to live, as Neumann himself knows. He followed his sister, a model, to the U.S. in 2001, and spent several years working for her while also trying to launch a line of baby clothes. His entrepreneurial epiphany occurred in 2008, when he was running his apparel company out of an industrial building on the Brooklyn waterfront and had to cut costs by renting out a corner of his office on Craigslist. He and another tenant, Miguel McKelvey, an architect who designed retail spaces for American Apparel, proposed a co-working concept to their building’s owner, who might charitably be described as an old-fashioned Brooklyn landlord. (His company’s history includes bruising battles with tenants and a mysterious fire.)

“He would tell me, ‘You know nothing about real estate,’” Neumann said. “I would tell him, ‘Well, you know nothing. Your building is empty.’”

They all ended up founding a company called Green Desk, which opened in 2008, just when the economy crashed. As jobs vanished, professionals were turning to freelancing. “The worse the economy was heading, the more interest we were getting,” Neumann says. Green Desk has since expanded to seven locations in Brooklyn and Queens, but Neumann and McKelvey wanted to build their own brand. They sold their stake and opened the first WeWork in SoHo in 2010.

Pinterest, based in California, rents WeWork space in New York. Photographer: Christopher Gregory for Bloomberg Businessweek

WeWork was just one of many co-working spaces cropping up at the time, but it went after a different demographic than the established providers of shared office space. Although companies such as Regus do rent to tech startups, they mostly cater to more strait-laced professions such as accounting, as well as large corporations that want a branch office in Washington, Wichita, or Shanghai. They offer a quiet, sober environment, minimizing their own branding so the space appears to belong to their clients. “We don’t scream ‘Regus’ in your face,” says Steve Farley, Regus’s chief executive officer for North America. “We want your customers to think you’re there for the long term.” WeWork, by contrast, proudly proclaims itself in big letters out in front of its spaces, which have the loft-style layout that appeals to young creative types.

WeWork entered the New York market at an opportune moment, when the economy was beginning to recover, but hiring—and thus the price of office space—was still depressed. The company found favorable rents by seeking out smallish, older buildings in difficult locations. The local real estate industry took notice. “As soon as you walked into the space, you felt the energy and excitement and you immediately understood what they had created,” says New York developer William Rudin. After a Wall Street building the Rudin family owns was damaged by Hurricane Sandy, he leased it in 2013 to WeWork, which is refurbishing it. Rudin said he thought “it would be an interesting way to generate excitement and buzz” for the entire neighborhood, where he owns other properties.


Co-founder Neumann. Photographer: Christopher Gregory for Bloomberg Businessweek

Around the same time, WeWork caught the attention of Benchmark, one of Silicon Valley’s top venture firms. When Dunlevie first heard about the company from a colleague, he was skeptical. “We’re not interested in the re-marketing of office space,” he says. But he flew to New York and took a long walk with Neumann, visiting four WeWorks. “We were struggling for vocabulary then to describe what we would today call a reorganization and an atomization of the workforce,” Dunlevie says. He thought about Maslow’s hierarchy of human needs. WeWork was providing not just shelter, but emotional necessities like companionship and motivation.

Neumann says he puts a lot of thought into “floor psychology.” Everywhere you look at WeWork, there are slogans. “Never Settle Ever” is lit up in neon; flat-screen monitors flash quotes from Thomas Edison and Vince Lombardi. Even the bathroom mouthwash dispenser urges, “Pitch a Fresh Idea.”

WeWork’s own offices are now bustling with dealmaking activity. In New York alone, it’s signed a dozen large leases over the past two years, according to the commercial real estate analysis firm CompStak. Other deals are in the works, fueled by investments from backers such as JPMorgan Chase, Goldman Sachs, and the developer Mort Zuckerman. (Zuckerman has also placed WeWork in a San Francisco development.) The company is now leasing entire buildings. “They have been expanding like crazy,” says Noam Shahar, CompStak’s research director. “We can’t even keep up with the pace.”

WeWork’s binge has made some potential landlords skittish, as has Neumann’s brash, name-dropping style. Those with long memories recall that after the 2000 dot-com crash, countless startups went bust, and office space providers similar to WeWork were stuck holding long-term leases. The U.S. branch of Regus, which had a large footprint in Silicon Valley, filed for bankruptcy in 2003, though the company has since recovered. It takes time to lease and renovate buildings, which means that WeWork is assuming fixed long-term commitments based on presumptions about an inherently unpredictable customer base. “WeWork is a much harder business than a lot of the things we do,” Dunlevie says.

Besides the risk of a crash, WeWork also faces the risk of a boom. The leases it found when it started in New York, at rents of about $30 or $40 a square foot, according to CompStak, would cost far more today. Neumann says there’s a ceiling on what he can pay and talks of moving to the margins: Jersey City or Harlem instead of downtown Manhattan. Zuckerman, however, suggests another potential route to securing space for the future. “They’ll either become a developer,” he predicts, “or partner with a developer.”

WeWork has toyed with that approach, but owning buildings runs contrary to its strategic positioning. The company’s valuation is based on the perception that its model is less akin to an office landlord than a sharing-economy startup like Uber or Airbnb. “Buying real estate is slow,” Neumann says. “We are an asset-light business.” Michael Gross, WeWork’s chief financial officer, used to work for a boutique hotel chain and says WeWork functions along similar lines, selling atmosphere and service. “We’re truly building a global network and a global community of entrepreneurs,” Gross says. “Space is one piece.”

WeWork may end up being priced out of creative centers like Manhattan and San Francisco, but it’s still a big world. If WeWork can repeat its New York success in top-tier cities in the U.S. and abroad, Dunlevie says, “I think we’d be a $50 billion revenue company.”


Common areas feature loft-style decor. Photographer: Christopher Gregory for Bloomberg Businessweek

McKelvey was speaking at an event in April called the Brooklyn Freelancers Summit when a hand shot up. “What happens when we have the bubble burst?” an audience member asked. “Is WeWork going to dry up with that?”

McKelvey, a bearded Oregon native, harked back to the early Green Desk experience. “It’s a funny thing,” he said. “Everyone said our business wouldn’t succeed then because it’s a downturn, and now they’re saying it won’t succeed because it’s a bubble. I think that whole idea is bulls—. Because as we all know sitting in this room, the world has changed completely. All these buildings that we look at, towers which are full of these soul-crushing acoustic ceilings, and crappy gray carpets, and draining environments with fluorescent lights—like, no one wants to work that way anymore. … It has nothing to with the economy. It has nothing to do with anything other than humanity.”

It would be easy to mock WeWork’s grandiose mission if the people who work in its spaces didn’t seem to so fully embrace it. When I walked into the Varick Street location for the first time, I ran into a friend who recently lost her job as an editor at a struggling media company. She was sitting in an armchair with her MacBook open on her lap. She told me that after years of climbing the ladder, she was done with corporate life and was now working as a consultant. She was happy to set out on her own, and for now, WeWork offered just what she needed to get started: a place to concentrate, a daily routine.

Many of WeWork’s office tenants are startups in the larval phase. “It makes us look like a legitimized business,” says Alex Kruger, a 25-year-old entrepreneur in New York. Kruger had tried a variety of work environments, including a group house in Austin, before finding his way to WeWork, first as an employee of SpotHero, which has an app that resells parking spaces, and later as the CEO of a new company, Attendant. Dignity is important to Kruger, because Attendant wants to enter the $20 billion funeral industry, offering a service that handles administrative tasks such as canceling cell phone accounts and magazine subscriptions. Since starting the company four months ago, he has gone from working alone at a WeWork desk to managing employees in a small WeWork office.

On a square-footage basis, the WeWork experience isn’t cheap. At the location where I was based, a four-person office starts at $2,200 a month, while a dedicated desk in an open-plan workspace costs $400. But WeWork offers flexible month-to-month terms and supplementary services entrepreneurs value. It offers a good deal on health insurance, through a partnership with the benefits provider TriNet; payment processing via Chase; and a discount on hosting fees from Amazon Web Services. Even for individual freelancers, the cost of a membership may work out favorably in comparison with other office solutions, such as renting a larger apartment or buying a half-dozen coffees daily at a cafe.


“People like me, who are in transition, they need a space outside the home to get energized,” says D.J. McFadden, a Newark resident who has been commuting to a desk in Manhattan since he was laid off from an accounting job in December.

One future challenge the company will face is retention. What happens if WeWork’s members hear about a better party? What if the economy keeps improving and they get offered regular jobs? WeWork could do steadier business with large corporations. Neumann says he is wary, though, of losing WeWork’s cultural balance. “We hold back, try not to overdo it,” he says. “Because the right mixture of community is very important to us.”

Dunlevie says that WeWork needs to seize the corporate opportunity. “Big companies want to be close to innovation,” he says. “The more we are picking and choosing, the more we have inserted ourselves into an editorial or social management function, which I think is somewhat dangerous, frankly.”

Corporate tenants may only appreciate one half of WeWork’s work hard/play hard ethos. Competitors say that works to their advantage. “We’re not for everybody,” says Kathlene Buchanan, CEO of Metro Offices, a regional company that has 10 locations in the Washington area. “There’s going to be people who want shooters in the middle of the day while walking around in flip-flops. But if I have clients doing heads-down work, I have some responsibility to them to keep it professional.”

Amenities include Ping-Pong, beer, and social events. Photographer: Christopher Gregory for Bloomberg Businessweek

Alcohol is WeWork’s signature amenity, the symbolic element that is meant to distinguish its workplaces from the drudgery of the office. It’s offered at all hours. After a hard day of coding, WeWorkers will exchange fist bumps and declare, “It’s beer o’clock.” On the morning of April 15, the location where I was working served tax-day Bloody Marys. Usually, people seem to consume responsibly, though in the commons area where I was working one day, a young woman kept wobbling back to the tap and loudly telling strangers about a recent breakup.

More often, though, I observed WeWork’s informality working in productive—even heartening—ways. When someone broke the informal prohibition against taking phone calls in the commons area, a guy working at the bar walked up to him. I expected a confrontation, but instead, the guy at the bar—Spero Stamboulis, a film and TV producer—offered a compliment: “I don’t know exactly what you do, but you’re great on the phone.” Later, Stamboulis told me he had accumulated about 200 business cards in a zip-lock bag since he started going to WeWork a few months ago. Some of the people he’s met have become potential collaborators. “In the real world, if you do it, people look at it as if you’re hitting on them or invading their space,” Stamboulis says. “WeWork has created a comfortable forum.”

It’s difficult to make personal connections when working in isolation, which is why so many people find it difficult to leave their familiar office environments. “We are all tribal in our heart,” Neumann says.


Photographer: Christopher Gregory for Bloomberg Businessweek Photographer: Christopher Gregory for Bloomberg Businessweek

If WeWork can offer a solution to loneliness, it could have broad applications. Neumann suggests that WeWork could be an attractive landing spot for travelers. “The hotel experience is an ‘I’ experience, not a ‘We’ experience,” he says. “It’s lonely also, especially business travel.”

To see the logical culmination of this line of thinking, take the Washington Metro one stop from Reagan National Airport to the suburb of Crystal City, Va., a brutalist enclave of office blocs and subterranean shopping centers that has been hit hard by defense-industry downsizing. Improbably enough, this is where Vornado Realty Trust is gut-renovating a 12-story office building to serve as a testing ground for a new product, WeLive. Neumann maintains a coy degree of secrecy about the residential project, but public documents indicate nine lower floors will be carved into apartments, mostly 300-square-foot studios, with the top of the building occupied by office space. Competitors find the dormitory-style concept laughable. “I graduated college a long time ago,” says Regus’s Farley. “I’m not going back.”

When I describe WeLive to Kruger, the young funeral industry entrepreneur, his response is immediate. “I love it,” he says. “When’s it opening?” (In New York, WeWork is doing a residential conversion at the Rudin building on Wall Street, scheduled to open in the fall.) It may be that WeWork’s future lies not in serving the broadest market, but in deepening its offerings to a core clientele. Kruger enthusiastically tells me about his experience last summer at WeWork’s camp in the Adirondacks, where he listened to TED-style talks, learned archery, formed business connections, and made one good friend.

One recent evening, Kruger is finally ready to share the culmination of all his labors. He unveils Attendant to a room full of WeWorkers at one of the Varick Street location’s regular Demo Day competitions. “I hate to be the bearer of bad news,” he begins, “but you will all die.” He projects a slide that reads: “Death sucks. Calling your cable company sucks. Dealing with both of those simultaneously is a nightmare.”

When the event is done, the audience gobbles complimentary tacos, sips beer from plastic cups, and votes on the best pitch. Attendant wins, but Kruger isn’t there to celebrate. Embracing the hustle, he’d already left WeWork and its overflowing taps to attend an evening meetup sponsored by an organization for the aging. When you’re your own boss, you’re never off the clock.


Photographer: Christopher Gregory for Bloomberg Businessweek Photographer: Christopher Gregory for Bloomberg Businessweek