Adam Neumann was credited with creating a paradigm shift in the office rental market by way of co-working spaces but his IPO failed spectacularly and the coronavirus pandemic helped turn his company, WeWork, and its properties into ghost towns.
Neumann’s IPO in August 2019 went down in flames and the WeWork valuation fell from $47 billion to $10 billion after investors universally rejected the offering. He was removed as CEO and WeWork was absorbed by Japanese investment firm SoftBank. Neumann walked away with hundreds of millions of dollars. The company is now valued at $3.97 billion.
Now he is getting into residential real estate with the backing of Andreessen Horowitz, one of the best-known Silicon Valley venture capital firms and an early investor in Facebook and Airbnb, New York Times reported.
Airbnb disrupted the hotel industry, allowing people to rent out rooms anywhere in the world by promoting “live like a local” on its online marketplace for lodging, homestays, and vacation rentals.
Adam Neumann is buying up 1,000s of apartments
Neumann is starting a new company in 2023 called Flow, focused on the residential real estate market, the DealBook newsletter reported. Neumann has bought more than 3,000 apartment units in Miami, Fort Lauderdale, Atlanta and Nashville. His goal is to rethink the housing rental market by creating a branded product with consistent service and community features. Flow will operate the properties he bought and also offer services to new developments and other third parties.
Landlords can team up with Flow somewhat similar to the way a hotel owner might contract with a branded hotel chain to operate the property, New York Times reported.
Silicon Valley VC giant is investing $350 million
Andreessen Horowitz is investing about $350 million in Flow, according to three people briefed on the deal. Co-founder and general partner Marc Andreessen will join the Flow board. The investment is the largest individual check Andreessen Horowitz has ever written in a round of funding to a company, and it values Flow at more than $1 billion before it even launches officially.
Housing market is ripe for disruption
Andreessen suggested Neumann deserves more credit than he gets and has identified a market ripe for disruption. “Our nation has a housing crisis,” Andreessen wrote in a post on his firm’s website. “It’s often underappreciated that only one person has fundamentally redesigned the office experience and led a paradigm-changing global company in the process: Adam.”
A third of Americans rent their homes, and more than half who live in urban settings are renters. “The investment thesis for Flow appears to reflect economic and social trends that are driving more people to rent homes rather than buy them at a time when there is a housing shortage,” wrote Andrew Ross Sorkin, editor at large for the Dealbook newsletter.
Short-term rentals (STRs) are generally seen as a mom-and-pop investment, Forbes reported. Managing and owning vacation properties has traditionally been small-scale and family-run, such as inherited properties or second homes used seasonally. But with remote work pushing up demand for short-term rentals in new markets, many small-scale landlords are shifting from long-term to short-term rentals in hopes of higher returns.
“Now, the sector is gaining steam from investors, including institutions,” wrote Demetrios Barnes, chief operating officer of SmartRent, a smart home automation company developing software and hardware for property owners. “As a former single-family rental operator and small-scale investor, I believe that STRs are disrupting real estate investments.”