WeWork Takes New York City
Jotham Sederstrom Nov. 22, 2011, 2:30 p.m.
Notwithstanding WeWork’s impressive track record of growth and success in the city, Sean Black knew his tenant wasn’t necessarily going to be an easy sell to landlords.
In just over a year, WeWork had opened three thriving locations, in midtown, Soho and the meatpacking district. The company leases offices, then prepares the facility for smaller tenants and rents out the space on a desk-by-desk basis.
Though there are several companies in the city in what is known as the office-suite business, WeWork has created a distinct concept by constructing space with open floorplans and glass partitioning, a layout that fosters interaction between the tenants.
“I don’t look at us as in the real estate business,” the company’s founder and chief executive, Adam Neuman, said. “We feel we’re building a physical social network, a new type of ecosystem. Thirty percent of our tenants end up doing business with each other.”
At a time when the nation’s weak job market has prompted a rise in entrepreneurship—particularly in talent-rich markets like Manhattan—WeWork’s space has been in hot demand. Mr. Neuman said that of the roughly 115,000 square feet his company leases in midtown Soho and meatpacking, virtually all of it is full. With a six-month waiting list of tenants clambering to get in, he knew it was time to open a fourth location.
In recent weeks, Mr. Neuman made his boldest move yet when WeWork inked a 75,000-square-foot deal at 175 Varick Street, its largest lease to date. On the surface, the deal looks like a breakthrough for all involved. WeWork will now have a location in Hudson Square, an office neighborhood that in recent years has begun to increasingly draw an influx of media and creative tenants, a segment of the economy that Mr. Neuman feels is vibrant with the kind of start-up ventures that will populate his space.
Meanwhile, Extell Development, the owner of a leasehold interest in 175 Varick Street, shored up most of the 150,000-square-foot building’s vacancy in the deal.
Yet Mr. Black, an executive who handles WeWork’s real estate transactions in the city and negotiated the firm’s lease at 175 Varick Street, spoke of the complexity and other hurdles involved in arranging the deal. WeWork’s search for a fourth New York location stretched on for six months, he said, a relatively lengthy time period that took as long as it did in part because many landlords Mr. Black contacted were hesitant to take the firm on as a tenant.
For owners, one cause of concern is the amount of traffic an office-suite user can bring to a property, potentially disturbing other tenants. Often, issues boil down to security, Mr. Black said.
“It’s often a matter of control,” Mr. Black said. “Landlords want to know who’s coming in and out of their buildings.”
WeWork had gotten around the problem in the past simply by finding properties that it could lease entirely. Full building leases are not common, however, and in order to accomplish its goal of leasing 75,000 square feet, WeWork knew it would have to be open to finding a way to integrate its operations into a multitenanted building.
Mr. Black said that he began investigating off-market opportunities to see if he could find a fit. When he found 175 Varick, he quickly knew the location was promising. Working with the building’s agents, a team from the real estate firm Colliers International led by company executives Martin Meyer, Eric Meyer, Richard Plehn and Seth Hecht, Mr. Black helped negotiate and devise a plan to convert the building’s freight entrance into a new lobby that WeWorks could use as a private, dedicated entrance.
With that accommodation, Mr. Black and the Colliers team reached a deal to have WeWork take several floors in the building—three, four, five and eight—each of which is about 15,000 square feet for rent in the $30s-per-square-foot range. Not all of the floors are immediately available and WeWork will take possession of the floors over the next year as they become vacant. New York State tenants, for instance, occupy a portion of the space; the Council on the Arts has offices on floors two and three; and the New York State Lottery occupies the fifth floor.
“The structure works for us because we build most of the space out ourselves with our own crew of builders,” Mr. Neuman said. “Getting it step-by-step allows us to focus on one portion at a time and build it out to the high standards that we have.”
WeWorks will be installing a 4,000-square-foot lounge in its new lobby, a space where tenants can get food and coffee and mingle with guests or each other.
“The lounge area immediately sets the kind of tone for the atmosphere WeWorks provides and getting that was a key part of the deal,” Mr. Black said. “It shows how communal and creative the space is.”
WeWorks will also receive outside signage that will allow the company to stamp its brand on the building.
Mr. Black had an ace up his sleeve through the negotiations, which helped him not only get WeWorks into the property but hammer out such a favorable deal as well. Extell Development, it turns out, had been eager to do a large deal because it was interested in selling its leasehold on the property. The cash flow that WeWorks will provide is bound to make the building a more compelling acquisition to potential buyers. Sure enough, in the weeks after the lease was signed, the owner has put the property on the market using a sales team from Jones Lang LaSalle.
“I try to do my due diligence in any leasing assignment and we had quietly heard that Extell was hoping to do a lease,” Mr. Black said. “You look for every advantage that you can for your tenant.”