Somewhere between the first glass of champagne and the cutting of the cake, Mark Lapidus stumbled on one of those once-in-a-lifetime real estate opportunities when he went to a wedding in March 2012.
A $15 billion valuation later, and the rest is history.
Mr. Lapidus, WeWork’s global head of real estate since April 2012, talked to Commercial Observer two weeks ago at the company’s headquarters at 115 West 18th Street between Avenue of the Americas and Seventh Avenue about meeting Mr. Neumann, who started the company with Miguel McKelvey in 2010.
He also addressed the sudden departure of colleague Todd Bassen, how WeWork structures deals and the shared workspace giant’s growth plans.
WeWork has 75 open locations (including 18 in Manhattan and three in Brooklyn) in 22 cities globally with 45,000 members, according to Mr. Lapidus. Most recently, the company signed real estate deals in Berlin, Paris, Shanghai, Sydney, Mexico City and Seoul, South Korea.
With WeWork opening all over the world, are you encountering cultural issues?
We get that cultural question a lot. We haven’t changed our model yet anywhere. The young generation of millennials in the U.S. really gets it. In Europe, they’re more advanced than we are here, as far as co-working. London’s a much bigger co-working market than New York ever was. In Asia, there’s going to be a lot of education.
What will that education entail?
It will involve getting people through our space, hosting events, showing them what we represent, showing them how to be more successful by working with other members and getting business from other members and collaborating together.
What’s the last lease you signed?
We sign on average four deals a week. We signed a new location in Boston, a new location in [Washington,] D.C. What else did we sign this week? Those are the last two.
How long does it take for you to do a deal?
It takes about six to eight months from possession to opening. So obviously, we’re signing deals now that are 12 to18 months out as far as possession.
Can you walk me through your process?
I would say [when we] started out, 90, 95 percent of our deals originally came from brokers. Today, we’re probably—60 percent of our deals come through partners, [meaning] people that we’ve already worked with.
You mean landlords?
We call landlords “partners.” So 60 percent of our deals probably come through either landlords with existing relationships, where we have other locations, or landlord referrals, or just landlords reaching out to us and saying, “Hey, before I put this on the market…”
My best friend, and college roommate, is the head of leasing [there]. Tony is very old world. Look, for whatever reason he doesn’t like the density that we create. He’s the only landlord in four years I’ve been here that has said no to WeWork.
Even the ones that originally said “no” we’ve eventually done deals with. And there was a bunch of them early on.
How has your model shifted over time?
Our model has shifted completely. Our average member used to be, you know, a two- or three-person company. Now it’s up into the 20s. We have many members—we call them “members,” not “tenants”—that have north of 100 employees that all work in WeWork. People are really moving their corporations here, and real successful businesses that have been around, some of them 50, 60, 70 years, are now moving here permanently. It’s major companies, like American Express, Microsoft—the list is huge—who are moving departments and divisions here permanently. So we compete with office, rather than saying we compete with Regus, or NeueHouse, or whomever.
Let’s go back to how you guys do your deals. Your leases are traditionally how long?
We prefer 15 base plus five, plus five, plus five. Sometimes, we have options, 30, 40 years out. Some deals are longer. We’ve done 30-year base deals.
110 Wall [Street] with Rudin [Management Company] is a 30-year deal with options. We invest so much capital and infrastructure into our buildings because of our density and because of the aesthetic, the look, the design. Our buildup costs are expensive.
How much do you spend to build out your spaces?
New York is hard because there’s the loss-factor thing. But on usable square feet, we spend about, depending on the market, between $200 and $250 a foot.
Some landlords have questioned the quality of your buildouts.
[Points to the door to his office.] This is what banks use for their storefront. This is why it’s so thick. Ideally, this is waste. But, we’re working now on developing a model where this becomes thinner, and we don’t need this system. We have oak floors everywhere that actually look cooler and nicer the more they’re used and walked on. We use aluminum and steel and glass. We don’t really use sheet rock, except for a tiny bit in some ceilings and some knee-high walls. And every WeWork looks exactly the same. It’s the same material everywhere.
What about the desks?
The desks are actually high-end chop-block that you would use in a kitchen that we have made and cut.
Do you have an average you seek in square footage?
Real estate is tricky. If I really want to grow and add 8 [million] to 10 million feet a year, which is kind of what we’re talking about over the next couple of years, you have to be a little bit nimble. Ideally, a minimum of 40,000 feet. We have deals now that are north of 200,000 feet. I wouldn’t be afraid to do half a million, or three quarters of a million square feet, of WeWork and WeLive in the right location.
Are you personally involved with the co-living apartments?
WeLive, yes. I did our first two, which are the two that are opening now. One’s opening [in stages] at 110 Wall [Street], and the one in [Washington,] D.C.
Would you describe them as dorm life with an RA and communal spaces?
It’s mature, kind of high-end, very tech-savvy dorm life, I guess.
So what’s the plan in terms of expansion with WeLive this year?
We’re looking for WeLive deals everywhere. We’ve got about 10 or 15 deals now that we’re negotiating on. Right now, we’re focused on our major cities—New York, London, San Francisco, L.A. We’re looking at something in Miami and Chicago. That’s our core focus for this year. I would do a WeLive in any city where I have presence, but we’ve focused our resources there.
We reported you will soon be opening your first WeWork location in Queens, in Astoria. Is there any market that’s a no-go for you guys?
I think, across the U.S., we’re basically targeting the top 25 cities, in terms of population and density.
In terms of New York City, you’re not in the Bronx, right?
We’re not in the Bronx yet. We have Harlem opening up this year [at 5 West 125th Street and Lenox Avenue]. We were supposed to get possession this month, but it got delayed. We’ve not been further north than that yet.
What kind of rents are you willing to pay?
There is a correlation between what we charge our members and what we pay. There’s no formula; it’s just what we can pay. I don’t belong in the top five most expensive buildings in the city, but I can take the building across the street, that’s 2 percent less, and I just charge my member [accordingly]. That’s why, if you look at our pricing across the city, it varies greatly.
What is the range of fees you charge your members?
Bryant Park, we average—call it $1,000 per desk, and at 25 Broadway, we probably average in the $700 range.
Is there a max rent you’ll pay for office space?
We used to say $50 [per square foot], then it went to $55, then it went to $60, then it went to $65, then $70. It keeps going. In London, there are deals where we’re paying over $100.
I’m wondering how you landed at WeWork because you went to law school and your parents are in the real estate business.
My father’s been in the real estate business forever. My father [Edward Lapidus] did residential subdivisions all up and down the East Coast.
So I’ll tell you how I ended up here. Adam [Neumann] went to contract to buy the Woolworth tower. It’s the first piece of real estate he’s ever bought. Not a house, nothing before this. So he goes to contract to buy the Woolworth building, and I’m sitting with Adam at a wedding, and we’re drinking, and he says, “Mark, you know something about this whole real estate thing.”
You had just met him at the wedding?
Adam was married to my first cousin. So Rebekah Paltrow [cousin of actress Gwyneth Paltrow], who’s Adam’s wife, is my first cousin [No, Mr. Lapidus isn’t related to the celebrity]. I had never had a relationship with Adam. I didn’t really know anything about him. They had just gotten married, and Rebekah was living in L.A. So, he says, “I just went hard on a building, you’ve probably heard about it, the Woolworth Building in New York.” Of course I knew the Woolworth Building. “So what do you mean you’re buying it?” He goes, “Well, I’m buying the upper floors—it’s complicated.” I said, “Is that from Steve [Witkoff of The Witkoff Group]?” He goes, “Yeah, from Steve from Witkoff and Rubin Schron [of Cammeby’s International Group]. Can you help me?” I say, “What do you mean?” and he says, “Well, I have no equity, I have no debt and I’m trying to negotiate these condo docs. I have no idea what I’m doing, I have no development partner and I’m kind of working on this business called WeWork that I have four locations for, and I’m really focused on, but I think this whole Woolworth Building could be amazing.”
What was the intention with the Woolworth buy?
It was always supposed to be high-end residential apartments. Adam negotiated the $70 million purchase price with [Messrs.] Witkoff and Schron then brought in Alchemy Properties as the development partner and BlackRock as the majority equity partner who then closed on the sale with Adam as a minority partner.
So I said, “Sure, I’ll come to your office.” This was four years ago, and I ended up, I walked into 175 Varick [Street]. He had opened up his first floor there; it was the fourth floor. He had this little tiny corporate office; it was probably 15 employees. And I walked in, out of the elevator, and I said, “Where am I?” It was all open-desk seating. It looked like a scene out of the Facebook movie. I walked around, and I said, “Well, what is this, where am I?” He said, “Oh, this is my company, WeWork. We’re just starting out. It’s going to be the next big thing.” I sat down with him, and after an hour or two, I ended up in the car with him and a broker in New York, looking at deals for WeWork in Midtown while we’re talking about the Woolworth Building. Adam’s like, “You should stay on and help. You’ll help with the Woolworth Building, and maybe you’ll help a little bit with WeWork.” I said, “Look, we’ll figure this out.” It took me a year and a half to figure out my deal with him, but since then I’ve been running real estate globally.
How many square feet does WeWork have now?
We’ve got about 7 million-plus feet under lease around the country. We signed 70 deals in 2015 that will all open up in 2016. Plus some deals from 2014 that were ground-up that also open in 2016. So we’ll open, on average, six to seven locations a month this year. Our goal for the end of the year is to have north of 100,000 members. We started the year at about 42,000 members, a little bit more than that, and we’ll finish the year at somewhere around 110,000 members—that is the goal.
It seems like WeWork has become a real estate company. Do you see it that way?
No, look, real estate for us is a platform for everything else we do. Real estate for us has always been a way to get our members in and to get them connected and to provide a service, but it’s just one of the services that we provide. We’ve got people in Asia, people in Europe, people in Latin America and the U.S. So, globally, 25. There isn’t a department at WeWork that’s this small—not even close. We’re just another service. That’s kind of the way the whole company feels about it. It’s how we make the majority of our income today, but as the company grows, that number gets smaller every year.
As we reported in September 2015, Todd Bassen joined WeWork in June 2015 to serve as co-head of real estate alongside you. He left three months later. What was the deal?
You know, I like Todd. Todd’s a great guy. He’s just culturally—he’s more institutional than we are. I think for both of us, it wasn’t the right fit.
So you guys fired him?
Um. Not going to respond to that. It was mutual.
What hours are you in the office?
I come in on the later side because it’s the only time I get to spend with my boys [sons Mason, 19 months, and Kaden, 4, with wife Carrie Lapidus]. I always take them to school in the morning, so I usually don’t get in until 10. But that’s much like the real estate world; it doesn’t really start up till around 10. If I get one night a week to see my boys before they go to sleep at 8:30, there’s a good week.
What is WeWork’s goal for five or 10 years out?
If you actually look at the numbers, we provide a service in-office that’s actually cheaper than going to the market and doing your own real estate deal. Significantly cheaper. When you start thinking about security deposits and construction downtime and legal fees … and then paying your monthly bills, we offer a turnkey solution. Long-term, we feel like we’re going to try to create a global network of small businesses, entrepreneurs and freelancers that can compete with the global conglomerates that can buy services and products the same way you could if you were JP Morgan Chase or Exxon Mobil or Apple.
People are saying that we’re moving into a tenants’ market. How is that influencing your decisions?
It’s influencing our negotiations. I’ll make the argument all day long that I think we’re equally as successful if not more so in a downturn than we are in an up-market. We started in the worst economy ever, arguably. We’ve gone through the upturn. Our occupancy levels have stayed constant throughout, but I think our membership model changes.
I think that in an upturn people want to take advantage and go off and be entrepreneurial and start new companies and do things, and in a downturn, people probably do [the same thing] because they don’t really have a choice. But it’s the same demand: There’s just a different reason for it. Also, in a downturn, we can offer month-to-month, six months to six months, a year to a year, so if you’re a bigger company [you can lease space] without having the risk and the security issue of, “Where am I going to be in 12 months?” I could even argue that in a downturn we’re more successful.