In spite of a massive write-down of WeWork’s value on Tuesday, WeWork’s offices remain popular in Center City as coworking space.
Once valued at $47 billion before a failed IPO, WeWork on Tuesday was bailed out by its largest investor, SoftBank. The new deal values the company at $8 billion, stunning Wall Street and mom-and-pop investors.
But so far, it’s business as usual for tenants of WeWork, such as Benjamin Frank of the Center City Proprietors Association, which has offices at 1900 Market St.
“We’ve been here since November 2018, and we plan to stay,” Frank said, noting that the business just re-upped its contract with a 3% increase in price. “We did get an email from the new executive leadership a few weeks ago, reassuring us that all is well.”
Center City Proprietors leases office space for a few people, and “it’s not technically rent. We sign a 12-month membership contract,” he said.
Neighbors of Frank’s include other start-ups and large companies such as Chase Bank’s training facilities. Chase is opening dozens of branches in Philadelphia.
Philadelphia currently hosts five WeWork locations in different buildings around the city: Northern Liberties, 1601 and 1900 Market St., 1100 Ludlow St., and 1430 Walnut Street. Another, at 1100 Market St., was scheduled to open in November, Frank said.
As of the start of 2019, WeWork had a high occupancy rate, with more than 500 companies in its Philadelphia spaces, which totaled roughly 110,000 square feet of space and 2,500 desks.
Marc Kramer, executive director of the Angel Venture Fair, said many of the start-ups with which he consults have offices at WeWork. Among them are Nth Round, which rents WeWork space at 1900 Market, Kramer said.
“It’s a father-and-son operation, a cool company,” he said. “That said, I’m not sure why WeWork got the valuation that they did. Other companies like Regus and American Executive have been doing the same business for years. The only difference was WeWork had couches.”
“In the end, they need big companies to sign up and rent space for a long period,” he added.
Among companies that started at WeWork and have since moved is ZeroEyes, a security and video analytics provider that sells systems to schools to scan for assault rifles and other weapons. Started by a group of Navy SEALs, ZeroEyes developed an artificial intelligence product aimed at alerting first responders in school shootings.
“We have since moved into the Pennovation Center on 3401 Grays Ferry Ave. in August 2019,” cofounder and CEO Mike Lahiff said by email. “It’s a great spot, plus it’s in an opportunity zone.”
ZeroEyes pays $1,800 for the Pennovation space, which includes a basement for servers and equipment, access to other warehouses for potential expansion, and free parking.
Before the scuttled IPO, WeWork was valued at $47 billion, or roughly $110 a share. But after a disastrous filing with securities regulators and outlandish behavior by the outgoing CEO, WeWork failed to go public earlier this year.
At Tuesday’s valuation of $8 billion, those same shares are currently valued at about $18.
As a result, mutual fund investors including Fidelity and the local fund complex Vanguard, based in Malvern, may have to write down the value of private company shares purchased in WeWork.
Vanguard U.S. Growth and Vanguard Growth Annuity both hold roughly 465,000 shares combined between the two funds in WeWork, said Jeffrey DeMaso of the Adviser Investments newsletter.
“That’s less than a half-percent of the value of each fund,” he said, so the effect on investors would be minimal.
“It’s always a risk that comes with buying private companies in mutual funds. It’s amazing how the narrative has changed. A year ago, everyone was wondering what can we do if mutual funds can’t invest in these private companies? Is the American public missing out on this growth? Now we’re getting stories that they have backfired. So maybe it’s not so terrible that mutual funds are limited in how much they can invest,” he said.
Vanguard spokesman Charles Kurtz said, “Per company policy, we cannot comment on the valuation of specific securities.”