Office is out, school is in: Co-working operators try to lure students into workspace

Laura Kozelouzek, CEO of Quest Workspaces, and a Quest classroom

Laura Kozelouzek, CEO of Quest Workspaces, and a Quest classroom

Office is out, but school is in session.

Quest Workspaces, a co-working operator with 12 locations in Florida and New York, is turning some of its enclosed office space into small pods where groups of students can gather for virtual learning.

The move comes as many school districts are opting to forgo in-person teaching for the start of the new school year, due to Covid-19. At the same time, it’s a means for co-working, which has been hit hard by the pandemic, to cope with declining demand for office space.

In New York, co-working leasing was down 84 percent in the first quarter, year-over-year, according to commercial brokerage JLL.

Co-working operators like Quest, Industrious and WeWork are looking for ways to fill that space.

For Quest, the pods will function essentially as small classrooms. Students will be dropped off in the morning to go to their pods, to be accompanied by a tutor, teacher, parent or supervisor.

“It’s no different than what we do in terms of managing our space. We can bring companies together of all different sizes,” said Laura Kozelouzek, CEO of Quest Workspaces. “There is a need for people to get out of their homes.”

The Quest Micro-Class Pods start at $200 per child per month, for children of Quest members. For nonmembers, the pods start at $400 per child per month. The pods can include up to six students per pod, and are primarily geared toward high school or middle school students, Kozelouzek said. In South Florida, Quest has two locations on Brickell Avenue and in Coral Gables, and one each in Doral, Fort Lauderdale, Plantation, Boca Raton and West Palm Beach. Quest also has two offices in New York City.

Suzanne West, a longtime user of Quest’s New York and Miami locations, is considering leasing a pod for her stepdaughter, who is an incoming freshman at Miami Beach Senior High. “I am very comfortable having my daughter there,” West said. “We can have supervision. They can even be on other schedules.”

New York-based Industrious is also considering the move. “This is something we are exploring internally to determine whether or not it can be done safely and responsibly,” said a spokesperson for the company.

WeWork’s CEO Sandeep Mathrani has also said previously that the company is considering using its space for classrooms.

In Chicago, Optima Signature, a 56-story, 490-unit apartment tower in the Streeterville neighborhood, is converting four of its 25 office suites into classrooms, the Chicago Tribune reported. Interest is expected to come from families whose children attend the Montessori school in the tower, according to the report.

The new business line could help an office sector that was ailing even prior to the pandemic.

Leasing activity for co-working, also known as flexible space, dropped 50 percent globally in the fourth quarter of 2019 compared to the previous year, according to JLL.

Lending to buildings in which co-working is a tenant is also difficult, according to David Eyzenberg of Eyzenberg & Company, who arranges financing for commercial real estate projects.

“It was hard to finance office properties where co-working took up a significant percentage of space,” Eyzenberg said. “If it was a multi-tenant property, it was possible, but if it was a single co-working tenant space it was very difficult and expensive. Throughout the pandemic, it’s been more difficult.”

Many of the lagging leasing figures in co-working stem from embattled WeWork. Last year, the New York-based company pulled out of its initial public offering and saw its valuation drop from $47 billion to about $5 billion. WeWork recently hired JLL and CBRE to help fill millions of square feet now vacant in New York City and Los Angeles. The company closed its location on Miami Beach’s Lincoln Road and pulled out of a planned 115,000-square-foot lease at 149 Madison Avenue in Manhattan.

Yet, co-working’s woes could eventually be alleviated, according to JLL. The firm projects that in the future, companies will gravitate to co-working, or flexible office space, as fewer firms will want to commit to long-term leases. JLL projects that 30 percent of all office space will be consumed flexibly by 2030.

Still, challenges remain in the near term. “People are afraid to go into those types of environments,” said Colliers International Florida’s Keith Edelman, referring to some crowded co-working spaces. “We are going to start seeing those spaces downsizing.”

WeWork offers pay-as-you-go workspaces

Sandeep Mathrani (WeWork, iStock)

Sandeep Mathrani (WeWork, iStock)

With the office market in limbo, WeWork has launched a pay-as-you-go offering that allows users to drop in for as little as an hour (and $10).

A source familiar with WeWork’s new “On Demand” program said it’s being piloted for the next 60 days in New York City. As companies reopen for business, it reflects a growing demand for a “third place” to work — in other words, a flexible space that is neither home nor office.

In an email obtained by The Real Deal, WeWork said On Demand is available at 12 locations in Manhattan and Brooklyn. Users can book a workspace for $29 per day or a meeting room for $10 per hour. Membership is not required.

It’s not the first time WeWork has tried its hand at hourly workspaces — a model associated with Breather, a VC-backed on-demand workplace startup that ran into financial trouble last year.

WeWork previously offered a flexible option at WeWork Now, a retail location at 902 Broadway in the Flatiron district. The location closed in May as WeWork divested non-core businesses.

WeWork announced its new On Demand program to former members of WeWork Now on Monday. A source familiar with the offering said On Demand is focused outside of WeWork’s existing members.

In general, flex-office providers say they are poised to help companies bring employees back to the office by offering ancillary locations for some of their employees. Serendipity Labs, for example, which operates in suburban markets, offered an interchangeable subscription during the month of May.

Even as WeWork grapples with the loss of some tenants, including VC-backed startups that are struggling with fallout from coronavirus, the company is courting big corporations, CEO Sandeep Mathrani told the Wall Street Journal in an interview. In June, large companies accounted for 65 percent of new customers. “If you want to continue to grow faster, the additional demand comes from enterprise businesses,” Mathrani said.

The embattled co-working company slashed 8,000 jobs and is looking to terminate a chunk of its leases. After a series of painful cuts, the company is on track to be profitable by the end of 2021, executive chairman Marcelo Claure told the Financial Times in July. Covid sent demand for private spaces “through the roof,” he said.

Write to E.B. Solomont at [email protected]

Crossbow-wielding manager sexually harassed WeWork staffer, latest discrimination suit claims

(iStock)

(iStock)

A new federal lawsuit accuses WeWork of bungling its response to a complaint that a mid-level manager regularly wielded weapons at the office, bragged of ties to the mafia, and had a reputation for making unwanted advances on female staff as well as WeWork clients.

Rather than rectify the situation, the lawsuit claims that WeWork used the excuse of economic harm caused by Covid-19 to terminate the plaintiff, Alexandria Fitzgerald.

“WeWork cynically used the pretext of a pandemic to fire our client for speaking out about workplace sexual harassment and the mental anguish she suffered as a result of WeWork’s hostile work environment,” Fitzgerald’s attorneys said in a statement.

WeWork says it investigated Fitzgerald’s claims and found them without merit.

After WeWork hired Fitzgerald in March 2019, David Stiles, a project executive, became her manager. The lawsuit alleges that Stiles regularly brought weapons to work, including knives and a crossbow, and featured his weapons in the background of company Zoom calls following the onset of the pandemic.

Fitzgerald alleges that during a 2019 business trip together to Kansas City, the married Stiles texted her late at night to “cuddle” with him in his hotel room after requesting the hotel give them adjoining rooms, despite her protestations, and initiating unwanted physical contact.

She claims Stiles also advised her during the trip, without solicitation, to “have a bunch of one-night stands” before settling down herself.

Also in 2019, another female project manager at WeWork allegedly told Fitzgerald, “you missed it, [Stiles] sexually harassed me, he touched my breasts.” Stiles also joked on a 2020 Zoom call that Spasevski should be a stripper or pole dancer, the lawsuit alleges.

The Kansas City trip and its alleged aftermath resulted in Fitzgerald seeking psychotherapy for what the complaint describes as “debilitating mental anguish” as the result of “a hostile work environment.”

After describing the Kansas City trip to her supervisor, and saying she wasn’t yet ready to file a complaint with HR, Fitzgerald says she received an email from HR acknowledging her complaint and that this violated her privacy.

Fitzgerald’s lawsuit alleges that WeWork initially said she would not have to work with Stiles on future projects, but continued to be assigned to his team. She was ultimately able to avoid collaborating with the person she considered her harasser, but was told she should be more “appreciative” when she expressed not feeling supported by the company.

WeWork declined to answer specific questions about the case, including whether Stiles was still employed by the company, but insisted that it had taken remedial action despite also saying that “Ms. Fitzgerald’s legal claims have no merit.”

Fitzgerald’s attorney Parisis Filippatos said he would “not be surprised” to find during discovery that WeWork’s system for dealing with discrimination claims was deficient, given the company’s culture of “competition and strife.”

After bungling its IPO and replacing most of its executive team, WeWork has suffered a number of other setbacks, including closing its first-ever location and reneging on plans to expand in Manhattan.

It’s the third discrimination lawsuit this week filed against the co-working company. On Thursday, Christopher Clermont, from the former head of diversity of inclusion, alleged that the company underpaid minority employees and blocked them from advancing into leadership positions. Another former employee, Diane Allen, accused the company of sexual harassment, race and gender discrimination, equal pay violations and retaliation.

Contact Orion Jones at [email protected]

“Unlawful” and “hypocritical”: WeWork members threaten legal action over fees

(Credit: Alex Tai/SOPA Images/LightRocket via Getty Images, iStock)

(Credit: Alex Tai/SOPA Images/LightRocket via Getty Images, iStock)

A group of WeWork members is threatening the co-working giant with legal action if it continues to collect fees even though the coronavirus has prevented them from using the space.

In a letter to WeWork’s general counsel on Thursday, an attorney for the members said WeWork’s collection of fees was “unlawful” because state and local authorities have directed nonessential personnel to stay home. It is also “hypocritical,” said the attorney, Jim Walden, since WeWork itself has reportedly failed to pay its own rent at some locations.

The members are from New York, Los Angeles, and Washington, D.C., where stay-at-home orders are still being enforced.

“Our clients have no legal obligation to pay their membership fees while the purpose of their membership agreements remains frustrated by the Covid-19 pandemic,” Walden wrote in the letter, first reported by The Hill.

A spokesperson for WeWork declined to comment.

According to Walden, WeWork members have complied with public health mandates because it is law, and not doing so in some locations carries a steep fine. In some cities, police have shown up at WeWork locations to “clear the premises of anyone disobeying the applicable stay-at-home orders.

Two members represented by Walden’s letter said WeWork’s decision to keep offices open has burdened them with health and economic concerns.

“The idea of bringing this virus home is not what I wanted to do,” said Ray Miller, owner of an L.A.-based management production company. Miller pays $2,000 a month for three two-person offices that his team is not using.

“It is a financial burden,” said Lisa Kaneff, a freelance copywriter in Washington. She pays $450 a month for a desk that’s situated within three feet of others. “As a freelancer, I’m my only source of income. WeWork is my overhead. I need every penny I can get.”

Although Miller said his team’s space is less dense than Kaneff’s, he is concerned about communal spaces like the kitchen, waiting areas, conference rooms and even elevators. “The whole concept of co-working is that you’re sharing certain spaces,” he said. “I don’t think the space should be open, quite frankly.”

WeWork has kept its U.S. locations open on the grounds that some members operate “essential businesses.” The company has also said its mail service spares it from executive orders such as New York Gov. Andrew Cuomo’s ban on going to work.

The co-working sector has faced unique pressure to balance low revenue with the need of members. As The Real Deal previously reported, Bond Collective has refused to refund membership, although it is pausing membership and discounting fees for members who need relief.

In the letter, Walden accused WeWork of garnishing fees from some members’ bank accounts without permission. It also called the policy “hypocritical,” citing reports that WeWork didn’t pay its full rent in April.

In recent weeks, angry WeWork members have organized petitions and created YouTube videos to compel the company to change its policy.

WeWork asks landlords to cut rent bill as SoftBank abandons bailout

WeWork CEO Sandeep Mathrani and Softbank CEO Masayoshi Son (Credit: Mathrani by Neilson Barnard/Getty Images; Son by Alessandro Di Ciommo/NurPhoto via Getty Images)

WeWork CEO Sandeep Mathrani and Softbank CEO Masayoshi Son (Credit: Mathrani by Neilson Barnard/Getty Images; Son by Alessandro Di Ciommo/NurPhoto via Getty Images)

SoftBank is abandoning plans to buy $3 billion of WeWork shares from investors, a major blow to the company as it struggles to stabilize during the pandemic.

The announcement was made to a board committee Wednesday evening, according to The New York Times. WeWork’s former CEO, Adam Neumann, is among the shareholders who will now miss out the chance to sell hundreds of millions of dollars worth of stock to SoftBank.

The rescue deal’s collapse comes as WeWork makes efforts to reduce its rent liabilities by as much as 30 percent. According to Bloomberg, WeWork CEO Sandeep Mathrani has been contacting landlords and proposing options including revenue-sharing agreements, with the goal of slashing rent by up to 30 percent.

The publication reported that some landlords pitched by Mathrani were reluctant.

SoftBank said it was walking back on the deal — reached last October — because of “multiple, new and significant pending criminal and civil investigations,” which changed conditions ahead of the deal’s April 1 closing date. The Wall Street Journal reported that SoftBank also cited business interruption from the coronavirus as a reason for reneging.

In response, WeWork’s board said it would evaluate its legal options, “including litigation.”

As of last year, WeWork had $47 billion in lease commitments over the next 15 years. An S-1 filing submitted as part of a botched IPO attempt showed the company had $4 billion in committed revenue from its customers and $2.5 billion in cash, half of which was unrestricted.

[NYT] — Sylvia Varnham O’Regan

WeWork gears up for potential legal fight with SoftBank

Softbank CEO Masayoshi Son (Credit: Getty Images, iStock)

Softbank CEO Masayoshi Son (Credit: Getty Images, iStock)

SoftBank recently advised WeWork shareholders that it might renege on part of its rescue package, and a pair of independent directors for the co-working firm are considering all options in response, including legal action, according to Bloomberg and the Wall Street Journal.

SoftBank had struck a deal to buy $3 billion worth of stock in WeWork, effectively rescuing the company after a disastrous initial public offering attempt. However, the conglomerate sent a message to stockholders saying it could withdraw from the agreement in the wake of several government inquiries into WeWork from agencies including the Manhattan district attorney and the Securities and Exchange Commission.

SoftBank has said it is still honoring its obligations laid out in the agreement and has given WeWork more than $5 billion since October, but not every condition for its offer has been met. It can walk away from the deal if government inquiries or investigations result in material liability for WeWork.

“The main beneficiaries of the tender are Adam Neumann, large institutional investors, and some prior officers of the company,” a SoftBank spokesperson told Bloomberg. “Current WeWork employees have already benefited greatly from the repricing of their options in an earlier phase of the tender offer and would receive less than 10% of the proceeds.”

SoftBank is changing its stance on the deal amid plunging markets as the coronavirus spreads. The Japanese conglomerate also said it intends to sell as much as $41 billion of assets to buy back its shares and redeem debt in an effort to halt its falling stock and bond prices, according to the Journal.

Several WeWork locations are still open, but the company could be on the hook for billions in long-term lease liabilities if widespread “work from home” mandates cause tenants to choose not to renew their short-term leases.

Venture capitalist Bruce Dunlevie and former Coach CEO Lew Frankfort make up WeWork’s special committee, and discussed ways they think they could force SoftBank to follow through with its investment during a phone call Thursday night, according to the Journal. The offer was supposed to be completed by April 1.

A WeWork board spokeswoman told the Journal that they were “committed to taking all necessary actions to ensure that the tender offer, which SoftBank has promised to our employees and shareholders is completed.” [Bloomberg, WSJ] — Eddie Small

WeWork sues NY firm over botched development deal

Former WeWork CEO Adam Neumann and Maximus' Robert Rosania (Credit: Kevin Hagen/Getty Images; Ambrosetti)

Former WeWork CEO Adam Neumann and Maximus’ Robert Rosania (Credit: Kevin Hagen/Getty Images; Ambrosetti)

WeWork is suing a New York firm to recoup a $20 million fee it paid for a San Francisco development.

WeWork blamed Maximus, a firm led by Stellar Management alum Robert Rosania, for not not closing on WeWork’s proposed investment in the project and not returning an “exclusivity fee,” Crain’s reported.

The embattled co-working firm had envisioned putting a WeWork and WeLive on the 150-acre, 3,000-unit campus. Maximus was planning to increase the unit count to 7,000 — and Adam Neumann had agreed to pitch in $500 million.

But after WeWork’s spectacular fall from grace last year, which ended in a botched IPO, the exit of its CEO Adam Neumann and a proposed bailout package from parent SoftBank, the deal with Maximus fizzled. Now, WeWork is rapidly shedding assets, and selling some at a steep discount.

On Tuesday, news reports emerged that SoftBank may not follow through on its bailout of WeWork. [Crain’s] — Georgia Kromrei

WeWork in talks to sell off Managed by Q to free up some cash

WeWork's Artie Minson and Managed by Q's Dan Teran 

WeWork’s Artie Minson and Managed by Q’s Dan Teran

WeWork is in talks to the sell the biggest acquisition it made in its free-spending days.

The co-working company is in discussions to sell the workplace management company Managed by Q to a group including one of the company’s co-founders, Bloomberg reported. It’s one of three companies WeWork put on the chopping block as it looks to cut costs.

Co-founder and former chairman Dan Teran is working with a group of investors and executives to buy the company just about eight months after WeWork acquired it.

The deal could free up cash for WeWork as it tries to focus on the core of its business. To stave off a bankruptcy, WeWork’s biggest investor SoftBank recently provided a $9.5 billion rescue package. This week, Goldman Sachs arranged a $1.75 billion line of credit to WeWork and SoftBank.

During a panel in Abu Dhabi on Wednesday, Teran said he is “actively working to buy back my company.”

Managed by Q was valued at $249 million in January following a new funding round, according to a report citing PitchBook data. It wasn’t clear how much the company is being valued at now in the negotiations between WeWork and Teran. [Bloomberg] – Rich Bockmann

Goldman Sachs will lead Phase II of SoftBank’s WeWork rescue plan

Softbank CEO Masayoshi Son and Goldman Sachs CEO David Solomon (Credit: Getty Images)

Softbank CEO Masayoshi Son and Goldman Sachs CEO David Solomon (Credit: Getty Images)

WeWork’s got a new bank and a new line of credit.

Goldman Sachs arranged a $1.75 billion line of credit for SoftBank Group with WeWork listed as a co-borrower, according to Bloomberg. The credit line is part of a larger bailout package SoftBank has committed to securing.

WeWork was listed as a co-borrower in a bid to attract other lenders willing to front lines of credit to the beleaguered co-working company, which is desperate for cash after its failed initial public offering, Bloomberg reported.

The new credit line replaces the company’s previous $1.1 billion facility and will reportedly free up additional cash previously being used as collateral. To complete SoftBank’s plan for $5 billion in debt financing for WeWork, a further $3.3 billion is needed. According to Bloomberg, Goldman is canvassing other banks in a bid to secure the rest of the plan by the end of the year.

Following WeWork’s botched IPO in September, co-founder Adam Neumann was ousted from his role as CEO and SoftBank assumed a controlling stake in the company.

To prevent the co-working firm’s bankruptcy, SoftBank ironed out a $9.5 billion rescue package with a $5 billion debt facility, a $1.5 billion commitment and a $3 billion stock tender offer.

SoftBank had delayed paying out the $3 billion offer, prompting WeWork’s junk bond price to sink and its risk premium to skyrocket.

Prior to Goldman Sachs leading its search for financing, WeWork largely relied on advice from JPMorgan Chase, which has had to defend its role in the failed IPO and the suspect corporate governance. JPMorgan’s CEO Jamie Dimon last month said he and the bank have “learned lessons” following the WeWork implosion. [Bloomberg] — Erin Hudson

As co-working firms leave London, a new arriver plans to make a splash

Newable Flexible Workspace's Brett Million and Serendipity Labs CEO John Arenas

Newable Flexible Workspace’s Brett Million and Serendipity Labs CEO John Arenas

A flexible office space firm is entering the London co-working market, at a time when others are shuttering operations there.

Serendipity Labs, a company that provides on-demand office space in primary and secondary markets, said Friday that it has entered an agreement to license 25 locations in the U.K., including 12 in London.

The New York-based firm, which uses franchise and management partnership agreements with its landlords, will partner with U.K.-based firm Newable Flexible Workspace, a subsidiary of consulting firm Newable Limited.

“Through licensing arrangements, it’s a way for us to grow in an asset-light brand approach to this industry,” said John Arenas, a former executive at Regus, who launched Serendipity Labs in 2011.

London is considered among the most crowded co-working markets in the world, with close to a dozen major companies operating in the city, and a multitude of smaller firms. Nearly 5 percent of the city’s office stock is co-working, according to a Cushman & Wakefield report from April. The competitive landscape has prompted some firms to reevaluate their strategy there.

WeWork, the world’s largest coworking firm, is currently assessing whether to proceed on 28 new leases in the city, Bloomberg reported, as it plans massive job cuts in the city. Recently, San Francisco-based RocketSpace, told employees it would close its 1,500 seat London location by the end of the year.

“I dont think its a harbinger of things to come,” Arenas said of RocketSpace’s closure. “It really was an accelerator helping businesses.”

Serendipity Labs expansion to the U.K. overshadows the challenges facing other office space firms in the U.S. Aside from WeWork, which in recent months has taken drastic steps to salvage its business, smaller firms have also encountered disruptions.

Last month, New York-based Corporate Suites was briefly evicted from a Manhattan office building due to a payment dispute. And on Thursday, The Real Deal reported that Montreal-based firm Breather had laid off 17 percent of its staff.

In the meantime, Arenas said his firm is discussing similar licensing agreements with operators in Australia and Canada. He previously has said he plans to open as many as 300 locations.

Last year, Serendipity Labs entered an agreement with China’s largest co-working firm, UCommune, to serve as its U.S. partner, and open a location at 28 Liberty Street in Manhattan. In the U.S., Serendipity Labs currently has 37 locations in 29 cities.