WeWork Didn’tWork

Here is the classic way to run a property company: you contract to borrow a lot of money which you will use to buy a property. You line up a good quality tenant on a long lease, at a rent which covers the interest on the debt. If you can put these pieces of jigsaw together, you have a property company.

A frightfully handsome young man called Adam Neumann thought this had everything the wrong way round. His idea was to buy the properties, make them as achingly fashionable as he could, and offer very short leases with free snacks to exciting young tech businesses. He was so charismatic, and the idea was so attractive, that his company, WeWork, nearly managed to go public in 2019 at a stonking $47bn. Of course it was haemorrhaging cash, like every other internet-related start-up.

In an uncharacteristic burst of common sense, the investors of Wall Street decided that this was too rich even for them, and the issue was pulled. WeWork finally listed (still loss-making) for $9bn in October 2021. Despite the pandemic which was driving people from their offices, the shares popped on the first day, and Mr Neumann became a paper billionaire.

It’s been downhill ever since. Neumann is long gone, along with his winnings, and last week the company filed for bankruptcy. It’s tempting to say “serves you right” to the mugs who bought the shares, but mostly they were using client money rather than their own, so who cares? It’s tempting to add that had WeWork attempted to list in London, the raspberry from the financial press would have been heard in New York.

This week, Land Securities, the UK’s biggest listed property company, showed its scars from the pandemic and rising interest rates. It reckons its portfolio is worth 3.9 per cent less than it was six months ago, with the value per share down by 4.6 per cent, to 893p. These companies mark their own homework by employing the valuers, which is one reason why the shares cost only 643p. That 28 per cent discount does not say much for the market’s view of the quality of the management, since it implies that Landsecs is worth more dead than alive.

Nearly all listed property companies have been caned following the seismic impact of lockdown, and such is the pervasive air of gloom that it may be time for brave souls to look at buying the better ones (Landsecs is large, but only middling quality). Look at those which have held their dividends and are yielding more than Bank Rate.

Incidentally, it is possible to build a thriving property empire on the Neumann theory. Camden Market has many stalls on near-zero leases, and the buzz that uncertainty produces has made it London’s fourth most visited tourist attraction, as well as making its various owners very rich. So it CanWork.

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