Why Sandeep Mathrani Could Not Revive WeWork
Sandeep Mathrani in 2021 when he assumed CEO role at WeWork
June 16, 2023
Last month Sandeep Mathrani resigned as the Chief Executive of WeWork. The New York based company offers flexible office space around the world, including in Bangalore, Delhi, and Mumbai in India. At year end December 2022, it had more than 700 locations in 39 countries, with 682,000 members.
In 2021, Softbank appointed Mathrani as CEO of WeWork, tasking him with improving the company’s operational and financial performance. Softbank then reportedly owned 80% of WeWork and earlier valued the investment at $47 billion. Softbank is run by Masayoshi Son, a Japanese with a net worth of $26 billion, according to Forbes.
Mathrani listed WeWork on the New York Stock Exchange in 2021 at an enterprise value of $9 billion. The public listing came about by the merger of WeWork with BowX. Based in Menlo Park, California, BowX was a special purpose acquisition vehicle, or shell company, set up Vivek Ranadive, a software entrepreneur and investor.
The financial strategy of WeWork is to charge clients, taking up its short-term office space higher rents than what it pays on its long-term leases to a building’s owner. This markup on rents, as well as markups on furniture rentals, utility bills, cleaning, and other services, is the profit a business like WeWork would earn - assuming the overall occupancy was high.
WeWork’s stock price, which reached a high of around $13 following its public listing, implies bankruptcy. It trades around 20 cents ($0.20), giving WeWork a market value of $179 million. Its debts total more than $19 billion, including about $16 billion in long term leases on office buildings.
“Every single company in this space has gone broke,” the late Sam Zell told CNBC in 2019. WeWork’s sub-leasing of office space, which they lease long-term from building owners, has been tried since 1956, he added.
During an economic downturn, many tenants do not renew their short-term rentals while the sub-leasing company, which has a long-term lease, must continue to pay rent for the entirety of its lease to a building’s owners.
In January 2021, the U.S. operations of Knotel, a WeWork competitor, filed for bankruptcy. Knotel was founded by Amol Sarva.
In 2007, at the peak of an earlier real-estate cycle, Zell sold Equity Office Properties, a company he founded and which owned office buildings, for $39 billion. He passed away this year; in 2021 his net worth was estimated to be $4.8 billion, according to Forbes.
In 2021, Vivek Ranadive and other investors in WeWork apparently disagreed with Zell’s assessment. “With COVID accelerating the adoption of flexible workspace around the globe, WeWork is uniquely positioned to meet rising demand,” noted Deven Parekh, Managing Director at Insight Partners, an investor.
At its peak price in 2021, WeWork stock owned by Vivek Ranadivé, who continues as a director, was worth around $95 million – his holding is now worth about $1.5 million, a decline of roughly 98%.
Since 2016, Ranadive, 65-years-old, has been the CEO of Bow Capital Management, an investment company he founded. Earlier in 1986, Ranadivé founded Teknekron Software Systems which developed software for financial trading floors. In 1994, he sold Teknekron to Reuters. He then founded TIBCO, a data software company, which went public in 1999. In 2014, TIBCO was sold to Vista Equity Partners for $4.3 billion.
Since 2013, Ranadive is Chairman and CEO of the Sacramento Kings, a National Basketball Association team based in Sacramento, California. He first became involved in NBA basketball as Vice Chairman of the Golden State Warriors, now based in San Francisco.
Born in Mumbai, he earned a B.S. and M.A. degree in Electrical Engineering from the Massachusetts Institute of Technology and an MBA from Harvard Business School.
Last month, following his resignation from WeWork, Mathrani joined Sycamore Partners. As a director, he leads the New York based private equity firm’s real estate activity. Since its founding in 2011, the firm has raised a total of $10 billion for its investments.
Previously, Mathrani was CEO of Brookfield Properties’ retail group. In 2018, Brookfield paid $9.3 billion to purchase GGP, a New York Stock Exchange listed U.S. mall owner, which Mathrani ran for eight years.
Prior to GGP, Mathrani was at Vornado Realty Trust, where he oversaw the firm’s U.S. retail real estate division and operations in India comprised principally of office properties. Before that, he spent nearly a decade at Forest City Ratner, where he started and grew retail properties in New York City.
Mathrani holds a Master of Engineering, Master of Management Science and Bachelor of Engineering from Stevens Institute of Technology, New Jersey.
The saga of the investors and managers at WeWork is a reminder of one of the pithy insights from Warren Buffett, CEO of U.S. company Berkshire Hathaway. Buffett, 92-years-old, who plans to donate his entire wealth to philanthropy, has a net worth of $118 billion, after giving away $51 billion. He has often said, “When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”
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