WeWork franchises Israeli ops to property firm AMPA
WeWork will remain in Israel, but the WeWork that once owned it will no longer be operating the much-diminished brand in Israel. Under an agreement signed on Monday, the Israeli property company AMPA Group acquired exclusive rights to the WeWork name, its shared-workspace operations in Israel and its liabilities.
In exchange, AMPA will pay WeWork a percentage of its annual revenues from WeWork locations. The We-AMPA agreement is expected to be completed at the end of the current quarter. WeWork Israel CEO Benji Singer is expected to stay on until then and for a transition period following it.
The workplace environment is expected to undergo major – though as yet not entirely understood – changes in the post-coronavirus era, with more people working from home full or part-time. Nevertheless, Shlomi Fogel, AMPA’s chairman, said he was optimistic that the shared-office model not only has a future but would benefit from the new work environment.
“We have full confidence in the WeWork product as the global leading solution for flexible spaces,” he said in a statement. “We believe that the AMPA team together with the WeWork local team will strengthen and expand the business in the Israeli market, especially considering the challenges post COVID-19.”
Sandeep Mathrani, WeWork’s CEO, agreed, saying: “As the world begins to emerge from the pandemic and the demand for flexible, turn-key space solutions at scale continues to grow, WeWork’s product is more relevant than ever before”
AMPA, which owns about 400,000 square meters of income-producing real estate in Israel, became a partner of the global office-sharing company seven years ago, when the company established a foothold in Israel.
The partners are estimated to have invested together 450 million shekels ($138 million) over the years in renovating and furnishing WeWork facilities in Israel.
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Eleven of WeWork Israel locations are in buildings owned or rented by AMPA, or a total of 75,000 square meters. Under the agreement, AMPA is committed to honoring rental agreements for the two other spaces – six floors in the Sapir Tower in Ramat Gan and 10 floors in Tel Aviv’s Azrieli Town Tower.
The arrangement between WeWork and AMPA was unusual; elsewhere in the world, WeWork rented its own facilities without a partner serving as a landlord or prime renter. In doing so, AMPA assumed part of the risk of the WeWork model of committing to long-term rental contracts to be financed by revenue streams generated by short-term tenants.
In fact, WeWork was revealed during its abortive 2019 initial public offering to be losing money heavily as it expanded globally and was managed poorly by its Israeli co-founder Adam Neumann. Neumann was forced out of the business, which has since retrenched. WeWork Israel currently employs fewer than 100 people.
The agreement with AMPA is part of that global retrenchment process being engineered by Mathrani, a longtime real-estate executive. WeWork is moving towards licensing agreements with local partners, who can provide capital and expertise in local markets.
WeWork said last month it was on its way to going public, this time by merging with BowX Acquisition, a special-purpose acquisition company, or SPAC, instead of through an IPO.
A SPAC is a company formed and listed for trading with the purpose of merging with an existing business, a backdoor way of going public that has become very popular in the United States in the past year. Many Israeli tech companies have opted for a SPAC merger over an IPO.
The deal with BowX gives WeWork an equity value of $7.9 billion, far less than the nearly $50 billion it planned on in the 2019 IPO. WeWork will receive $1.3 billion in cash in the deal, including $800 million from Insight Partners, Starwood Capital Group, BlackRock and other investors.