JPMorgan Chase is so interconnected with WeWork that to a number of minds WeWork looks like little more than a strawman for the bank and the bank’s biggest commercial real estate clients in New York City.
By Pam Martens and Russ Martens of Wall Street on Parade
WeWork’s business model isn’t workable. Everybody understands that except the Wall Street bank that has the most to lose if WeWork’s initial public offering (IPO) of its stock doesn’t move forward. That bank is JPMorgan Chase, one of the two main underwriters of the IPO, along with Goldman Sachs.
WeWork’s business model is to take long-term leases in commercial office buildings and then sub-lease that space under short leases to small businesses, start-ups and freelancers – none of which are particularly known for their ability to pay rent in a downturn. WeWork is currently on the hook for more than $47 billion in long term leases while it has yet to figure out how to make a dime of profits.
JPMorgan Chase is so interconnected with WeWork that to a number of minds WeWork looks like little more than a strawman for the bank and the bank’s biggest commercial real estate clients in New York City where WeWork is taking vacant space off the market at seismic speed. WeWork is now the largest office tenant in New York City.
The interconnections between WeWork and JPMorgan Chase include the following: JPMorgan Chase Bank, N.A., a federally insured bank, “has made loans and extended credit to Adam Neumann totaling $97.5 million across a variety of lending products, including mortgages secured by personal property and unsecured credit lines and letters of credit,” according to the prospectus filed with the SEC for the recently aborted IPO.
Neumann is Chairman, CEO and co-founder of WeWork. Together with his wife, Rebekah, Neumann put a good chunk of those loans from JPMorgan Chase to work diversifying his asset base away from his speculative IPO and into five personal residences for his family in upscale communities. The tally for the homes comes to more than $80 million.
JPMorgan Chase is also one of three banks that has given Neumann a $500 million line of credit, which he had drawn down to the tune of $380 million as of July 31, 2019. That whopping line of credit is secured by shares of stock in The We Company, the parent of WeWork. Unfortunately for JPMorgan Chase, the valuation for The We Company has been melting faster than a snow cone in July. The initial buzz around the WeWork IPO was that the company could have a valuation of over $60 billion. Then there was talk of a $47 billion valuation, which is where its largest investor, a Japanese investment fund operated by SoftBank, last bought private shares. The valuation continued to come down to around $15 billion, and still failed to find enough interest to launch an IPO.
This raises the question as to what, exactly, is backing the $380 million that Neumann has drawn down from the banks…