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Inside Adam Neumann’s New Real Estate Venture Flow

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Adam Neumann, Society Las Olas at 301 Southwest First Avenue in Fort Lauderdale, Stacks on Main at 535 Main Street in Nashville (Getty Images, Stacks on Main, Society Las Olas)

Adam Neumann’s comeback story is a bit like his upcoming story.

He is backed by name brand venture capitalists. He has grand plans to transform real estate. He is preaching the community gospel again.

Neumann’s new company, Flow, has an undeniably distinctive flavor. we work For residential real estate, we want to transform the traditional multifamily into a shared purpose experience. More simply, Flow will offer furnished apartments and flexible leases, multiple people familiar with the venture said. It’s partly a bet on a nomadic life, with residents splitting their time between two cities, each needing a place, but seeking togetherness in both.

As usual, developers and potential partners are skeptical when it comes to Neumann.

“He always knows how to sugar coat it and give it a nice flavor. ‘Technology, this, that,'” said developer Moishe Mana. The downtown Miami project is also marketed from a community-building perspective. …and a lot of money wasted. ”

Flow will be available next year, $350 million Investment from Andreessen Horowitz, also known as a16z. This is his single biggest bet in the history of his capital firm backing Facebook and his Airbnb and reportedly valuing Flow at more than $1 billion. As far as a16z co-founder Marc Andreessen is concerned, Neumann’s return to his roots in building society through his investment in brick and mortar is a worthwhile bet.

“Adam returns to the theme of connecting people by transforming physical spaces and building the communities where people spend most of their time: their homes,” Andreessen wrote in an Aug. 15 post. I’m here. blog post.

The blog provided few details about the venture, which Andreessen described as an effort to build “the future of living.” On Flow’s website, Flow.Life, he simply displays the company name in cursive and the words “Live Life In Flow” in neon text. (WeWork watchers will remember the company’s S-1, “Dedicate this to our energy.”)

Neumann’s attempt to revive real estate should come as no surprise.Entities associated with him have amassed over 4,000 units of equity worth more than $1 billion The Wall Street Journal reported in January that he has been seen across the United States, mostly in the Sun Belt, including Nashville, Miami and Fort Lauderdale. . According to the New York Times, Flow will operate the properties he purchased by Neumann, as well as new developments and services to third parties.

A representative for Neumann did not respond to a request for comment.

Milking the spread

Neumann’s bet on hybrid hotel-apartment units with flexible leases is nothing new, but experts say it’s still lucrative.

Furnished apartments with shorter lease terms are more expensive to rent, allowing Neumann’s company to increase overall revenue. Flow buildings will also be able to take advantage of cheaper financing, with banks able to finance properties at the same leverage points offered for apartment projects, or up to 80%, according to sources familiar with the venture. It’s from These are more favorable terms than the approximately 55% typically offered to hotel developments, creating an inherently low-cost, high-return business.

This model attracts attention. Based in Washington, DC, Placemakr, formerly known as his WhyHotel, has similar operations in cities such as Nashville, San Jose, and New York. The company recently secured a $90 million equity investment and within two years he plans to acquire $1 billion in assets.

Placemakr CEO Jason Fudin said: “Our view is that more is more fun. Asset class institutionalization is not done by a single group.”

The concept makes sense in a city like yachting mecca Fort Lauderdale. The 34-storey, 639-unit building is owned by Neumann affiliates Society Las Olas Located at 301 Southwest First Avenue.

“We can do part of the building on a nine-month lease and part of the building on a six-month lease,” says Native Realty commercial broker Jaime Sturgis. “You have to pay a premium,” Sturgis added, because short-term leases typically have higher monthly lease payments than annual leases.

Neumann’s apartment shopping spree involved 444 units Caoba tower miami world center A 268-unit stack in Maine, Nashville. It may go into development.

In February, borrowers related to Neumann $108 million Construction loan for the site of the Miami World Center mega development. The property was originally approved as a 40-story, 429-unit tower.

Then, of course, there is Neumann’s vision of the community. He defined his WeWork as not just an office his provider, but a capitalist kibbutz where people can enrich themselves personally and professionally.

Andressen’s blog on Flow mentions “community” four times, but doesn’t elaborate on it. The millennial turned to her WeWork community for happy hours and draft beer.

“People choose an apartment to rent today the same way they did 50 years ago: price, location and quality of apartment,” said Dan Mishin, CEO of June Homes, a marketplace for furnished apartments. increase. “I don’t think drinking kombucha on Thursdays will make much of a difference.”

parallel universe

Flow also gives off WeWork hints in other ways. Ronald Hans of startup accelerator MetroCap Partners said both amounted to real estate firms masquerading as venture-backed disruptors.

Problem with this? Valuations and expected returns from venture-backed startups are much higher than for real estate.

“I think even a large delta alone can seriously harm an investor,” said Hans.

This may sound familiar to WeWork investors. The real estate company was given a very high tech valuation of $47 billion. Things came to a head when WeWork attempted to go public, revealing sizable losses and the famously hoaxed financial metric “community-adjusted EBITDA,” as well as a clear conflict of interest. Neumann denied self-dealing and instead referred to “related-party transactions.”

It’s not just Flow’s business model that’s under scrutiny. Neumann.

“We understand how difficult it is to build something like this, and we love to see repeat founders build on past success by growing from lessons learned.” writes Andreessen on his blog.

Developer, investor, businessman and philanthropist Moishe Mana (Marsha Halper Photography)

Developer, investor, businessman and philanthropist Moishe Mana (Marsha Halper Photography)

manapresented Neumann with a vision for downtown redevelopment in 2014, but said the partnership didn’t work out, but agreed the apartment business needed reform. I am not sure if I am suitable for the job.

“I don’t trust Adam, I don’t trust his intentions, I don’t trust his judgment,” Mana said. “So far he’s proven he can blow up his $25 billion and still people are giving him money. I don’t get it, thinking it’s going to be different this time. .”

Still, perhaps more than any other industry, the real estate industry loves revival stories.

“I hope he does the right thing with these investors,” Mana said. “Time will tell. I wish him the best of luck.”

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