The Second Coming of Adam Neumann

After cashing out from a failed attempt to transform the commercial property market, Adam Neumann’s second act will apparently be failing to shake up residential real estate.

Andreessen Horowitz is reportedly investing $350mn in Neumann’s start-up Flow, after being “thrilled by the scope and aspiration” of the shoe-resistant WeWork founder’s pivot from company landlord to person landlord. Here is a blog post from Marc Andreessen announcing the deal:

Make no mistake, this kind of mission is a heavy lift. Only through a seismic shift in the way industry relationships are structured and the mechanisms through which value is delivered can we hope to address the underlying problems of the current system and build the solution. Doing this requires combining community-driven, experience-centric service with the latest technology in a way that has never been done before to create a system where renters receive the benefits of owners. This means rethinking the entire value chain, from the way buildings are purchased and owned to the way residents interact with their buildings to the way value is distributed among stakeholders. And given the fragmented nature of the ecosystem today, we can only hope to accomplish any of this by bringing every aspect of the living experience together.

Andreessen’s post is short on details about how, exactly, Flow is “rethinking the entire value chain”, or which “benefits of owners” renters will be able to receive.

He writes longer on the US housing crisis, where Americans are apparently both 1) forced to live in expensive cities for work, and 2) moving away from expensive cities after the Covid-19 pandemic. In this view, ownership is unattainable and renting is soulless, friendless, disconnected and embarrassing. But what Flow will actually do is murkier than a VC’s marks.

Flow’s own website is even less helpful. But over at the NYT, Andrew Ross Sorkin adds at least some flesh on the bone.

Neumann has purchased more than 3,000 apartment units in Miami, Fort Lauderdale, Atlanta and Nashville. His aim is to rethink the housing rental market by creating a branded product with consistent service and community features. Flow will operate the properties Neumann has bought and also offer its services to new developments and other third parties.

Now, some FTAV readers might at this point be shouting “you’re just reinventing multifamily Reits without the tax benefit”, or maybe “Neumann is flipping second-tier flats he bought with money wrung out of SoftBank to Andreessen Horowitz at a mark-up”.

Perhaps you’re simply dumbstruck that Neumann is able to extract a fat $350mn cheque from a big technology investor for another real estate play after the whole WeWork asset-liability mismatch experiment.

Unfair! says Marc Andreessen:

Adam is a visionary leader who revolutionised the second largest asset class in the world — commercial real estate — by bringing community and brand to an industry in which neither existed before. Adam, and the story of WeWork, have been exhaustively chronicled, analysed, and fictionalised — sometimes accurately. For all the energy put into covering the story, it’s often under appreciated that only one person has fundamentally redesigned the office experience and led a paradigm-changing global company in the process: Adam Neumann.

This is reportedly the largest cheque Andreessen Horowitz has ever cut. One of its earlier big investments was its $100mn investment into GitHub in 2012, which was then bought by Microsoft for $7.5bn.

We can’t help but wonder about the goal here.

This could be a GitHub type of deal, where the venture capital firm makes a big investment with plans to offload it to an institutional competitor. There are plenty of experienced players in this market, including Blackstone’s rent-to-buy business, or Invitation Homes, which is publicly traded.

But the description from Dealbook—“a branded product with consistent service and community features” — makes Neumann’s venture sound less like renting homes and providing the option of buying them, and more like building apartments with game nights and amenities. Those already exist in plenty of cities around the US. It’s basically student accommodation for adults.

So we aren’t sure what to make of Dealbook highlighting the following sentence in Andreessen’s description of the problem facing the US housing market today: “You can pay rent for decades and still own zero equity — nothing.”

Andreessen continues:

There’s a reason the federal government started subsidising home mortgages: someone who is bought in to where he lives cares more about where he lives. Without this, apartments don’t generate any bond between person and place and without community, no bond between person to person.

It sounds like he is arguing ownership is necessary for a person to have a stake in a community, and as our colleagues at the FT have covered, rent-to-buy ventures aren’t really a great route to ownership.

So it remains unclear whether this venture will look to provide actual ownership, or simply a “sense” of ownership. The most interesting options fall in the grey area in between those two categories: Say, for example, apartment buildings where a share of residents’ monthly payments are set aside to be invested in the equity of the company itself.

Perhaps it will turn into something vaguely sensible and undramatic, such as a series of cookie-cutter apartments with a right to buy, tequila on tap and a thin patina of glamour. But for FTAV’s sake we’re hoping for something more grandiose, inventive and ill-fated. A WeWork 2.0.

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