Real Estate News

Published on Tuesday, August 16, 2022

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It’s hard to tell what the company is supposed to do, but it’s getting big-time backing.

Adam Neumann, the initial driving force of WeWork and then the spiraling disaster that charred the company’s edges, has a new business: Flow. Don’t hope for much official explanation. All the site offers is “Live life in Flow,” “coming in 2023,” and a button labeled, “Join Us.”

DealBook at The New York Times, which doesn’t have a lot of solid information either, says that it’s about transforming the rental residential real estate market. That much was likely from the Andreessen Horowitz blog post, which mentioned backing Neumann but not to the tune of $350 million, which DealBook added. 

The Times also mentioned the thousands of apartments that Neumann has. That became public knowledge back in January due to a Wall Street Journal article. The number discussed back then was 4,000 units. The plan was to buy Class A properties and eventually tie them together under a single brand and lots of amenities.

This is likely far more serious than a one-time entrepreneur who blew up in a bad way wanting back into the game. In case the Andreessen Horowitz name doesn’t immediately click, it’s a huge and, as they say, storied venture capital firm in Silicon Valley. Big money, big reputation. And Neumann’s family office reportedly had $700 million back in the winter.

So, what’s he up to, this would-be recreator of real estate brands? The Andreessen Horowitz post offers some hints. First, partner Marc Andreessen mentions that owning a house is more expensive than ever, hard to find, and if you do buy, “you can’t move, even if your economic opportunity or life path wants to take you somewhere else.” (Well, that part might not be so insightful, as price it right and someone with cash might likely snap it up almost immediately.)

Next, he noted that living in an apartment is “a soulless experience,” where you don’t meet your neighbors let alone make friends, it probably doesn’t feel like home, and years of paying rent gets you nothing but another rent payment to make. The latter part, sure. The former, again sounds like a marketing image that someone has created without necessarily checking into how people who live in apartments actually feel.

Then there’s the work-from-home change the pandemic brought, with its “newfound flexibility.”

“The residential real estate world needs to address these changing dynamics,” Andreessen writes. “And yet virtually no aspect of the modern housing market is ready for these changes. And so, we are excited to partner with Adam Neumann and his colleagues on Flow, which is a direct strike on precisely this problem.”

At this point, Armstead Jones, a strategic real estate advisor at Real Estate Bees tells, “From research, it seems that the business model is like a co-op's.” He notes that a co-op is typically a multi-family piece of real estate. A business holds title to the property, residents buy shares in the business, so they own a piece but not the deed.

Jones also thinks that this could be a Pandora’s box of trouble. “This is not a new concept that will not change homeownership outcomes,” he writes. “Most states don't regulate co-op's boards and there has been far reaching mismanagement of these boards in the past.” He adds, “The issue becomes thousands of buyers (shareholders) that could sue the complexes and Flow having to sell to traditional multi-family with people losing the equity in the buildings.”

But given all the factors Andreessen mentioned, a normal co-op structure seems off because that would still keep someone locked into a location, and the VC firm is big on what seems innovative approaches.

Instead, what seems more likely is some corporation that owns lots of places across different geographies. Consumers would pay a fee that was part rent with another part going to an equity share so they are owners and renters. The business structure would allow them to move from one locale to another with the rent portion changing, depending on the specific building and city. One of the amenities at each building would be a flex workspace, or perhaps multiple apartment buildings in a city would share one location.

Would it substitute for the sense of home ownership? Maybe, for those who see the potential receding into the horizon. The psychology of perceived deprivation is powerful. Are there people who would want the flexibility to move? Yes.

Blueground has something similar to part of a concept like this with flexible apartment rentals that allow someone taking a long-enough contract to move from one city to another within the same class of accommodations.

But ownership in some form, even partial shares in the landlord company, would be an interesting change.