REEVES WIEDEMAN: For investors, this was just an era where the types of companies that were pulling in money were ones that were promising to take over an industry. This was not a moment when people were looking for nicely-profitable businesses. They were looking for the next Google, Airbnb and Uber. These companies had the ambitions to try to do that, and WeWork was as close as anyone had gotten to attempting to do that to real estate — which is a huge industry that had been relatively resistant to any kind of change. So, I think people were willing to look past a lot.

CHARLES MIZRAHI: My guest today is Reeves Wiedeman. At its height, WeWork was valued at $47 billion — only to see that valuation disappear as investors got to look at how the company was run when it filed for an IPO.

CHARLES MIZRAHI: Reeves’ dives deep into WeWork and its CEO’s astronomical rise from the marijuana and tequila-filled boardrooms to cult-like company summer camps. His book, Billion Dollar Loser: The Epic Rise and Spectacular Fall of Adam Neumann and WeWork is a Wall Street Journal bestseller.

CHARLES MIZRAHI: I recently sat down with Reeves, and we talked about Adam Neumann, WeWork, his billion-dollar enablers and what lessons — if any — were learned.

CHARLES MIZRAHI: Reeves, I’m so excited that you’re on the show. First off, I want to thank you for coming on the show. I greatly appreciate it. I consumed your book this weekend. The name of the book is, Billion Dollar Loser: The Epic Rise and Spectacular Fall of Adam Neumann and WeWork. Reeves, welcome.

REEVES WIEDEMAN: Thank you for having me, Charles. And I’m glad you enjoyed the book.

CHARLES MIZRAHI: I’m telling you: It just read like a train wreck. You knew where it was going, and you were watching. You say: “It can’t get worse. It can’t get worse. Oh my gosh.” I was reading some of it on the train this morning, and it’s really cringeworthy at points.

REEVES WIEDEMAN: Yeah, and I think that most of the people who are reading this book more or less know the details of the ending. And I think it is hard. I hope what’s useful about the book is trying to be able to understand what happened at the time.

REEVES WIEDEMAN: The people who were on the train did not think that they were heading for a crash. Many of them worried about it — that things could go off the rails. But by and large, they thought: “We are a very fast-moving train. But we are going some pretty amazing places.” In many ways, this was something that happened all of the sudden. And shockingly quickly, things fell apart. But the seeds of that were planted for many years.

CHARLES MIZRAHI: Right. So, let’s start from the beginning. If I had no idea who Adam Neumann is, how would you describe him to someone who never met him and didn’t know anything about this story?

REEVES WIEDEMAN: I think one of the big things about Adam Neumann is that he wanted to make it big. And that’s not a totally unusual story. There are lots of people — especially people who move to New York City in their 20s, as Adam Neumann did. He had great ambitions from the beginning, but [he] didn’t know exactly what he wanted — other than wanting to get rich. He wanted to make a name for himself and leave a mark. And in many ways, he did all that — even if it wasn’t exactly the path that he followed.

REEVES WIEDEMAN: I think that part of him is what drove him in a lot of ways. It wasn’t all about money. I mean, he did want to get rich. But I think a lot of the things that drove WeWork in certain directions were about the other ambitions that Adam had. He wanted to mold his company — and eventually the world — through his lens. He was the kind of person — as many people have said — who was charismatic and crazy enough to make people think that he might be able to pull that off.

CHARLES MIZRAHI: Right. Let’s start from the beginning. We have this guy who’s what 6’4 or 6’5, right? He’s a pretty tall guy.

REEVES WIEDEMAN: He’s 6’4 or 6’5 — depending on if he has shoes on.

CHARLES MIZRAHI: …Depending on how much hair he has on. Here’s a guy who is an Israeli. He was brought up on a kibbutz — which is nothing more than a socialist commune. He comes to the United States, and he has all these big dreams. He enrolls in Baruch College. Pick up the story from there.

REEVES WIEDEMAN: Yeah. So, that’s when Adam got to New York. He had followed his sister, who was a very successful supermodel. She was on the cover of magazines all over Europe. And she was kind of living this fantasy life in New York City. She was actually a few years younger than Adam. But he got there. He was a little older than the traditional college student because he’d spent a few years in the Israeli navy. So, he enrolled as a freshman in his early 20s in New York.

REEVES WIEDEMAN: Very quickly, in college, he started a couple of businesses. You can look back and laugh at them now. But these are the kinds of businesses that many entrepreneurs start in their early days. He tried to make a collapsible women’s heeled shoe for his sister to be able to walk around New York City — and then pop out a heel whenever she needed to. That didn’t work.

REEVES WIEDEMAN: And then, he started a baby clothes company. That sort of now-laughable aspect of his particular take on baby clothes was that he thought they should have kneepads. At the time, he was a childless, single man in his 20s. But he was certain that babies’ knees must hurt when they crawl across the floor — even if they can’t tell you that. He was a serial entrepreneur from the very beginning. And he was one of those classic business school types. Classwork was not his thing. He just wanted to start a business. You take a look at those things, and then eventually getting into the real estate business. It didn’t really matter to Adam, early on, what it was. He just wanted to start a business so he could become a player in New York City, make some money and make a name for himself.

CHARLES MIZRAHI: OK, so one of his first businesses … You know, I don’t think you can hold that against him. Entrepreneurs always do that. You keep trying and trying. They look stupid when they fold, but they’re not stupid if they make money. There’s a very thin line between both. They look silly now because they weren’t successful. But if they were successful, it’d be like: “Oh, yeah, that makes all the sense in the world.”

REEVES WIEDEMAN: I think you can draw that out for WeWork in a lot of ways — and in any business that is trying to do something different. It is tricky to tell whether you’re doing something different that might pay off or something that other people have decided not to do for very good reasons.

CHARLES MIZRAHI: When I read these kinds of stories — I started my own money management firm when I was 22 years old. The biggest thing you always need for any new business is capital. And raising money from outside sources, such as family and friends — which is not your own money — is always the toughest. They’ll give it to you, but you always feel bad. It’s like: “Wow. If they lose their money, I’m going to have to see them at Thanksgiving.

CHARLES MIZRAHI: Adam borrows $100,000 — which is a pretty big amount of money. He borrowed some from his grandmother to start the business with the knee pads for toddlers. Right? So, he’s able to sell anybody, anything anytime. He is a fantastic salesman.

REEVES WIEDEMAN: Yeah, that’s one of his great skills. But early on, yeah, he was getting support from family and friends. It wasn’t just his grandmother. Eventually, his wife put some money into his business. He approached one of his sister’s ex-boyfriends. He was very good. And yes, of course, I think we all know the dangers of taking money from your family. But that’s also how a lot of businesses get off the ground. It’s family, friends or friends of friends that you have some kind of connection to.

REEVES WIEDEMAN: Adam, early on in his life in New York, took advantage of that. He made a concerted effort to try to find people who would invest in his ideas. And he did have a leg up in some ways. Again, he did not arrive in New York in the way some people do — especially people from other countries, where you don’t have a ton of connections. His sister was a supermodel. She was getting invited to parties all the time. Adam was instantly in his circle — and eventually, in his wife’s circle. That helped a lot with raising money early on.

CHARLES MIZRAHI: His wife is Gwyneth Paltrow’s cousin. So, that gave him access there. So, he comes to New York, starts a couple of businesses, and has access to capital and connections. What makes him go into the real estate business? What makes him go into this thing with taking office space. It’s like taking a pizza pie and slicing it up into so many little pieces, where the sum is greater than the whole entire pie. In other words, it’s the ability to make money from each individual square foot greater than what they’re paying for the lease. How does it all take place?

REEVES WIEDEMAN: Yeah. I think Adam had always had this amateur interest in real estate. When you think about moving to New York, if you want to make it big, there are a few industries that you might try to make your name in. Real estate is one of them. And real estate is one that takes a lot of risk and requires a lot of the things that Adam Neumann had. One is that ability and willingness to take those ambitious leaps. He’s charismatic. Real estate is not a world with quiet people sitting in the corner. This is a world of big personalities.

REEVES WIEDEMAN: I think when you look at kind of the possible businesses he could have gotten into, I think it made a certain amount of sense. But in terms of the actual idea, he got it from someone else. The idea he had was not revolutionary at its most basic level. He ran into a friend of a friend — a relative of a college classmate — who was running a business like this in Manhattan. Rent out a space. Cut it up into smaller offices. Sell it out. Have a communal coffee area. Run a softball team for all these little businesses that are all working together and don’t have enough employees to have their own summer softball teams. All the things that WeWork was eventually about existed before.

REEVES WIEDEMAN: I don’t mean to take away a lot of credit because I think there is a lot that WeWork did that was pretty remarkable once the idea got going. But the actual kernel of it was something that existed before. And Adam’s baby clothes business was still struggling, and he sort of saw this as something that connected more with his actual interests than baby clothes. And it had a higher ceiling for what he might be able to build.

CHARLES MIZRAHI: So, he gets his first space, and the landlord is so enamored by this guy that he not only wants to be part of this, but he also wants to invest alongside of him. Right?

REEVES WIEDEMAN: Yeah. They create this business together. And the landlord was essentially saying: “Here, I’ll give you the space, and whatever revenue we bring in, we’ll split. Adam needed the space, and he needed someone to take a risk on him. The landlord had this empty building in Dumbo which, at the time, was not a hot neighborhood in New York City. And he wasn’t instantly sure about the idea. But eventually, it was a good enough gamble for him to be willing to take a little bit of risk. And it worked. The landlord was so happy that they ended up taking over more floors — and eventually an entire building — in Dumbo.

CHARLES MIZRAHI: Right. And I want our listeners to keep in mind that this was right after 2008 — the financial crisis. So, there was a lot of office space — especially in New York City — that was vacant. A lot of companies were going out. A lot of companies were downsizing. So, when a landlord has empty space, that’s empty revenue. You’re not collecting money from leases. So, if you lease it out for, theoretically, a dollar, you’re still making a dollar more than you had. The leap that the landlord took wasn’t a great one. It was really calculated. But Adam was on the hook for paying that. Him and his partner were on the hook for that whole lease.

REEVES WIEDEMAN: Yeah, that’s eventually what happened then. And that’s the big risk of this business, right? If you can make it work, you can make a lot of money. But you are taking on a good amount of risk. And when recessions have come in the past, this particular business model has been hit. As people were constantly saying as WeWork grew, and as we saw over the past year, it was something that was very real.

CHARLES MIZRAHI: Right. Before we get into WeWork and how it exploded into something amazing … At one point, it had a value of $47 billion for a pretty mundane business. No one could figure out how it was making money or how it would continue to make it. I just want to put this in perspective. You’re really taking long-term leases — at its core.

CHARLES MIZRAHI: I remember when WeWork was starting to come out. I had some experience with that because I was renting space from Regus for years. That was basically the same concept. They rent to the whole floor, and they give you an office. Coffee was free. And by the way, as an entrepreneur — and starting several businesses — they serve a really great function.

CHARLES MIZRAHI: All those sunk costs that you have when you open up your own office — furniture, deposits for electricity — Con Ed — buildout and coffee machines. Here, it’s a la carte. You’re paying a monthly fee. You’re not sucked into a long-term lease. And you’re pretty cool on that. I definitely saw the need. What WeWork was doing — and I thought it was really amazing — was making it really hip. It was almost making it a verb. It was like Google. Right?

REEVES WIEDEMAN: Yep.

CHARLES MIZRAHI: But the point is — and I just want to put a fine point on this because it sounds really simple. But here’s what happens: You sign a 10-year lease at X-rate, and you’re renting out — short-term — at Y-rate. So, regardless of what happens to your short-term tenants — they move in, they move out or the price goes up — it doesn’t matter. The landlord still has to be paid on a 10-year basis. You’re locked into that lease, and that’s your risk. So, while everything’s working great, you look like a genius. One little hiccup in the economy — where people are not leasing enough space to cover your lease — you’re on the hook. Is that, more or less, right?

REEVES WIEDEMAN: Yeah, that’s exactly right. And WeWork took some precautions to try to protect themselves against this. It had a kind of unusual structure — which a lot of landlords couldn’t believe that people were willing to go along with — where each individual building was only guaranteed at a certain amount. It wasn’t guaranteed against the whole company. So, they did take some precautions to not totally be on the hook for things. But in a lot of ways, yeah. That was the risk. And they knew it. I know they believed that, in a recession, their business would take a hit. They would have to adjust. But they were at least confident enough that they could try to pull it off.

CHARLES MIZRAHI: Right. OK, so Adam comes into this game and opens up two or three of them. The original partner, who is the landlord — Joel Schreiber … Adam comes up with a ridiculous valuation of $45 million or so. And he goes: “Here, I want a third of it.” Right? And he pays it.

REEVES WIEDEMAN: Yeah, it was kind of a number that Adam and his co-founder, Miguel McKelvey, pulled out of thin air. They threw out a high number. They weren’t really looking for a third partner or investor in that way. So, they were kind of like: “We might as well throw out a big number. And if he says yes, then maybe it’s worth it.” And he said yes.

REEVES WIEDEMAN: That partnership didn’t quite pan out the way any of them planned. Joel Schreiber didn’t end up coming through with all the money that he had. He ended up not being a full third partner. But it was sort of the first example of the way WeWork’s valuation could be divorced from the reality of what the business was. Someone could just come in on a gut feeling and say: “OK, yes. That’s how much you’re worth.” And suddenly, that’s how much the company is worth.

CHARLES MIZRAHI: Right. OK. Let’s move on. Adam starts two or three building. Their model is working. He uses this philosophical thing of “we” as a community. It’s not real estate anymore. Now, he’s just morphing this into a technology company and a philosophy. He gets these wacky, crazy notions from The Kabbalah Center — where he starts going to. He starts getting in touch with the spiritual side and takes off into the stratosphere with that.

REEVES WIEDEMAN: Yeah, that’s more or less it. The community idea was something that was part of Adam’s life. It was something he sort of believed in. People have asked me a lot: “Did he believe in what he was selling?” That’s in terms of: This is more than a real estate company. We’re building a community — and all this stuff that people have laughed at.

REEVES WIEDEMAN: I think the answer is yes. He did believe in that. He did believe that WeWork was building a different kind of office building — a different kind of community than [the one that] existed before. And when you look at those early buildings in New York City — and some of the first ones in San Francisco, Washington, D.C. and elsewhere — they were really cool. People loved working there — especially young workers and startups. It was different. It was not Regus. The Regus offices, as you know, are perfectly fine and nice. They have everything you need, and they’re pretty boring.

CHARLES MIZRAHI: The Regus offices are like a Ford. The old Ford. And WeWork was like a Tesla. It had a lot of fancy bells and whistles. I remember talking to Regus when we rented the place. Regus was great. It was moderate. I had an office of my own. I got to close the door. I got to use the printer. I got the coffee — all that kind of stuff. But it was very 1950s. It was there. You didn’t speak to anyone else. You went to your office, closed the door and did your work.

CHARLES MIZRAHI: And then, a friend of mine rented his startup in WeWork. He told me that there was a vibe that was “so happening.” Those were the words he used — a vibe that was “happening.” You got to meet people who were down the hall. There was another startup three doors away from you. They had a keg of beer on tap. It was just exciting.

REEVES WIEDEMAN: Yep. Yeah. In a lot of ways, that’s what WeWork was selling. And I think it was a genuine sales pitch. It was not the cheapest office you could get. You were paying more for the flexibility — for the month-to-month nature of it — and all the bells and whistles. I think that, early on, it was it was genuine. That was something they offered, and the community was real. They didn’t have to force it. It was getting people who were like-minded enough that they wanted that kind of office.

REEVES WIEDEMAN: Where that changed was when the company started to grow. Building community is a really hard thing — no matter what kind of business you’re in. Think about how difficult the last year has been for all of us — trying to find new ways to have a community of people when you’re in a new situation. It’s not easy to do. So, as the company grew, as much as it tried — and I think in a lot of ways it was a sincere effort to try to maintain that spirit from those early buildings — it just became impossible.

REEVES WIEDEMAN: Suddenly, you have half of a WeWork building going to Microsoft, insurance company or whatever. They’re coming to WeWork suddenly to say: “We want some of that. We want that vibe that this person is talking about.” As much as you try, you’re kind of going to kill the vibe when you show up that way.

REEVES WIEDEMAN: So, it became so much more difficult to build and have that thing that was different about WeWork match up to the valuation. The valuation kept growing and growing on this notion that WeWork was doing something different. People sort of assumed that because it was doing something different — and different enough that it would eventually find ways to make even more money and justify those now.

CHARLES MIZRAHI: OK, let’s hold onto that for one second. I think what your book does really well is that it goes through a lot of the eccentricities of Rebecca — Adams wife — and Adam himself. Adam is dyslexic, which makes reading and writing difficult. So, he’s extremely creative, able to talk fast on his feet and have this type of aura — almost a cult-like personality. Just go through some of the wacky things. There were just too many of them in the book. I started jotting them down. It was commonplace among WeWork centers, people and everyone around them. But to the rest of the world, you look at it and think: “This is nutty.”

REEVES WIEDEMAN: Yeah. The partying was the big one. It’s not like WeWork was alone in being a place where alcohol mixed with work. Anyone who worked in a bank over the last however many decades in New York — those were not necessarily quiet places. The startup world was certainly a place where mixing your life with your work was just the way that it went — to such a degree that there’s almost no difference.

REEVES WIEDEMAN: I think — especially early on — there was that blurring of a line between the life that people had outside of WeWork and the life they had at the company. Especially in the early days, that could even be the people who rented space at WeWork. Suddenly, they got wrapped up in this community, and they got to know some of the employees. And that became their social circle.

REEVES WIEDEMAN: Certainly, for employees, they were working these insanely long hours — with Adam’s encouragement. He was telling them: “We’re growing so fast, and we need you to do this. If you just work with me until midnight every night, eventually, you’re going to get paid a huge amount of money when we go public.” That was fueled by young people, who came into the company very idealistic about the company’s mission. They believed in it, and they believed in this idea, building community and making the world a better place.

REEVES WIEDEMAN: It was also an exciting and fun place to work. And WeWork fed into that. They had these late-night parties at the office where you’d be having tequila shots while finishing up your workday with your friends — who happen to be your coworkers. They threw these lavish parties and had their big summer camp every year.

REEVES WIEDEMAN: Again, they weren’t alone in doing that kind of thing. But they were the most extreme example. And Adam was at the heart of that. He was the Partier in Chief. He was encouraging of all this, and he enjoyed it. He knew the ways in which it could build loyalty and make his employees work even harder.

CHARLES MIZRAHI: So, they’re getting all this partying — this new energy. That energy seems to be spiritual energy floating around the place and all sorts of nice buzzwords that they’re using. And during this time, Adam is building and leasing more and more buildings. Landlords are going out and signing deals with this guy. They think that maybe he does have the magic formula — disrupting rental in real estate. That was a big thing.

CHARLES MIZRAHI: I remember at the time — in 2015 to 2017 — I was speaking to my friends in real estate. They were saying: “No, he’s a disruptor. Like Amazon disrupted retail, he’s disrupting real estate.” I looked at it, and I said: “I still can’t figure out how he’s disrupting anything. He’s basically in the same business you guys are in. He’s just renting this stuff out and putting a little thing.” But they said: “No, you’re not getting it.” All right. So, I didn’t get it.

CHARLES MIZRAHI: Anyways, he’s going on, and he continually signs leases. And it takes on a snowball-type effect. It’s getting bigger and bigger to the point — where you write in your book — he’s talking to competitors who have small businesses. It seemed to be a very profitable niche. And he’s telling people: “You’re either with us, or I’m going to crush you.”

REEVES WIEDEMAN: Yeah. I think some of those people you were talking to in the real estate world — their perception of Adam probably changed over time. I think that, early on, a lot of people were saying: “We’ve seen this before. We’ve seen Regus. We know what that businesses is. It’s fine. But there are problems with it. There are reasons we don’t do that.”

REEVES WIEDEMAN: And then, there was a little bit of curiosity. He was starting to take up space. And again, as you mentioned, this was kind of in an era where there weren’t a lot of people taking up whole buildings of New York City office space in the early 2010s. Adam was willing to do that. Some landlords were constitutionally resistant to it, but others sort of had to listen. He was the best option they had.

REEVES WIEDEMAN: And then, once you get to the middle of the decade, Adam suddenly had a ton of money. He had that from his investors. And, in being able to deploy that money, suddenly, if you were a landlord, you kind of had to listen to him. He was gobbling up so much space that if he didn’t take your building, he was going to take the one next door. There was this level at which the company’s success sort of begot further success. 

REEVES WIEDEMAN: People in real estate eventually came to fear that Adam and WeWork had figured something out. They had figured out something that made its business different than all the other ones that came before it.

CHARLES MIZRAHI: Right. Right.

REEVES WIEDEMAN: And not just in the fun stuff and the frills, but also in the actual core of the business and how it made money. So, there was this real fear of that. Real estate is a relatively traditional kind of industry. It’s small groups — often families — running these businesses. So, I think there was a little bit of fear that this new hot, tech-inflected startup — with a bunch of money from investors —was actually going to find a way to disrupt it.

CHARLES MIZRAHI: OK, so that’s Adam 2.A. He’s playing the private equity game phenomenally well. He’s selling these private equity funds, and he’s getting capital from them — from some of the biggest, right? From Benchmark. Who else did he get in the beginning?

REEVES WIEDEMAN: Benchmark was the big Silicon Valley investor, and then he ended up getting money from a lot of the big banks and institutions.

CHARLES MIZRAHI: Right. They were throwing money at him. They looked at the same business, and with all their rigor, tests and rational points of view, they still got sucked into the game. And that’s a key thing. When the ether is being spread around, everyone starts sucking it up and believing that you can turn water into wine. So, he keeps going with this. He’s building up, and he constantly needs more money. Why does he keep needing money? Real estate is a cash cow. Once you get the leases, you rent them out for more money. You sublet them out. You should be able to self-fund this. Why does he keep going back to the till?

REEVES WIEDEMAN: Well, you can make a lot of money, but it costs a lot of money to get off the ground. That’s why it’s such a risky endeavor. Taking out these leases required a lot of money. Building out each space was very expensive. And staffing them was expensive as well. There were various points at which, if WeWork had been willing to grow slower or stop growing for a while, it probably would have gotten to the point where it would print a lot of money. It wouldn’t have been an amount of money that would have justified the valuations that the company eventually got.

CHARLES MIZRAHI: It would have been a good business. It would have been a great business. I think JPMorgan was the largest landlord in New York — or the largest amount of rental space. I forgot how many millions of square feet it has. And Adam said: “I’m going to be bigger than you.” It was silly in the beginning. You had a couple of hundred thousand square feet. But at the end of the story, he becomes bigger than JPMorgan. How many square feet is that? I forgot the number. You had something in the book.

REEVES WIEDEMAN: You’re testing me. But it’s a huge amount.

CHARLES MIZRAHI: Millions, right?

REEVES WIEDEMAN: Millions of square feet of New York City and Manhattan.

CHARLES MIZRAHI: Amazing. Right.

REEVES WIEDEMAN: And he did it.

CHARLES MIZRAHI: And he did it. Right. OK, so now things are going. He’s raising money. His cult of personality is absolutely amazing. He could say the same thing that everyone else was saying, but he said it in such a different way that it got people to believe in him — to the point where they had their own lingo.

CHARLES MIZRAHI: I’m reading this, Reeves, and it sounds to me like all the definitions of a cult. They have their own words. They only congregate among themselves. Their whole family is their coworkers. They live together. They sleep together. They party together. That’s all they know. And every day, they get the cult leader coming and telling them: “We’re going to change the world.”

CHARLES MIZRAHI: The cult leader’s wife comes in there. And they look around and see all these other people giving the cult leader a lot of credibility by throwing more money at this guy. So, it was hard not to get sucked up into this.

REEVES WIEDEMAN: Yeah, I think that’s right. I think there were different ways into the cult. If you were an employee, you were inspired by the fact that this was a company that did seem to be making the world better. You were inspired by the promises that one day you were going to cash out these stock options the way people were doing in the startup world. And then, landlords got caught up in the cult of disruption and thinking that they didn’t get want to get left behind.

REEVES WIEDEMAN: For investors, this was just an era where the types of companies that were pulling in money were ones that were promising to take over an industry. This was not a moment when people were looking for nicely-profitable businesses. They were looking for the next Google, Airbnb and Uber. These companies had the ambitions to try to do that, and WeWork was as close as anyone had gotten to attempting to do that to real estate — which is a huge industry that had been relatively resistant to any kind of change. So, I think people were willing to look past a lot [in hopes] that Adam Newman could figure this out.

CHARLES MIZRAHI: OK, so now he’s raising all this money. Now, chapter two, which I think this is part of the story. If I titled this book, I would title it, The Rise and Fall of Adam Neumann and Masayoshi Son. So, before you begin to break this down for us, I just want our listeners to know. Masayoshi Son is the founder of startup of SoftBank. They raised $100 billion or so. Is that the right number? Into a fund — a lot of the petrodollars that Saudi Arabia saw that was leaving the region. And they were looking for the new thing.

CHARLES MIZRAHI: He was investing. He was throwing around money like a drunken sailor. I mean, [he was] throwing money at things. As Warren Buffett says: “A competitive moat is something that a competitor cannot cross.” It’s like a moat in a castle — where the defense is so formidable that you can’t cross over it. That’s a great business.

CHARLES MIZRAHI: Masa’s moat was capital. He was throwing money at these businesses. And by the way, I just want to say one thing before I let you expand on this. He’s no fool. He makes an investment that will go down in history as probably the greatest return ever. He puts $20 million that’s with an “m” into Alibaba, which is the Google, Amazon and everything of China. By just looking at Jack Ma as he says: I looked into his eyes.” That’s all he did — looked into his eyes. He gave him $20 million dollars or so. I believe he wanted to get more, but Jack Ma said no.

CHARLES MIZRAHI: Eventually, $20 million turned into $100 billion. Astounding. So, Masayoshi believed his own press, and he had the creds to prove it. Right? He knew how to find these people. Forget about the zillions of other failures. But he found this. He only needs one great success, and that’s it. I don’t think there’s a great one. So, him and Adam connect, and an explosion happens.

REEVES WIEDEMAN: Yeah. Masa was someone who looked for big bets. He had made many big ones. The Alibaba one was the most successful, and his new vision fund was his latest gambit to raise the largest venture capital fund ever raised in order to fund what he saw as the future of the tech world. And this was investing a lot in companies that were focused on artificial intelligence. [That] was his big thing that he talked a lot about.

REEVES WIEDEMAN: The only problem was that there were only so many companies to invest in. There were only so many companies that could promise the kinds of returns that you would need to get in order to make investing $100 billion make much sense. WeWork fit that bill — even though it didn’t fit the bill of artificial intelligence being at the core of the business. You could certainly make the argument of being a part of the tech boom and all of that. The company made some strained efforts to try to present itself as a tech company.

REEVES WIEDEMAN: But ultimately, it was a real estate play. And if it worked, it could have been a gigantic company. But the most optimistic view was just that. Certainly, in hindsight, [it was] a pipe dream to think they could achieve what Masa and Adam set out to do. But they were two people perfectly primed to meet and embrace each other’s willingness to think big.

CHARLES MIZRAHI: It’s like the stars aligned at that moment in time — where everything was perfect for these two people to meet and for Adam’s idea of WeWork — a trillion-dollar market. The whole real estate market in the world is only hundreds of billions. But they came up with $1 trillion and some humongous thing.

CHARLES MIZRAHI: Masayoshi Son had to invest this money in order to get any type of returns. Here’s a guy talking in the T’s — not the B’s. Instead of billions, he’s talking in the trillions. Here’s a guy with a lot of capital who just made an investment in Uber. He was making some very successful investments. They were all losing money at the time. He had a not a five-year outlook but a 300-year outlook — which is amazing. Here you have these two guys feeding off each other, and he gives Adam $4 billion or $5 billion, right?

REEVES WIEDEMAN: Yep.

CHARLES MIZRAHI: So, you just gave an alcoholic the keys to the bar and said: “Manage it.”

REEVES WIEDEMAN: I think that’s a pretty fair analogy. I think it was the perfectly wrong thing to happen at that moment. On the other hand, can you blame Adam Neumann for taking it? Could you blame him for taking $4 billion? It would be pretty hard for any of us to sit there and turn down a check like that. But I think in hindsight, that amount of money was too much for the company to handle — and frankly, too much for any company to handle.

CHARLES MIZRAHI: I’m sorry to interrupt you on this. You titled the book, right? Let me just get it.

REEVES WIEDEMAN: I think we had: “The Rise and Fall of Adam Neumann and WeWork.”

CHARLES MIZRAHI: It was a fall, or something else? I think it was a…

REEVES WIEDEMAN: It may have been a spectacular fall.

CHARLES MIZRAHI: Yeah, maybe that was your book publisher. “The epic rise” — they probably put that in. The Epic Rise and Spectacular Fall of Adam Neumann. When I read this book — living through this and seeing it — it wasn’t only him. He had enablers all around him. You pointed out JPMorgan. He considered Jamie Dimon his private banker. He had Masa throwing billions of dollars. He had private equity telling him that he walked on water.

CHARLES MIZRAHI: At the end of the day, as Ace Greenberg of Bear Stearns used to say: “Never believe your own [body odor is] a perfume.” But these guys did. They believed that this was the new everything. Adam Neumann and WeWork could not have happened without all of these enablers. It would have been an idea that would have died at some point — or just hit a tipping point where it needed money. But at every step, when he wanted to take it to the next level, there was money finding him.

REEVES WIEDEMAN: I think that’s right, and I think Adam was very good at finding that money. But it wasn’t all that hard. People wanted to invest in a company like that — even against their better judgment. This was a moment where he found the perfect environment for his particular skill set to do this.

CHARLES MIZRAHI: So, Masa needs to employ $100 billion. He’s looking for Vision Fund, too. He’s going to raise another $100 billion. Adam is expanding at such a rapid pace. He’s signing leases at any building that doesn’t move. He’s signing a lease for it.

CHARLES MIZRAHI: Any discipline they had went out the window. They were signing deals that would never make money — like a creative artist building. Michael Ovitz. He raked them over the coals — where he put so many concessions there.

CHARLES MIZRAHI: WeWork could never make money. It was giving away free rent. It was doing everything possible to attract. And all the time, it’s still a private company. All the shenanigans going on were still staying within the four walls of the company. And the enablers are there — continually throwing cash and taking out money. Benchmark pulled out tenfold or twentyfold on their investment, right?

REEVES WIEDEMAN: They did very well. A lot of the investors — except for SoftBank — did really well on this. That’s the other thing. They were able to take money out of the company, so they didn’t have a lot of incentive to slow things down and tell Adam not to take the $4 billion. They were getting paid along the way. And so, even if it may not have been in the long-term best interest of the company, people were incentivized to go along with things.

CHARLES MIZRAHI: So, now this is going. And all of the sudden, it’s building up to a fever pace where Masa and Adam come up with Fortitude. What is Fortitude? Project Fortitude? Is it a project, or was that their codename for it?

REEVES WIEDEMAN: That was the code name. It was actually a plan to keep the company private. SoftBank was going to invest somewhere in the neighborhood of $20 billion to be able to buy out pretty much every other investor in the company — basically leaving Masa and Adam in charge. There were a few reasons for this. A big one was that the company was running out of money, and they needed more to continue growing at the pace that they wanted to.

CHARLES MIZRAHI: By the way, Reeves, let me interrupt you for a second. I just want to point out that they’re losing hundreds of millions — if not billions — of dollars because of all the upfront expenses one has to have to retrofit a building for this. So, this is not something that is making money at this point. It’s not even something that’s breaking even. Even their projections are looking dismal because they are missing them by 180 degrees. They were going in the opposite direction of what their projections should have said.

REEVES WIEDEMAN: Yeah. They were burning cash all over the place — sometimes on silly stuff. But most of it was [spent] on growing the business and how much was required. This was essentially a plan to avoid going public. The idea of avoiding going public was basically on the notion that the public market would not understand or be willing to eat the kind of losses that WeWork had — which Adam and Masa believed were necessary to expand as quickly as they wanted to. It was a plan to do that. Ultimately, raising that $20 billion — coming up with it to be able to spend it — was beyond even Masa’s ability. And it fell apart. When it did, that left the company no choice but to go public.

CHARLES MIZRAHI: So, Masa is feeding Adam. Adam is saying: “If I want to have this torrid growth, I need to keep leasing.” There’s only one number that matters in this business. It’s basically the number of people who are leasing space from WeWork. That’s all it is. If you have a million square feet of space, you have to lease every piece of that. Anything you don’t, you’re on the hook for. So, it was a treadmill. The way I see it, it just kept getting faster and faster until it was impossible to even keep up at that pace. There just wasn’t enough market. There wasn’t enough real estate. There weren’t enough people who needed this — the demand for it.

CHARLES MIZRAHI: I think you point out something really good with Uber. The difference was that Uber lost billions of dollars. I don’t know how many millions of people used Uber, but only a couple of hundred thousand people — at most — used WeWork. Uber was pretty ubiquitous. There was no longer the word “car service” or “taxi.” “I’m Uber-ing it.” It became a verb.

REEVES WIEDEMAN: Yeah, it did. It never got to that level, and I think there were points at which they were trying to find buildings to lease. There were not enough buildings — in particular cities — for them to meet their goals — let alone, once you get the buildings, to your point, to actually fill them with enough people to make it work. It was one of these things where you could put a bunch of numbers in a spreadsheet, and you could make it all work. But then, the practicalities of it don’t check out.

CHARLES MIZRAHI: So, at this point, Fortitude falls apart. Adam’s not getting any more money from him. He’s feeling the pressure because he’s booking losses on some of his investments. And then, they make the decision to go public. That’s the last chapter of this Greek tragedy. When they go public, they file what’s called an S-1, which basically means you have to open, pull down your pants and show Wall Street everything about you before you have public money.

CHARLES MIZRAHI: Tell us about what that S-1 looked like. It’s usually boring. They’re not boring. I shouldn’t say “boring.” I’ve read many of them. They’re always exciting. They’re always good because every company’s showing you — that’s what they have to do before they go public. They have to tell you how the world is great and how they’re going to capture all this total addressable market (TAM). But WeWork’s S-1 just goes over — like everything else in their business. It’s everything else that everyone else is doing — and square it. Or, cube it. It keeps rolling.

REEVES WIEDEMAN: Yeah. I think there were too many blows for WeWork to weather. There was all the weird, kooky stuff in there. The kooky slogans that they had dedicated it to the energy of “we.” These glitzy photo spreads that were not typical of these kinds of documents…

REEVES WIEDEMAN: And there were also all of these conflicts of interest. There were all these problems that existed inside the company, where it was clear that this was Adam’s company, and he was enriching himself — even as the company was growing along the way. That led people to look differently.

REEVES WIEDEMAN: And then, on top of that, were the losses — the actual fundamentals of the business. I think that if any one of those things hadn’t been there, it’s possible they could have weathered this storm in some way. It was not the only company that was losing tons of money. We’ve had a successful stock offering. It was not the only company with a founder who controlled the company in this kind of way. And it was not the only weird company to go public. But having all three of those things was just too much for the public — and the kind of investors who invest in IPOs — to get behind.

CHARLES MIZRAHI: Looking at another point: When you have these types of companies out there — Tesla, Elon Musk, cult following, haven’t made much money, change the world, go to Mars. In fact, you mentioned that Adam Neumann met with Elon Musk. When Musk does get to Mars, Adam is going to build the communities on Mars. It boggles my mind.

CHARLES MIZRAHI: But anyway, put all of that aside for a second. The way I see it — and correct me if I’m wrong here — all of these compounded. They kind of worked with one another. All these variables kept compounding with each other. But I think the defining moment was when sane people — who didn’t have any part in it, were looking at it as an outside investment, and weren’t sucking in any of this laughing gas — looked, and said: “He’s doing nothing special here. It’s nothing. It’s a real estate business.”

CHARLES MIZRAHI: I remember Sam Zell, the vulture investor — a phenomenally successful investor who knows everything about real estate. He looked, and he said: “Companies have done this before. They don’t make too much money. Regus had a $3 billion valuation. They’ve been in business for a while. When you were reviewing this — when you saw the S-1 and started researching the book — do you think that was a wakeup call to all of these [people]?

CHARLES MIZRAHI: You’re right. Everyone else was losing money at the time. Uber was losing tons. There were all sorts of problems with culture, wacky people and all these kinds of things. But I’m just thinking — and correct me if I’m wrong because you’re the expert on this — a lot of people were fooled into believing something that just wasn’t so. And this confirmed it.

REEVES WIEDEMAN: I think that’s right. And I think the only thing I would tweak is to say: I don’t know if they believed it, but they hoped it. A lot of the early investors who had gotten in on this — the people who got behind Adam — knew all the issues. It’s not necessarily that they were totally confident that Adams was going to be able to figure this out. But they hoped that he would. Because if he did, it would make everyone so unfathomably rich that it would it was worth the risk for a lot of these people.

REEVES WIEDEMAN: But once you get to the stock market — and an IPO — the people investing there are investing people’s pension funds, mutual funds and those kinds of things. And those investors have become much more interested and willing to take these bigger bets. But they also are generally, constitutionally more conservative. So, I think that it was just a different group of people that Adam was having to talk and pitch to. Those people don’t work on hope. They work on belief. They work on numbers. And that wasn’t what WeWork was able to sell.

CHARLES MIZRAHI: I think it was so amazing at the end. When this IPO blows up, it’s a slap in the face, Adam can’t figure it out. The Street turns against him. At the end of the day, it was just a real estate company — no matter how many bells and whistles [it had]. But I think the key was that no one could explain what the business did. I think you put that in your book. I remember seeing that. You couldn’t sum up, to an outside person, what WeWork was.

REEVES WIEDEMAN: I think you could, but it wasn’t what they were selling. And the simple description of what they did is that they leased out nicely designed office space with flexible terms. That was it. And at the end of the day, that’s a fine business, but it’s not a $47 billion business. And WeWork wasn’t willing to be OK with “fine.”

CHARLES MIZRAHI: Right. So, let’s cut to the chase. [The] story’s over. The last chapter of this book is the IPO. Adam is told by JPMorgan, Masa and Goldman that this was not going to fly. There was no way they could sell it. The valuation kept getting chopped down lower and lower until they had to say: “Game over.” And when that happens, take us to the next point.

REEVES WIEDEMAN: When that happens, Adam Neumann can’t be the CEO of his company anymore. That was kind of what everyone realized. All the problems were tied up with him, and the company needed to go public at some point. The company needed more money, and Adam’s name — and everything that he was wrapped up in with the company — was going to prevent it from doing so.

REEVES WIEDEMAN: So, he was ousted in a coup staged by the people who had been his chief backers. SoftBank poured even more money into the business to try to float it. And that’s sort of where the story is a year and a half later in a certain respect. Adam is gone. SoftBank agreed to float the company for a while, but even its money wouldn’t keep it solvent forever. A pandemic happened, which no one can blame Adam Neumann for. But that didn’t help WeWork’s business.

REEVES WIEDEMAN: Now, they’re trying to figure out: What is the path forward? They are already talking about an IPO later this year and potentially trying to do this yet again. I think it’ll certainly be interesting to see how they try to pitch this the second time around.

CHARLES MIZRAHI: So, when Adam leaves, he gets an amazing exit package. His loan of $500 million gets forgiven. Or, he gets loaned that money?

REEVES WIEDEMAN: He was allowed to cover an existing $500 million line of credit that he already had that was tied to the value of his stock. Potentially, he could have theoretically been insolvent. SoftBank basically bailed him out and agreed to buy a significant amount of stock from him. Initially, it was supposed to be about $1 billion. That number has been cut in half, roughly. He also got a consulting fee — $185 million to not start another company, and be around if anyone had any questions for him.

CHARLES MIZRAHI: This reminds me: After the financial crisis, the people who got us there with the marks and creating all these CDSs and CMOs were the ones who still got consulting fees because they were the only ones who knew how these things that blew up the whole system worked.

REEVES WIEDEMAN: Often, the people responsible don’t get caught up in it. And in this case, the people who faced real consequences were the employees who put their faith in this company and had been told that they were going to get rich. You can say that they were naive about it. But, I’d place the blame on the people who were telling them that more than I would the people who were doing the work.

CHARLES MIZRAHI: And the last word, Reeves. What lessons could one learn in terms of running a business, being an entrepreneur or even being an investor? What lessons would you say pop out at you after seeing this from start to end? You had amazing access to Adam. This your first book, right?

REEVES WIEDEMAN: Correct.

CHARLES MIZRAHI: The amount of research. You were at The New Yorker, and you guys are notorious for being fact-checkers of fact-checkers. You really immersed yourself into this. So, I don’t think there’s a better guy to ask about the lessons we can draw from this fiasco.

REEVES WIEDEMAN: I’ve thought a good amount about this, and I think the main thing that I would say is … Going back to something you pointed out, there was this moment where Adam got this $4 billion check from Masa. It was the moment when everything went off the rails.

REEVES WIEDEMAN: At the time, it was the moment where everyone thought it was going to the moon. In my sense, the lesson I would take is not that from that point on, Adam Neumann was partying all the time, flying on private jets and smoking pot. And that was the problem. All those things were true. But I don’t think that is what caused the downfall.

REEVES WIEDEMAN: I also think that in many ways, some of the other criticisms of the company didn’t cause it. What caused it to me was that there was no way for any company to grow as fast as WeWork was trying to — to spend as much money as SoftBank had given it in any kind of responsible way. You can’t do those things at once.

REEVES WIEDEMAN: I’ve written about other startups that haven’t gotten checks that big but have gotten [ones] that they couldn’t handle. And the moment they get them is when everything runs off the rails. And so, I do think that both for founders who are raising money, and for investors who are giving money, you need to think really hard about whether you’re giving someone too much — whether the ambitions you have for a company are actually in line with what it can achieve and whether the amount of money you’re giving them is going to enable them to do that. Or, in some ways, it will only enable irresponsibility. It’s a really tricky line to hit. But I think that it’s one people need to spend time…

CHARLES MIZRAHI: Great lesson. Warren Buffett always said that an empty wallet makes for a good investor. When you have too much money, you start getting sloppy. When you have to borrow from your credit card, you have to make a payment each month. You become really sharp. You watch those nickels and dimes. And when you get so much money in, you get blind, and you just see one side. And that’s just the revenue growth. You forget about everything else.

CHARLES MIZRAHI: Reeves, I want to tell you man: [I wish you] continued success. I hope you come out with another book sometime in the near future. I want to tell you: This book read like a novel. Go flipping through my Kindle. I read it over the weekend. I started Friday afternoon, and I finished it on the train this morning. I kept going one after the other. I said: “Wow.”

CHARLES MIZRAHI: Your writing style is not only good, but it’s also the cadence — the pace. As soon as you have a story that seems to be dying out, you pick up another thread, and that pace starts to pick up. So, Adam Neumann lands. Here’s what Rebekah is doing. That happens. [You’re] back at corporate headquarters. I had to breathe at times. It’s a great talent, man. You sucked me in. You did really well.

CHARLES MIZRAHI: The name of the book is, Billion Dollar Loser: The Epic Rise and Spectacular Fall of Adam Neumann and WeWork, Go out. Get a copy. Get a Kindle copy. Do whatever you need to do. Read the book because there are so many great lessons in there.

CHARLES MIZRAHI: It goes to show that investors need to ask just one question: “How much?” If you can’t figure out the valuation of something … I don’t care what anyone says, how much money is being thrown in and what kind of seal of approval they’re getting. It doesn’t matter. You just have to have a council of one, and that’s yourself. Just be a little smarter than the next guy, and say: “I’m not smoking any stuff because it doesn’t make sense.”

CHARLES MIZRAHI: At the time, I remember there were many great investors who were saying this was a joke. I remember Sam Zell being one of them. I’ve just looked at this. It just doesn’t make any sense to me. Taking real estate, carving it up — I got it. To be worth $47 billion — I just don’t get it. Reeves Wiedeman, thanks so much for being on the show, man. I really enjoyed it. All the success and good fortune to you.

REEVES WIEDEMAN: Thank you for having me, Charles.

CHARLES MIZRAHI: My pleasure.

CHARLES MIZRAHI: Thanks for listening to this episode of The Charles Mizrahi Show. If you’re a new listener, welcome! If you’ve been listening for a while, we’re glad to have you back. Either way, we’d love to know what you think of the show. Please leave a review if you listen on Apple Podcasts. Reviews make it easier for others to find the show. You can also see the video of the interview on The Charles Mizrahi Show channel on YouTube.