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Adam Neumann, the former CEO of co-working giant WeWork best known for throwing curve balls at the real estate industry, made his latest pitch on Tuesday.
Five months after scooping up a $350 million check from the Bay Area venture capital firm a16z and keeping quiet about his plans, Neumann got on a stage and provided his most detailed outline for capitalizing on the world’s biggest asset class.
In short, Flow, the vertically integrated apartment owner and manager, will give tenants in buildings so much sense of pride and ownership they’ll want to unclog their own toilets.
“If you’re in your apartment building and you’re a renter and the toilet gets clogged, you call the super,” Neumann said in a video at a16z’s American Dynamism Summit, which was shared on Monday.
“If you’re in your own apartment and you bought it and you own it and your toilet gets clogged, you take the plunger,” he said, making a forceful downward motion with an imaginary plunger he held in his right hand.
The concept is actually possibly an attempt to solve a significant problem facing the apartment industry: Is it possible for investors to devise a way to let renters gain equity from a building they don’t own?
Flow would actually be a real estate company with four pillars: An investment arm that buys buildings, a tech arm that manages them, a financial services arm that can collect rent and offer other unknown services and the equity sharing arm.
When he shared an explanation for his huge investment in Neumann, who was forced out as head of WeWork in 2019, a16z co-founder Marc Andreessen indicated he thought Flow could deliver a massive innovation to the real estate industry.
After hearing from Andreessen and Neumann, we now have a better understanding of what that looks like.
What is Flow?
Flow is the name of the company that will work with investors to buy buildings and act as their property manager. There’s a financial services component that isn’t entirely clear, but that will be used as a way to generate equity for renters.
Neumann and investors have already put in over $1 billion to build the company. He plans to provide proof of concept and expand it by looping in more investors.
Where is this idea coming from?
Neumann previously created an offshoot of WeWork called WeLive, which effectively was a shared housing concept. Residents shared amenity space in buildings with slick branding. Around the time WeWork started struggling, so did WeLive.
Neumann began reviving the residential concept early last year, scooping up apartment buildings in Sun Belt markets like Atlanta, Miami and Nashville, Tennessee. That made it clear his next act after being unceremoniously forced out of WeWork would be in residential real estate. But we had few other details until now.
What’s so special about it?
The unique aspect of Flow is that it would be a vertically integrated company providing housing for renters and incentives for investors to keep funding the venture.
If the company can truly create a sense of ownership among residents in the building, those renters might stick around longer to earn more money and maintain a sense of community with the building and fellow renters.
For investors, lower turnover by renters means a higher return on investment, Neumann said.
“If the user now enjoys their experience more and feels like they have a portion of their value, and chooses to stay a little longer and that average churn goes down from 50% to 40%…the [net operating income] of the building will go up by approximately 5 percent,” Neumann said. That “increases the returns of the building for those LPs, for the investors, by 500 basis points, which in real estate is an unheard of number.”
How does this scale up?
It all comes down to building a brand that attracts tenants and gets them to stay put. That would keep Flow in motion to scale.
“What we get so excited about the vision of Flow and the business of Flow is that it’s actually a flywheel,” Neumann said. “If we can actually create a better experience in the building, then the building performs better and makes a better [net operating income].”
With a higher net operating income, Flow can raise more money and build more buildings, he said.
“If we buy more buildings then we’ll be able to run more buildings and have more users in those buildings,” he said. “And those users are going to start using our financial services.”
What do we know about the financial services piece?
This is the piece that is the least clear and potentially the most important. Neumann has already acquired buildings and pieces to manage them. That’s a standard business model that can attract investors but isn’t innovative on its own.
The piece that potentially could disrupt the industry is through a mysterious financial services company Neumann said is going to deliver value to renters and possibly be the conduit to generating money for renters and investors alike. That all starts with collecting rent.
“The first thing you do in buildings is you charge rent every month,” Neumann said. “That’s 35 percent of your total wallet. So that payments company that’s charging your rent already has a relationship with the user.”
“If we’re able to take this value creating mechanism and share with the residents a portion of the value, it’s going to make them feel ownership,” he said. “And it’s not just ownership I feel like I’m part of something. It’s I actually own part of something.”
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