Neumann’s Resurrection & The Trump Org’s Future

adam neumann
Photo: Jackal Pan/Getty Images
William D. Cohan
August 21, 2022

It’s hard to comprehend what would compel Andreessen Horowitz, the esteemed Silicon Valley venture firm, to entrust Adam Neumann with a fresh $350 million to try to play his part in solving the nation’s housing crisis. It was only three years ago, of course, that Neumann presided over the implosion of WeWork, his kibbutz-inspired coworking concept, that incinerated tens of billions of dollars in the process. In the words of a16z co-founder Marc Andreessen, this spectacular failure simply represented an invaluable “lessons learned” opportunity along Neumann’s journey of disruption. To others, Marc, it might sound like investing malpractice.

After the extremely well-documented fleecing of investors perpetrated by Neumann and WeWork, it blows my mind that the braintrust behind a16z—the best in the business, right?—could possibly back Neumann again in this new venture. And not just with a toehold investment, but a nine-figure check, the largest the firm has ever written in its history. If I were a limited partner in a16z, I’d be plenty pissed and consider sending the firm a redemption notice. 

But, of course, Andreessen and company know better, or think they do. According to Andreessen, the housing problem in the United States today is massive: either people buy a home they can barely afford and then are stuck with it and will find it difficult to move, or they rent a space they barely like and throw money down the drain month after month. Flow, Neumann’s new company, is supposedly going to fix all that. Even though it’s apparently little more than a website at the moment—“live life in flow…coming 2023,” it proclaims—a16z’s investment pegs Flow’s valuation at around $1 billion. Really? “We are excited to partner with Adam Neumann and his colleagues on Flow, which is a direct strike on precisely this problem,” Andreessen wrote on the a16z blog. “Adam is a visionary leader who revolutionized the second largest asset class in the world—commercial real estate—by bringing community and brand to an industry in which neither existed before.”

Presumably using his well-documented and outrageous billion-dollar-plus settlement from leaving WeWork, we are told that Neumann has already purchased some 3,000 apartment units in four cities—Miami, Nashville, Ft. Lauderdale and Atlanta—that are among the favored destinations of the Gen Z bachelor- and bachelorette-party crowd. (It’s possible that at least a part of a16z’s $350 million investment will be to provide Neumann some return on those investments.) Somehow, Neumann is going to turn these apartments into affordable, desirable and fun ways for renters to live “the lifestyle [they] deserve,” according to one of the buildings Neumann owns in Ft. Lauderdale while also, somehow, turning those rental payments into equity. How Neumann intends to pull that off and still satisfy a16z’s returns requirements remains to be seen. 

Let’s face it, there’s nothing new or revolutionary about buying a bunch of apartment buildings with the intention of sprucing them up to attract yuppies willing to pay higher rents. This is an idea as old as the hills. (And it’s also an idea that Neumann tinkered with, via WeLive, one of the many non-essential vanity projects that grew out of WeWork and failed along with it.) What was revolutionary about WeWork was trying to do that same thing in the context of an office building. And that wasn’t a terrible idea, of course, but merely one that was not worth anywhere near the $47 billion that Neumann proclaimed. What became clear was that Neumann believed his own bullshit, especially after he got way too much validation from Softbank and Masayoshi Son

Is Andreessen doing the same thing again with Neumann and Flow? It sure seems that way, even going so far as to reframe the WeWork imbroglio as a value add. “Adam, and the story of WeWork, have been exhaustively chronicled, analyzed, and fictionalized—sometimes accurately,” Andreessen wrote on his blog. “For all the energy put into covering the story, it’s often underappreciated that only one person has fundamentally redesigned the office experience and led a paradigm-changing global company in the process: Adam Neumann. We understand how difficult it is to build something like this and we love seeing repeat-founders build on past successes by growing from lessons learned. For Adam, the successes and lessons are plenty and we are excited to go on this journey with him and his colleagues building the future of living.” 

Andreessen is not a man given to doubt. In his blog post about the Flow deal, he makes no mention, for better or for worse, of WeWork’s once-sky-high valuation nor of the investors that Neumann immolated. These days, post-merger with a SPAC and payoff to Neumann, WeWork is now valued at $3.3 billion, a value destruction of a mere 93 percent in three years time. It’s one thing to invest in a serial entrepreneur who has created wealth for his partners. But to make a second bet on someone who lost investors 93 percent of their money—and sophisticated investors, such as Softbank, at that—defies logic, or worse. How Andreesen could bet on Neumann after the WeWork debacle (and after how his irrational behavior was portrayed in the Apple TV dramatization of the WeWork debacle) is either the height of hubris or the world’s best contrarian bet. I’m sure Andreessen thinks it’s the latter but I’m convinced it’s the former. We’ll know soon enough.

Cohen’s BBBY B.S.

Personally, I quite enjoy when a meme stock like AMC or Bed Bath & Beyond shits the bed. It restores my faith in the power of the financial markets to sort the wheat from the chaff. And that is essential to the proper functioning of the markets to properly allocate capital where it most deserves to be.

The meme-stock roller-coaster ride this week involved Bed Bath & Beyond, the home furnishings retailer that is having a bit of a rough go of things lately. This is the kind of thing that happens when a billionaire investor takes a large stake in a company and then, a few months later, decides he wants to bail out and sell his entire stake. It’s the consequence of supply and demand, and it’s all the worse in a meme stock where the valuation has already been pumped up beyond anything recognizably tied to a company’s financial performance. 

In this case, the pump-and-dumper was the notorious Ryan Cohen, the progenitor of the GameStop meme-stock phenomenon during the pandemic and the cofounder of Chewy, the online pet food company with a market value of $18 billion these days. Cohen turned Bed Bath & Beyond into a meme stock earlier this year when he bought a 10 percent stake in the company (at an average price of roughly $15.30 a share) and pushed for changes and board seats. This week, he dumped his shares at prices ranging from $18 to $29 a share. He also sold his call options. CNBC estimates that Cohen made around $59 million on his BBBY gambit.

So the rich get richer. Other investors, along for the ride, weren’t so fortunate. The stock was down a whopping 40 percent on Friday alone. It nearly doubled on Tuesday to around $28 a share because, you know, YOLO. Since then, in the wake of Cohen’s selling, the stock is down 61 percent. Yikes. What this means is that many of the people who were hoping that Cohen’s involvement would make BBBY a meme stock got fried when they realized Cohen had changed course, which he is entitled to do, without explanation. 

It never ceases to amaze me why so many people fall for these stock-market fantasies, over and over and over again. There is no such thing as a get-rich quick scheme, I am sorry to say (20-year-old Jake Freeman excepted). Although this is not investment advice, what’s clear to me is that the best investors get rich slowly by finding well-run companies, with a sustainable, respected business plan and a history of established high-margin profitability. If the company provides a dividend all the better. Low debt and experienced management are also a big plus. There is, or there should be, a correlation between a company’s profitability and its stock price. The plot gets lost rather quickly when people forget that, as has happened with such pandemic curiosities as GameStop, AMC and, now, Bed Bath & Beyond. Can this possibly be the experience that puts an end to the meme stock phenomenon once for all?

Wither Trump Org?

Lastly, the Allen Weisselberg case appears to have been a Pyrrhic victory of sorts. The former Trump Organization C.F.O. pleaded guilty to charges that should hamper the Trump Organization, but he refused to flip on his old boss. What will be the true consequences, at least on Wall Street?

A friend of mine, a college buddy who has worked on Wall Street for a long time now, emailed me after the news of Weisselberg’s plea agreement broke earlier this week. He’s a Republican but not a Trump Republican. He has donated money to both Liz Cheney and to Adam Kinzinger. He’s of the view that Weisselberg’s guilty plea, even without the Trump flip, will spell the “end of the road” for the Trump Organization. “Banks will not want the reputational risk of extending credit,” he wrote. He thought the conviction of the company’s C.F.O. would surely mean the end of licensing deals with the Trump Organization and an end to Mar-a-Lago corporate retreats. 

Hold on a minute, I was thinking, during our exchange. There are always going to be financial institutions willing to finance a false prophet when others have learned the hard way the lesson to steer very clear. (Did anyone say Marc Andreessen and Flow?) This is not going to be as easy as he thinks, or that we hope. 

I wrote my friend back, “You may be forgetting that Trump gets away with everything.” That has been the pattern his entire life. He got away with stiffing his creditors time and time again. He got away with fleecing his sub-contractors. He got away with misogyny. He got away with impeachment, twice. He shockingly got away with almost getting indicted by a grand jury after Manhattan district attorney Alvin Bragg pretty much decided to drop his predecessor’s criminal investigation into the Trump Organization. (He says it’s still ongoing. Right, Alvin.) So far, Trump has also gotten away with leaving the White House with classified documents and trying to steal votes in Georgia in order to avoid losing the state in the 2020 election. He sure looks like he’s going to get away with causing and exacerbating the January 6 insurrection, too. And, after all the lies, the incompetence and the embarrassments, he still is the candidate to beat for the Republican presidential nomination in 2024. And, unbelievably, he has a pretty serious chance of returning to the White House in 2024. 

It’s just extraordinary to me that this man cannot be held accountable for his sins by the people and institutions responsible for holding people like him accountable. This continues to blow my mind, seven years after that guy descended the escalator in Trump Tower and started spewing his hate, his venom and his lies. I hope my Republican friend is right and this is the end of the road for Trump. But that’s a little like Samuel Johnson’s observations about second marriages, that they are the “triumph of hope over experience.”

Coincidentally, my friend and fellow Andover alum, Buzz Bissinger, had pretty much the same thought this weekend. Writing in AirMail, Bissinger went off on Trump (and his enablers) in the kind of plainspoken way I much admire. He wrote that he and his wife, Lisa, are thinking of moving to Italy, should Trump somehow prove victorious in 2024, an outcome that we all know, incredibly, can happen. “We can’t handle the nonstop insanity, the stoking of the fires of divisiveness, the constant pandering to the racist and the ignorant and the gun-crazy,” Bissinger wrote. “The divide between red and blue may well be permanent, but Trump has only made it worse, the fissure of a country in its modern state of civil war. He did his best to destroy democracy during his first term. In a second term, with Trump rabid for revenge, the final threads will tear away. He will stock his second term with blind loyalists, and they too will taste the blood of vengeance.” 

I’m with Buzz. But as much as Italy sounds divine, it may not be far enough away for me. I’ve been thinking that the north coast of Prince Edward Island is the place to be.