Some Real-Estate Startups Are Adjusting Their Business Models

Wall Street Journal writers Konrad Putzier and Eliot Brown reported last week that, “Five months after the co-working firm Bond Collective signed a 42,000-square-foot lease in a Brooklyn office building, the property’s owners flipped it for a hefty profit.

“‘Hey, we can essentially do the same thing,’ Bond Collective founder Shlomo Silber recalled thinking after learning of the sale.

“Four years later, the firm is co-managing its own real-estate fund. The fund owns stakes in properties in Miami, Nashville, Chicago and New York City and is in contract to buy two more.”

The Journal writers explained that, “Bond Collective is one of several real-estate startups that has tweaked its original business model in hopes of boosting revenue and creating new opportunities.

“For their main business, these firms sign long-term leases or management agreements, turn the space into furnished offices, apartments or hotel rooms, then rent it out to tenants under flexible terms.

Now, several of these property companies are also raising money to launch real-estate investment funds. That includes the co-working giant WeWork Cos., which recently rebranded as the We Company. It has one of the biggest of these funds, having raised $745.4 million from investors as of March 8, securities filings show.”

The Journal article noted that, “But these investment funds bring other risks and potential conflicts, especially at times when the interests of the main business and the fund diverge, real-estate analysts and attorneys warn.

“For instance, if a co-working company defaults on its lease and an affiliated investment fund is the property’s owner, the two entities could be pitted against each other.”

Last week’s article added that, “Moreover, big landlords, already skittish about the rising clout of co-working companies, could become more reluctant to partner with startups if they perceive them as rival investors.”

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