Sandeep Mathrani spoke with Andrew Ross Sorkin on CNBC’s Squawk Box today about the future of work amid the coronavirus pandemic in his first televised interview as WeWork CEO.
Watch the full interview here and read a transcript of the interview below.
Question (Q): Many companies are rethinking how their offices are designed for employee safety. WeWork is rolling out changes to its coworking spaces across the globe. Joining us now in his first TV interview as the CEO of WeWork, Sandeep Mathrani. Good morning, Sandeep. It’s nice to see you. This pandemic on its face appears like it would be very, very difficult for the world of commercial real estate and especially the world of office space, but there’s a contrarian view that I know you have and some others do about what this may do for companies like WeWork.
Sandeep Mathrani (SM): Good morning. I listened to Eric Schmidt, the ex-CEO of Google, over the weekend on Face the Nation, and he said, in this pandemic, social distancing is the norm, and effectively that we will need more office space, not less. I’m a firm believer of the same. I’ve been speaking to many of our enterprise clients—they’re seeking more space to make sure professional distancing becomes the norm.
The key to WeWork is flexibility—flexible in space, flexible in time. We believe in the hub-and-spoke model; our enterprise tenants are telling us that they effectively need a hub-and-spoke model. The spokes need to be closer to where their employees live to minimize the commuting time it takes to get to the office.
We’ve learned extensively from our experiences in China in over 100 buildings about what it takes to create best-in-class spaces with professional distancing and HVAC systems, and for sanitization. We spent the entire month of April spending tens of millions of dollars getting our spaces ready for when people can get back to work. I want them to feel safe, I want them to feel as if they are in their own homes. We’re feeling pretty encouraged by the planning that we’ve done to encourage the employee workforce to get back to work.
Q: That’s the question, though, because the conventional wisdom is that WeWork has always been about community, about bringing people together, even people who don’t necessarily work at the same companies. But in a social distancing world, how many of those people are going to prefer—given that they’re in relatively white collar jobs that can be done on a laptop and a telephone—to do those tasks at home if they’re not going to do them at the traditional office that they would have otherwise gone to?
SM: Actually, the key to WeWork is flexibility—flexibility of space, flexibility of time. If you actually come visit our WeWork locations, you’ll see that people can sit six feet apart. There’s distancing available. It’s very easy to reconfigure our spaces to make it safe for the employees. It is not conventional space where you have walls or cubicles that cannot be relocated so quickly.
As I was listening to some of the earlier players on your show, one of the questions was “How do we reconfigure space?”Again, you should think of us as being flexible. Flexibility means you can de-densify. You can spread out locations and people can come to work. I’ve been going to several WeWork offices over the last few weeks, and it is encouraging to see people come and sit in these open spaces six to eight feet apart. So, as a matter of fact, the key words for us are flexibility and collaboration while marking in your distancing.
Q: Right. Sandeep, what does it do to the economics of your business even if you’re able to fill all of these offices at, let’s say, 25 percent, 30 percent? We talked a lot about what’s happening at Disney. It’s one thing to be able to reopen, it’s another thing to be able to get to a significant enough group of people who are there to make each location profitable.
SM: So that’s a very good point. We ended Q4 with about 740 locations. We’re ending Q1 with about 830 locations. One thing that happened, that’s fortunate, is we had this additional supply that came online at the very right time. So, in our case, that effectively gives us an opportunity to increase occupancy and, therefore, we should not see much impact to our economics.
We took a period of time—almost 18 months to 24 months—to mature these buildings, and so if you’ve got 60 additional buildings with capacity to mature over a 24-month period, occupancy is the more important factor than actually occupancy per square foot, from a rent perspective. We do believe that, because of where we sit on an occupancy range, that effectively economics will not drive our decision to create a safe environment for the employees.
Q: The other question when it comes to safety: There was an article in today’s Wall Street Journal talking about elevators. How many people can go in an elevator? In fact, there are people developing and thinking about an elevator for one. How does that work, and how are you thinking about it?
SM: Again, looking at China, we’ve been able to see places that take four people per elevator. You essentially time when people can come in. It’s almost like commuters: When you commute, you pick the best time to commute to make sure traffic is the least for you. I think, over a period of time, people will get used to the times elevators are busy, and they will time it out.
We’re fortunate actually that in 40 percent of our buildings we sit lower in the building where people could use stairwells as well, so that happens sort of by default. We took real estate lower in the buildings and that helps a commuter come into the building without that much traffic. So, again, I think the fortunate part of being flexible in our office space, our location within the buildings, allows us to be more nimble when it comes to serving our employees.
Q: The other question—this idea of a distributed workplace—how much do you think that improves the cause for some companies? You could argue either everybody should be at home or everybody should be at the office. But this sort of midway strategy or middle-ground strategy, does that advance things for a big enterprise company that may want to only put a handful of people in Brooklyn so they don’t have to travel into Manhattan?
SM: Looking at our own workforce and seeing how we bring them back to work, we find it to be—it doesn’t really work if you have an A/B system (if you have teams that stay at home and work by Zoom and other teams that come to work). So the aspect of being geographically distributed, going back to the hub-and-spoke model, bringing teams together so they can work in packs, even if that means they’re in different offices, is actually the way I think people will come back to work.
I think it’s all or nothing, but it will be scaled because no one wants to rush. We ourselves are bringing in 25 percent of our people week one, and after two weeks we’ll bring another 25 percent. Again, having our own geographic distribution, we’re able to accommodate our colleagues to come back and spread out throughout the city and throughout the boroughs of New York City.
I do think, the aspect of WeWork having the flexible space, being geographically distributed within the city and around the world, will actually be an advantage. Enterprise clients of ours are reaching out and saying, you can provide something to us that we really can’t provide ourselves, which is that professional distancing and geographic distribution closer to our employees. So we actually do think this could be a silver lining that I think will help occupancy of our new assets to be brought online in the first quarter.
Q: Adam Neumann, the founder of WeWork and the former CEO there, is suing SoftBank for walking away from that $3 billion tender offer. Obviously the situation has changed from when the tender offer was made, but what’s your position on the situation?
SM: SoftBank has provided about $5.5 billion of liquidity to WeWork since the fall of 2019. That gives us enough capacity to operate our business. We still have $4 billion of liquidity today, and effectively we’ve been able to right-size our organization. We’ve been able to improve by leasing our assets. We’re on a path to profitability in 2021.The $3 billion tender offer has to do with our existing shareholders. It’s noise in the background as far as I’m concerned. My focus is to right this ship, and it doesn’t really take up our time or our energy focusing on a lawsuit between existing shareholders and SoftBank. We’re focused on righting our ship.
Q: Sandeep, are you paying your rent, and how many of your customers have called you up and said, “Wish I could, but I can’t pay my rent this month”?
SM: A good friend of mine, Jeff Blau of Related said, if you can pay your rent, you should pay your rent. So, I called him up and asked him a question. I said, “What should I do?” He said, “The places you make a lot of money, you should pay your rent.” So, I’d like to sit back and say I followed his advice.
We’ve paid our rent at over 80 percent of our locations in April and May. The remaining locations, we’re just in discussions with our landlords in a friendly way. And therefore, we plan to make whole on our entire obligation. I do believe in the trickle-down economy. If I stop paying my rent, landlords can’t make their mortgage payments, and then it’s a domino effect.
On the collection side, we’ve collected over 70 percent of our rents in the month of April, and we are working with small and medium businesses on deferrals and freezing rents in different ways. I speak to them myself. On Saturday, I spoke to a gentleman out of Los Angeles and worked out an amicable solution. Yesterday, I spoke to a gentleman out of our London office and worked out an amicable solution. So we are working with those who can’t afford to pay rent by deferring their rent for a period of time and accommodating to create a win-win situation.
Q: OK. Sandeep, we appreciate your taking the time to speak with us this morning. We hope to follow your progress and hope you come back on as things move forward. Thanks again.
SM: Thanks for having me. Have a great day.
Q: You bet, thanks.
