By Jack Stubbs
Many people still think of WeWork as a company that once heightened the prevalence of shared workspaces across the country. In recent years, however, the growing company has moved towards becoming a global landlord and property management firm. With an increasing sphere of influence in the commercial real estate market, WeWork’s enterprise division has in recent years taken to subleasing large blocks of space to enterprising technology companies as well as large industry titans like Microsoft, Facebook and Google.
And now, as WeWork looks to play a more prominent role in the commercial leasing space, the company is also focused on defining its relationship within the traditional brokerage and agency set up, as well. In June 2018, the ever-expanding landlord, co-working space incubator and property management firm released its revised WeWork Broker Partnership Program, which attempts to define the rules of engagement with the commercial brokerage industry.
Initial feedback is mixed. While some brokers are finding working with the company as a great way to grow their business, there are others who are critical of the terms and find them out of step with the legacy agency relationships.
WeWork states that its Broker Partnership Program “rewards brokers for connecting their clients with the WeWork community.” According to the Broker Partnership Program terms of service, “WeWork will compensate you if you are an eligible broker for each qualified member introduction that leads to the execution or acceptance of a WeWork membership agreement.” For brokers to be eligible to receive a commission for a referral as described in the program, WeWork states that brokers “must accept these terms and conditions,” and it does not provide an opportunity for negotiation.
Some within the industry think that the program might set problematic precedents moving forward for the client-broker relationship. According to one industry source who asked not to be named, the new partnership is not really a program at all, but rather a process that interferes with the traditional client-broker relationship. “The relationship that brokers have with their tenant-client is a monumental issue in the brokerage industry. To have any landlord—or in WeWork’s case a sublessor—take this position is offensive.”
Certain regulations within the program reflect an infringement of the client-broker relationship, according to the industry source. “Tenants have the right to be represented. Once they’ve made that choice, at minimum it is unethical for an outsider to tamper with that relationship,” he said, also adding that the laws of procuring cause govern how and to what extent tenant-brokers should be compensated. “Trying to interfere with a tenant’s relationship with its broker is not only bad business; it’s a death knell for anyone in a major office market,” he added.
But, some of his colleagues disagree. The flexibility of the space has given others an opportunity to expand the offering they present to their clients. “Our partnership with WeWork has proven to be an invaluable decision for our clients. The range of solutions that WeWork provides their members gives our clients the flexibility and creativity to thrive. These solutions are more dynamic and will continue to further our relationship with the WeWork team,” said Gethin Davies of Instant Offices in New York.
Having that flexibility can help patch a short-term need for others, as well. Susi Musi of Skyline Properties in Seattle has also worked with WeWork directly and finds the partnership as an added bonus to her services. “My initial conversations with WeWork were for clients looking at short-term, flexible options. With the addition of large offices and Powered by We to the WeWork platform, I’m now recommending WeWork to companies of all sizes with varying requirements,” she said.
Yet, the new terms could be seen as restrictive in ways that brokers introduce clients to WeWork. Specifically, the program lays out the guidelines that a broker must meet for an “introduced entity” to be considered a qualified introduction for which the broker can receive compensation. In order for a client to be considered an introduced entity to WeWork, the client must not be a current or previous member of WeWork; not have previously contacted WeWork for a membership or attended a WeWork event within 90 days of the date of the introduced entity submission; and not be a subsidiary or affiliate of the broker, the brokerage firm or any entity in which the broker shares an interest in.
This guideline, in particular, might be difficult to satisfy, given WeWork’s expanding global reach, according to Mark Ritchie, president at San Francisco-based Ritchie Commercial Inc. “To not be a current or previous member of WeWork is going to become harder, because it seems like at some point the whole world will have been [a member],” he said.
Offering another perspective, the anonymous industry source highlighted how the qualified introduction clause of the might be particularly confining. “What if the tenant already knows the landlord, or the tenant has visited the building before for any reason? Or perhaps the tenant once maintained a lease in that same building, or in another building owned by the same landlord?” he said. “None of this makes any difference, or changes the very basic dynamic: The tenant chooses to be represented by their broker designee, period.”
Additionally, WeWork states that brokers will only receive fees if they “actively represent the client in their search for commercial workspace solutions and negotiate with WeWork and promotes WeWork to the client.” According to the source, this requirement could represent a contradiction if WeWork is attempting to cut the broker out of the negotiation process. “The notion that in order to be paid a commission we have to commit to promoting WeWork is a totally unrealistic expectation and flies in the face of the representation agreements we have with our tenant-client,” he said.
Another of the potential obstacles that the program represents is that it makes the negotiations of brokers performance-based, something that has not traditionally been the case in the industry, according to Ritchie. “This agreement makes your getting paid performance-based on the tenants you place, which is very difficult for brokers. In the brokerage business, that’s at the core of all leases, the tenant’s ability to pay rent,” he said. “But we don’t guarantee the performance of tenants, because if we did, all brokers would go out of business in the next recession. The decision of accepting a tenant is based on the landlord’s assessment of their financial worth, but brokers don’t underwrite the financial worth of tenants,” he said.
There might also be implications of this performance-based dynamic for brokers further down the line, as well. In terms of compliance with the program, WeWork states that brokers who fail to comply with the terms of the rules may receive either a strike or other action from WeWork, and brokers can receive a strike if a client or referred entity fails to pay WeWork the agreed-upon monthly membership fee. “That’s not good; brokers don’t like that. Brokers can’t be involved in guaranteeing the performance of tenants, or we would all be out of business,” Ritchie said. However, Ritchie thinks that WeWork’s establishment of the detailed program is a reflection of the company’s scale and its ability to impact the industry moving forward. “In 40 years, I haven’t seen anything this detailed…if a regular landlord wanted you to go into this much detail about the movement and fees, I don’t know that anyone would do it,” he said. “But given the scale of WeWork, I can see why their lawyers and investors would have this agreement; it’s a sign of the times,” he said. “This is the standard stuff that a sophisticated landlord would want to ideally have if a broker were bringing a tenant…the difference is that WeWork is changing everything, because we’re all used to having the executive suites industry in and around us.”
The program also includes requirements about a submission process, which regulates how brokers introduce qualified clients to WeWork. However, this submission process is not typically something that brokers have to formalize, according to the industry source. “Do tenant-brokers need to provide copies of their exclusive brokerage agreements to listing brokers or landlords? Of course not. In actual practice, formal registration agreements are not required by landlords,” he said. “When a tenant crosses the threshold of a building with their tenant-rep broker in tow, the tenant and broker are effectively joined at the hip. If ever there’s a question during a first building tour, the matter is usually quickly resolved. No landlord wants to pay two separate tenant-rep brokerage companies for the same transaction.”
The program states that all information related to an introduced entity’s or referred entity’s membership agreement, “including without limitation the actual or proposed pricing thereof” will be WeWork’s confidential information and may not be disclosed by the broker to any third party. However, the industry source thinks that this stipulation might set problematic precedents for an industry that “doesn’t work this way…asking rates are not confidential info,” he said.
WeWork states that it values its relationship with the brokerage community and sees it as a strategic partner in helping its growing business. “From the highest levels at WeWork, we’ve made it clear that we deeply value and view the broker community as strategic partners. It is a mission-critical relationship and one we’ve worked hard to build into a positive one, as evidenced by the fact that we presently have over 10 thousand brokers signed up to WeWork’s referral program globally. This huge growth in brokerage partnerships is not just because we tend to pay the highest commissions in the market,” said Gal Har-Zvi, WeWork’s Global Head of Growth Partnerships. “More importantly, brokers who partner with WeWork are gaining an entire team of allies and experts dedicated to helping them drive the best outcomes for their clients, and that partnership continues as WeWork empowers brokers to help their clients painlessly renew and grow within the WeWork community. That’s a true value-add for the long-term and one we strive to improve every single day. Further, it’s best to judge a technical agreement less by its legalese but rather by outcomes — how do people feel after working with us? I think you’ll find it’s a truly positive one where all sides add and gain value,” he added.
In the wider context, there is some concern that the new partnership program will disrupt the brokerage industry, which has traditionally depended on a cooperative relationship between all parties. “More to the point about brokerage customs and policies, there are undeniable dynamics in the marketplace which are irrefutable,” the source said. “To the extent WeWork’s business model depends upon cooperation from the brokerage community in any and all markets where WeWork does business, [the company] will suffer greatly. WeWork controls their own space; that’s the end of their sphere of influence.”
Providing a longer-term perspective, the source highlighted his belief that the agreement might not be well received by the wider brokerage community. “I cannot envision any brokerage firm signing on to WeWork’s new brokerage policy,” he said. “Perhaps in tight markets some brokers will succumb. But I believe that most tenant-broker relationships rise above the level of WeWork’s policy…I think WeWork will completely alienate the entire brokerage community. Then they’re going to need to change their ways and act more like everyone else does in a very old and established industry.”
Yet, JLL and Cushman & Wakefield, two global brokerage firms, like their prospects.
“Having a team that understands what brokers do and how our clients analyze their real estate decisions is a tremendous benefit of partnering with WeWork. From custom builds to full floor options, WeWork’s Enterprise platform allows me to offer multiple, creative real estate solutions for my clients,” said Steven Rotter, vice chairman of JLL in the company’s New York office.
“Cushman & Wakefield are delighted to collaborate with WeWork in building new communities with culture and energy for our clients. We have been partners with WeWork for a near decade and look forward to continuing to partner to add value for our clients,” added Bruce Mosler, chairman of global brokerage at Cushman & Wakefield in New York.
However, in broader economic terms and in spite of the WeWork’s rapid growth and its attempts to impact the brokerage industry, the company might still have things to learn in the future.
WeWork’s program is a reflection of the fact that the company, founded in 2010, is still relatively new to the market and hasn’t yet experienced the impacts of an economic downturn, according to the source. “They are more than a fast-growing company that I think is really disorganized in many fashions…I think they have a hard time tracking all of their activity, simply by virtue of being relatively new in the industry,” he said. “They haven’t faced a downturn yet, and when they do, all sorts of fundamental changes in the supply-demand balance will start to change things like the brokerage policy.”