WHEN: Today, Thursday, April 11, 2024
WHERE: CNBC’s “The Exchange”
Following is the unofficial transcript of a CNBC exclusive interview with Flow Co-Founder Adam Neumann on CNBC’s “The Exchange” (M-F, 1PM-2PM ET) today, Thursday, April 11. Video of the interview will be available on CNBC.com.
All references must be sourced to CNBC.
TYLER MATHISEN: Nearly five years after WeWork’s implosion, remember that, Adam Neumann is back now in the spotlight unveiling his newest venture. It’s called Flow. And it aims to — quote — “transform the residential experience.” And he’s already got the backing of Andreessen Horowitz, who gave Neumann $350 million a year-and-a-half ago. That is the largest individual check the V.C. firm has ever written in a funding round, valuing the start-up at a billion dollars. Adam Neumann joins us now, along with Deirdre Bosa, who’s in Fort Lauderdale, Florida, for Flow’s initial launch — Deirdre.
DEIRDRE BOSA: Tyler, thank you very much. And, Adam, it is nice to see you. Thanks for welcoming us here for launch day. You’re launching your new venture today, Flow. I know that you have been heads down over the last few years, just concentrating on developing it. I want to get into it. I want to get into WeWork, which I know you’re trying to buy back. But, first, I thought we might just address the elephant in the room. Some people might be surprised to see you on our screens again. What are you going to do differently this time around?
ADAM NEUMANN: Well, first of all, thank you so much for coming down here to Flow Fort Lauderdale. It is an extremely exciting day for us. But let’s start with that. We built a global brand. We had over 10,000 employees that were so passionate. We helped redefine a category. And every single thing we did had to do almost anything and everything with community. I am the kind of person that actually learns more from their mistakes than from their successes. So, all the great things we did in the past, we’re going to do again. But then I had time to reflect, for example, partners. I’m so grateful and lucky to have Marc Andreessen and Ben Horowitz from a16z as my partners. For those of you who don’t know, they both come to my board meetings. And our boardroom is exciting. And for those of you who don’t know them, they speak their mind, if you want them to or if you don’t.
BOSA: So, there’s more debate in the boardroom than there was before?
NEUMANN: Debate is an understatement. There are lively discussions that can go all over the place. They’re also a great partnership themselves, so it could be them and me and us.
BOSA: Do they hold you more accountable?
NEUMANN: Everyone’s holding everyone more accountable. And I have the pleasure to working with them, and they are entrepreneurs. This is actually their third business. So, it’s one thing to have investors who are giving advice. It’s another thing to have entrepreneurs who you consider peers that are working with you. That’s one example. The other one is something you just said. I have taken my time. We did not rush. We did not rush to launch this brand. We have been running this business for the past two years. We built our operating systems. We built our technology back and then front end. We rebuilt processes. We rebuilt a property management company. And we did all of that to practice and test and see what works and what doesn’t. And even before we launched the brand, this building that you’re in now is 95 percent full. Our other Florida location is 96 percent full, and that was before the brand.
BOSA: Right. So I want to get into Flow and this business model. Your mission — I’m going to read from your website — revolutionize the residential experience as a virtually integrated, vertically integrated real estate owner, operator and technology innovator. What does that mean?
NEUMANN: So I’m not sure where you read that in the website, but it’s actually more about coming to your higher self, between you and yourself, your neighbor and the world. So, our mission is actually bringing everybody together. What you read, I think, is from the bio, which is a little bit of what we’re doing. But I will explain—
BOSA: Is that accurate, though? Are you a real estate owner, operator, and technology innovator?
NEUMANN: Extremely accurate. So, Flow is an experience-first residential real estate company. We’re vertically integrated. So, we have technology, we have operations and we have the people that bring it all together. Also, as you can see around you, design is a very important aspect of what we do. And by bringing all of these things together, we had a theory two years ago that the buildings would become more valuable. In both of our Florida properties, we’re already starting to show that with much higher performance on—
BOSA: Are the buildings more valuable than when you bought them?
NEUMANN: So, more valuable — now we’re asking a real estate question of cap rates.
BOSA: Yes.
NEUMANN: But if you’re asking if the buildings have a higher NOI, net operating income, than when we bought them—
BOSA: Right.
NEUMANN: This building you’re sitting in has a 40 percent higher NOI than when we took over 18 months ago.
BOSA: And does that mean that you have increased rents, rent growth, which is also a metric important in the industry?
NEUMANN: That’s a great question. We also increased rent growth, but some of your viewers might say, oh, Miami’s rent growth are up. So, actually, Fort Lauderdale, where we’re at, rent has gone down 8 percent in the past 12 months. So, we have increased our rent. But, also, we lowered churn. When people like being in a building, when they actually feel like they’re part of a community, they stay. When people stay, and there’s no churn in the building, it increases occupancy and increases the value. But that’s just one example.
BOSA: So, just to be clear, you are increasing value, and that’s reflected in the value of the real estate that you own?
NEUMANN: So, I’m going to answer it very precisely. Another lesson. I’m going to answer it very precisely. We have increased the net operating income of the building you’re sitting in by over 40 percent since we took over 18 months ago. If you want to say what it’s worth, that’s a question for people who buy—
BOSA: It’s a different metric.
NEUMANN: It’s a different metric. But NOI is how we’re measuring it and the value of the building. You only know, by the way, what a building is worth is when you sell it.
BOSA: So, what you’re describing, there’s another word for it. It’s purpose-built rentals. It is a large category already. It’s not new, and it’s not technology. So, why is Flow different? Why are you calling Flow a technology innovator?
NEUMANN: Great question. We talked about partners. Marc and Ben are technology investors. When we started this—
BOSA: Well, now they’re real estate investors also.
NEUMANN: Well, it’s funny. Tesla — is Tesla a car company or a tech company? So, I think we live in a world today where you can look at entire categories. If you’re not leveraging technology to make things better, then you’re stuck in the past. The systems in real estate, technology systems in real estate, were literally built in the ’60s. And they used to just be accounting systems. What they don’t do is, they’re not able to connect people. One of the way in Flow we make the building more valuable is, we make the residents happier. One of the way we do it is, we allow them to do business with each other. We allow them to do something we call passion-sharing. Our residents, some of them are very excited about giveback. We facilitate that. So there’s a lot of different things we can do in a building.
BOSA: Yes.
NEUMANN: Technology represents the backbone and the front end of running all those things.
BOSA: Right. And you were showing me the app, which launched today as well. But I’m still wondering, how is it disruptive? Because, when I look at this purpose-built rental category, it’s around. You have got people like One Hudson Yards, or an AvalonBay, or even a Toll Brothers is doing something similar. So what is the actual technology in your building that separates it from one of them?
NEUMANN: So, this is an interesting question. You could build a tech company that’s only the backbone of real estate, and you can build a branded operating company that’s only the operation of the business. The only way you can build something integrated is if you’re doing both at the same time. There’s not one at — as far as I know, all the names you just said do not build their own technology. They actually rely on third parties. So, if you’re using an app in any of those, you would have one feature — one app probably for payments, another one for parking, another one for guest registration. You will be using three to five different systems just to operate in the building. We have created a seamless experience. But more importantly is the data. Once you understand everything that’s happening in the building, you know who to connect to who. You know how to price things. So, we redid our pricing algorithms. You can do a lot of different things leveraging technology. But I think the real answer is, I think we live in a world where we should look at things as entire categories. There is not, as far as I know, a branded residential real estate company for rent, for rentals in the U.S. today.
BOSA: Not the ones I just named?
NEUMANN: I — you and I might define brands differently. For me, a brand means there’s a television show.
BOSA: OK. So, are we going to get a television show, a media offspring from this?
NEUMANN: I don’t know. I don’t know.
BOSA: Let’s go on, I guess, a little bit. And you’re building all the technology in-house. That is a really important distinction. How many engineers do you employ as part of this team at Flow?
NEUMANN: So, we have been very picky. And we’re very lucky to have a great leadership team in engineering, again, another partnership with a16z. Actually, Ben Horowitz helped me choose the CTO. So we went — it took us — we took a long time to look at who we thought were the best CTOs in the country. Ours is named Scott Ryder. He came from WhatsApp. Before that, he was in charge of a lot of things and doing a lot of very interesting things. And when we hired him, one of the things we decided is, we’re going to stick to the highest tech level, tech talent possible. So, in the tech team, you have approximately 50 people, between engineers and product people and support all around. But we’re actually recruiting aggressively and growing fast.
BOSA: Right. You have mentioned Marc Andreessen a few times. And this sort of points to this broader ambition here. You’ve talked about this, and Marc Andreessen wrote about this in his blog when he first invested in Flow. And that is, you want to help solve the housing crisis in America. There’s a lack of supply. There’s rising prices. How are you doing that? I wonder, you scooping up 3,000 units, does that take supply off the market, or is the calculus changing for homeowners? Is the dream still there? And how are you fixing it?
NEUMANN: I think you’re touching a very serious point. So, I think we’re part of a renter generation. Just a little bit of numbers for the viewers, over two-thirds of 35-year-old and younger in this country today are renters. They spend 34 percent, in average, of their total income on rent, which means you have a whole generation that probably from age 20 to age 40 is going to be a renter. Buying a home has never been more expensive. So, if that is the case, and, as a young adult, you’re not able to buy a home, and you want to rent it, you want to get an elevated experience. You want a seamless experience. But there’s also another problem. Because we can’t buy homes, I think, for human beings, shelter and a home is one of the most, if not the most important, thing we can have. If I don’t have a home that I can feel proud of and I don’t feel connected to, then how can I connect to myself. I think we live in a world where we’re so connected with our phones and devices, we have never been more disconnected. So, something else Flow does, through events, through community, through everything that we have been good for a long time in doing—
BOSA: Yes.
NEUMANN: We bring people together. And it’s funny. It doesn’t take that much work to help people come together, because I think these experiences, as technology goes forward, AI goes forward, as we progress, I think physical, real-world community, real-world connections have never been more important.
BOSA: You’re also trying to give your renters a sense of ownership, right? Is there a way that you can give them an actual ownership? I know that that’s something that other real estate companies, property developers are trying to do. Fractional ownership is really difficult. But are there any other ways? Because, if people are renting, but the ultimate aim is to own a home, how do they get closer to that goal?
NEUMANN: So, let’s divide the question into two. I think the ultimate aim is to actually feel proud of where you live. If you own it, if you’re renting it, if you’re sharing it, whatever it is, you really want to feel at home and you really want to feel connected, as we said before. And we’re on a journey of exploring all those different things. We’re starting with loyalty programs just to find a way to create a win-win scenario between the renter and ourselves. And we’re just at the beginning of it. But if you want to solve this problem, you’re going to want to, over time, get into all these challenges that you spoke about.
BOSA: OK. I don’t want to let you go without talking a little bit about WeWork because there’s been news in the media recently. You’re trying to buy the company back. Have you made any progress? What is the status?
NEUMANN: So, most important thing — and I’m sorry I’m repeating myself so many times — whatever I’m doing, I’m doing through Flow. So, Adam is not trying to do anything. Flow knows that the future of living and the future of work are really connected. It’s a hybrid world. Do I think people need to work from the office? Yes, I actually believe that face-to-face connections are very important. But the reality is that different people are going to work in different ways. So, for Flow, exploring WeWork made a lot of sense. So we’re exploring.
BOSA: Can I ask you why you would like to buy back WeWork? It seems like you’re developing. You have co-working spaces here in your Flow buildings. And it’s in a dire financial situation. In January, I think it brought in revenue of $90,000, lost $150,000. Why do you want it back?
NEUMANN: Slowly. Even though I don’t know the numbers by heart, it probably brought revenue — WeWork’s revenue is north of $2 billion a year.
BOSA: One month.
NEUMANN: So, no — so, one month would have to be…
BOSA: OK.
NEUMANN: North of $150 million a year — a month. But put that number aside. I actually don’t know the exact numbers. And, as I said, the future of living integrates work into it. It makes sense for Flow to observe — to consider to do it through WeWork. If that works out, excellent. If it doesn’t work out, you’re going to have to find a way to connect the two no matter what.
BOSA: OK. And if I could sort of wave a magic wand and say, you have control right now, what would you do to fix WeWork? Does it need fixing?
NEUMANN: So, I think something maybe people confuse about WeWork, it’s only declared bankruptcy in the U.S., not globally. WeWork has a lot of global places where it’s very profitable, like Israel, India and a lot of European cities. And if I were to wave the magic wand, I would take the things that I just spoke about Flow, our values of give and grow — we talk a lot about Flow about giving. Giving is receiving. Our residents, we didn’t talk about giveback, but our residents are very excited about giveback. Our employees are very excited about giveback. We had this morning a giveback event and yesterday a giveback event.
BOSA: You did that with WeWork as well, though.
NEUMANN: We did do it with WeWork. We did a lot of it. But I feel like, in Flow, we’re taking the best of the best and putting that in the DNA on the first day. And I think that’s the big difference. So, I will take the best things we’re doing in Flow right now from design, from giveback, from values, integrate them into WeWork or whatever it is the future of work that’s going to solve the problem.
BOSA: Right. Well, I look forward to seeing how that evolves. Adam Neumann, thank you very much for spending the time with us today.
NEUMANN: Thank you very much.
BOSA: And, Tyler, I will hand it back over to you in Englewood Cliffs.
