Indian real estate billionaire Jitendra Virwani, the chairman and managing director of Bengaluru-based Embassy Group, is a hard bargainer and a formidable opponent on the negotiating table. His exploits of making a killing in real estate deals are legendary—he has to his credit built 53 million sq. ft of commercial, residential, and retail space in India. In April this year, his commercial entity Embassy Office Parks, which is backed by global private equity giant Blackstone, became India’s first publicly-listed real estate investment trust (REIT). Since its listing, the unit price of Embassy Office Parks REIT has soared by over 30%. But now Virwani is faced with a setback: WeWork India.

Early this year, he was hoping to raise over a billion dollars by selling a majority stake in WeWork India. Embassy Group has a joint venture (JV) with The We Company to operate the latter’s much-hyped co-working brand WeWork in the country. Virwani owns close to 90% shareholding in the JV and was in talks to sell a majority stake to The We Company and its storied investor, Japan’s SoftBank.

A person who knew of the negotiations back then told Fortune India on the condition of anonymity that Virwani had pegged WeWork India’s valuation at about $2.4 billion. While it was an eye-popping figure, his estimates could have been based on multiple factors. Consider this: The We Company itself commanded a sky-high valuation of $47 billion. Besides, the demand for co-working spaces in India is red hot, with the market now estimated to account for about 10% of the country’s overall office space absorption. And WeWork India has emerged as a lead player in the space.

“They [the Embassy Group] saw a good payday in the making,” said the person cited above. Importantly, Virwani was wanting to push through the deal before The We Company could hit the capital markets in the U.S. But his efforts to bag a heft paycheque from WeWork India didn’t fructify due to differences over valuation.

Experts say now any deal with The We Company (WeWork's parent firm) and its largest investor SoftBank would in all probability be put on the back burner for sometime. Reason: The We Company has shelved its initial public offering (IPO), after struggling to drum up investor interest. The company’s $47-billion valuation, which was propped up by Japanese tech giant SoftBank’s over $10.5-billion fund infusion, failed to satisfy the bulls of Wall Street. “Today, Virwani would get less than half the value he quoted,” says another person on condition of anonymity.

In the run-up to its IPO, The We Company shared its financials which revealed that for the first six months of the ongoing calendar, it posted a net loss of $905 million on revenue of $1.54 billion. In the previous year, the company had reported a net loss of $1.9 billion on revenue of $1.8 billion. More so, many analysts have begun to question the so-called ‘tech credentials’ of The We Company, calling it out to be a pure-play real estate firm that is in the business of leasing office space.

“The problem is not in the business, but the valuation—one man’s crazy madness (Adam Neumann, co-founder, WeWork) and backed by another man’s craziness (Masayoshi Son, chairman and CEO, SoftBank Group) to keep growing that business to a larger than life level,” says a senior real estate executive in India who did not wish to be named. “What has happened to WeWork, in my view, is that it’s basically Neumann’s personality issue and secondly it’s an issue of correction of the valuation,” adds Juggy Marwaha, former CEO of WeWork India.

Added to its IPO blues, over the last few weeks, WeWork has come under severe scrutiny. On September 24, WeWork’s board announced that effective immediately, co-founder Neumann has decided to step back from his role as chief executive. The charismatic Neumann who was running one of the world’s largest co-working space providers was reportedly pressured to step down following a revealing report from The Wall Street Journal which spoke about Neumann’s high-flying lifestyle, drug use, complex company structure, and questionable corporate governance practices. Globally, WeWork has a presence across 111 cities in 29 countries.

During the negotiations in April, the person cited earlier who was aware of the Embassy dealings says, “They [the Embassy Group] got the signs that all is not well and that they would need to buckle up.” The person goes on to add, “The fundamentals of the business is good. The We Company IPO or no not, Embassy Group was completely running WeWork India. Virwani just thought he could make a billion dollars by selling over 50% stake, which will not happen now.”

Interestingly, in late 2016, Virwani and his elder son Karan Virwani got  first-hand experience of the WeWork headquarters in New York, which convinced them about what the combination of technology and real estate could achieve. WeWork India—which is helmed by Karan Virwani along with Ryan Bennett from the WeWork global team—started operations in July 2017, having opened its first shared-office space with 2,200-plus workstations at a property of the Embassy Group on Residency Road, in Bengaluru. Today, it has built a network of 23 shared working centres in key cities such as Bengaluru, Delhi-National Capital Region (NCR), Mumbai, Hyderabad, and Pune comprising a total of about 39,000 seats or desks.

Even though WeWork’s valuation bubble has been busted, the business fundamentals of flexible workspaces in India and across the globe are here to stay, due to the rising demand for such spaces among large corporates. According to Marwaha’s back-of-the-envelope calculations, about 38 million sq. ft of office space would have been absorbed across the country’s top metros by the end of this December. Of that, four million sq. ft would constitute flexible workspaces, he says.

“The co-working market in India is still very nascent and has a high demand. It witnessed 23% growth in Q2 2019 over the preceding quarter across the top seven cities,” says Shobhit Agarwal, managing director and CEO, Anarock Capital. “WeWork India’s valuation and future expansion plans may not be deeply impacted by the recent delayed listing plans of the global co-working unicorn.”

However, some analysts believe that Virwani might not be inclined to put in more of his personal money in growing WeWork India at the pace it has grown. Says a real estate analyst, who didn’t wish to be named, “Landlords will not give properties easily on revenue models — WeWork India used to thump its chest and get zero-deposit deals and demand tenant improvements. Those will not happen now.”

While WeWork India declined to comment for this story, calls and text messages to Virwani went unanswered.

“Virwani should just stay put with WeWork India at 40,000 to 50,000 desks, operationally run it well and then figure out a way [to exit] when the storm settles,” adds the analyst.

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