Indian real estate billionaire Jitendra Virwani, the chairman and managing director of Bengaluru-based Embassy Group, drives a hard bargain. His exploits of making a killing in real estate deals are legendary. To his credit, he has built 53 million sq. ft. of commercial, residential, and retail space in India. In April, his commercial entity Embassy Office Parks, which is backed by global private equity major Blackstone, became India’s first publicly listed real estate investment trust (REIT). Since then, the unit price of Embassy Office Parks REIT has soared over 30%.

But recently Virwani was faced with a temporary setback: WeWork India. Virwani’s plans of raising a billion dollars by selling a majority stake in the joint venture (JV) with WeWork had suffered a blow after the latter decided to postpone its initial public offering (IPO) due to lukewarm investor interest. Speculation was rife about how Embassy would respond to the crisis at The We Company, WeWork’s parent organisation.

However, WeWork India is unruffled by the chaos at The We Company. It has drawn up plans to almost double the number of co-working spaces in India, from 48,000 desks to 90,000 desks by next year. According to Embassy Group’s contractual agreement with The We Company, it needs to operationalise 90,000 desks by June 2021 to retain the franchise rights in India. “Due to the [lower] valuation, we won’t be raising the $200 million through equity but through structured debt,” says Virwani.

Virwani, who owns a 90% stake in the JV, had talked with The We Company and its storied investor, Japan’s SoftBank, in April for a deal to pare his stake to 30%. He had wanted to push it through before The We Company could hit the capital markets in the U.S., but there were differences. “They wanted to buy [the majority stake] in stages, while we were not keen on selling it piecemeal,” Virwani tells Fortune India. “When it [The We Company] was valued at $47 billion, this entity [WeWork India] was worth $11 billion. But we decided to sell at $3 billion. Which investor would buy [at the $11 billion valuation]?”

The We Company shelved its IPO because of low investor interest despite its sky-high valuation propelled by SoftBank’s $10.5-billion fund infusion. Its financials also paint a sad picture—another reason for investor scepticism. For the first six months of 2019, it posted a net loss of $905 million on revenue of $1.54 billion. In 2018, its net loss was $1.9 billion on revenue of $1.8 billion. Many analysts have also begun to question the ‘tech credentials’ of The We Company, calling it out to be a pureplay real estate firm that is in the business of leasing office space. “We have always looked at it [WeWork] as a pure-play real estate company,” concurs Virwani. Globally, WeWork has a presence across 111 cities in 29 countries.

“The problem is not in the business, but the valuation—one man’s madness [Adam Neumann, co-founder, WeWork] and backed by another man’s decision [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 on condition of anonymity. “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, but the India story is slightly different as the business fundamentals are strong,” adds Juggy Marwaha, former CEO of WeWork India. “Out of the 4.4 million sqft of co-working space signed by all players, WeWork India has signed 2.7 million sqft this calendar year.”

On September 24, Neumann stepped down from his role as CEO of WeWork follow ing a report in The Wall Street Journal about his high-flying lifestyle, drug use, the complex company structure, and questionable corporate governance practices.

But Virwani firmly believes in the co-working story and is now committed to growing WeWork in India. 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 is leading the space. According to Virwani the absorption of coworking spaces would rise to 20% next year. WeWork India claims to have a 40% share of the market.

To date, Embassy Group has invested ₹900 crore in WeWork India. “With or without Adam [Neumann], coworking is here to stay. People and companies believe in this business,” adds Virwani. “We are quite happy to be left alone and build the brand in India. We still have a good relationship with Adam; he’s a good human being.” Embassy Group bought into the coworking space idea after Virwani and his elder son Karan Virwani visited the WeWork headquarters in New York in 2016. WeWork India, with Karan and Ryan Bennett from the WeWork global team at the helm, started operations in July 2017, opening its first shared-office space with 2,200-plus workstations at a property of Embassy Group’s on Residency Road in Bengaluru. It has built a network of 23 shared working centres in key cities such as Bengaluru, Delhi-National Capital Region, Mumbai, Hyderabad, and Pune.

“We are more than double [the size] of our nearest competitor,” says Karan Virwani, chief WeWork executive officer, WeWork India. “The business continues to be strong and we don’t see demand slowing down. In fact, we clocked sales of over 10,000 desks in the last three months— our largest sales quarter,” adds Karan. “The co-working market in India is nascent and has 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.

Meanwhile, Virwani is also readying plans to raise ₹4,000 crore from the sale of Embassy Group’s commercial assets. “We require ₹1,400 crore as growth capital and need another ₹1,500 crore to pare debt on our residential portfolio,” he explains.

This story was originally published in the November 2019 issue of the magazine.

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