Adam Neumann is one of the most famous entrepreneurs in the world, thanks to the success (and failure) of WeWork, along with the numerous documentaries and television series chronicling it. Because of this fame, everything he does from here on out will garner a lot of attention.

So it is no wonder that when he announced his new venture, a multifamily concept called Flow, it was national news. The $350 million that was invested by a16z, one of the most successful venture capital firms, didn’t hurt either. Very little detail was given about the company except that it was a community-oriented, vertically integrated apartment brand built around proprietary technology.

Flow has acquired six buildings, including two in Nashville. The first is 535 Main, a 270-unit complex bought in 2021 for $79 million. The second, 210 West End, is a mid-rise, 400-unit building. It was acquired in 2022 for a record-setting $158.72 million, amounting to $448,000 per unit.

Like most other real estate investments, these properties have struggled as interest rates jumped and rents plateaued. Now, both buildings are facing a cash shortage. Since these properties were part of a joint venture with the crowdfunding website YieldStreet, they have ended up as deals offered on their online portals.

The opportunities are fairly similar (btw this is not investment advice). They both offer equity in the building that gets paid off before other equity investors but after the lenders and leadership team. They are both meant to pay off an extension for mortgage rate caps that have helped insulate them from the escalating rates on their floating-rate loans. They are both expected to pay back in 24 months but are not required to. YieldStreet hopes to pay back the accrued interest and principal owed to investors upon a sale or refinance, which is expected by late 2025. YieldStreet also has the right, but not the obligation, to compel a sale of the property in April of this year to force a repayment of the loan.

The investment in 535 Main is expected to return 16 percent annually, and 210 West End is expected to return 20 percent. According to the investment docs, 535 Main is 90 percent occupied, and rents are 6 percent higher than at acquisition. 210 West End is also 90 percent occupied, and rents are 11 percent higher than they were when it was purchased. 210 West End has a $118.75 million loan at a rate of 3 percent, and 535 Main has a $62 million first mortgage with an interest rate of 3.4 percent. Both of these rates have only remained at these low levels thanks to caps that were purchased at a strike price of 3 percent for 210 West End and 2 percent for 535 Main.

The financials are only a part of the equation. Adam Neumann’s notoriety and the Flow brand he is building should, at least theoretically, help the building have lower vacancy rates and higher rental prices than the competition. But for as much emphasis has been put on the technology stack that Flow has invested in, the website still says “Coming 2023.”

The high yield, high profile nature of these investments could certainly be attractive. But the high price point that these properties were purchased at, the floating loans that they are financed with, and the lack of clarity on the payback of the investment certainly pose a significant risk. We will continue tracking these investments as they develop to see if the market thinks the risk is worth the reward. Either way, it will tell a lot about how much value investors see in the Flow brand and Neumann’s community-oriented concept.

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