Adam Neumann's new startup Flow runs into trouble in Nashville

WeWork, which recently emerged from bankruptcy under new ownership, was known for renting colorful and fun workspaces to its employees. Flow aims to add a special touch to the residential buildings it manages, such as playful neon signs with inspirational messages.

A Flow spokesperson attempted to distance the Miami-based startup from the West End property, built in 2010, saying that Flow has never managed the building and is merely a minority owner.

“The purchase of the building predates Flow's existence and Flow's business plans never included the management of the building,” the statement said. “Flow is a minority shareholder with no controlling power and the building has met its obligations,” it continued.

In fact, 2010 has been operated for some time by RPM Living, a Denver-based property manager. It came to Flow through a broader transfer of six real estate investments originally made by Neumann's family office, Nazare Capital, that were transferred to Flow prior to its launch.

Nazare, and now Flow, was the sponsor of the deal, meaning it recognized the investment opportunity and turned to Yieldstreet to raise money. Yieldstreet owns the largest stake through the money it raised on its platform.

But the property has cost investors millions of dollars in capital calls, and Flow's remaining stake in 2010 is at risk of being wiped out along with the Yieldstreet investors, documents show. Meanwhile, it's unclear what Flow plans to do with that property. Flow, which currently manages two properties, one in Fort Lauderdale and one in Miami, did not respond to a request for clarification on that point.

It's the latest sign of stress among real estate investors who entered the market during the pandemic boom. Nashville's massive rent hikes attracted homebuilders who flooded the market with new supply, causing rents to collapse and a reversal of fortunes. Meanwhile, small investors who put money into real estate crowdfunding are now facing the consequences of their investments near the market's peak.

It's the latest sign of stress among commercial real estate investors who entered the market during the pandemic boom. Nashville's massive rent hikes attracted homebuilders who flooded the market with new supply, causing rents to collapse and a reversal of fortunes. Meanwhile, retail investors who had poured money into real estate crowdfunding are now facing the consequences of their investments near the market's peak.

About the deal

2010 West End was purchased in December 2021 by a company affiliated with Nazare Capital and Yieldstreet for $158.7 million.

The building was new at the time of acquisition and was just being leased to tenants. According to Yieldstreet Communications, it lost $3.6 million in 2023 and $3.7 million in 2022 due to rent concessions and rising capital costs.

Now, further capital injections are required to continue operations, but neither Yieldstreet nor Flow seem willing to invest further in the building.

“In order to continue operations, the property requires additional capital contributions. However, given the current capital structure and the market environment mentioned above, Yieldstreet and the sponsor do not consider it advisable to contribute more equity to this deal,” the update said.

Flow and Yieldstreet have already pumped over $10 million worth of loans into the property, including the $5 million Yieldstreet raised on its platform earlier this year to cover operating costs to purchase a rate cap, according to documents reviewed by BI.

The $32 million equity of Yieldstreet's crowdfunding investors and the $16 million equity currently owned by Flow are at risk of being wiped out entirely as the pair “explore all options” with their lender to try to save the business, whether through a sale, recapitalization of the building or debt restructuring.

“Currently, the share capital investment is significantly impaired and repayment at any level is not clear,” the update said.

Meanwhile, on the other side of town, a 268-unit building called Stacks on Main, which Nazare bought for $79 million in July 2021, is also in trouble. According to a note from Yieldstreet to investors in May, the property was “not generating sufficient cash flow to service debt payments” and needed additional capital calls this year. Yieldstreet invested in both of those deals through two separate special purpose vehicles.

Flow did not respond to a request for comment on Stacks on Main, which is also one of six properties transferred to the startup ahead of launch, but a person with knowledge of Yieldstreet's operations said that this second Nashville property no longer requires a capital call.

Crowdfunders are waiting for bankruptcy

When interest rates were low, many Main Street investors turned to crowdfunding platforms like YieldStreet to gain access to the booming real estate market. With interest rates limiting the return potential of real estate, some of these investors regret the purchase.

Investors on Yieldstreet must be accredited investors, meaning they are deemed by the SEC to have sufficient income, assets, or professional training to invest in certain securities.

Business Insider spoke to a YieldStreet investor in February 2022 who invested $300,000 in the 2010 West End deal. The investor, who works in the multifamily real estate industry, requested anonymity because speaking to the press could potentially have professional consequences.

“To be honest, it's embarrassing,” he said. “I work in the multifamily housing industry. I definitely should have seen some warning signs.”

At the time, he wanted to diversify his portfolio outside of the stock market and the projected annual return of 17 to 19 percent “lured him in,” he says.

“I feel like a fool, but when I saw this, my eyes lit up,” he said. “The biggest mistake I made was not really looking into it and realizing the real risks involved.”

The investor said a tracker on YieldStreet's website showing how close the deal was to closing prompted him to invest quickly because he feared missing out.

Rents in Nashville rose 20.8% in 2023 and 14.6% in 2022, according to a report from Zumper, but the dual challenge of high interest rates and a sudden flood of new construction caused rents to drop 10% since last July, according to a report from Realtor.com.

The investor said he noticed warning signs almost immediately after investing. First, the property failed to meet its occupancy goals, and then he began renting out rent-free for months to attract tenants. The investor lost hope when he learned that Adam Neumann was the owner and founder of Nazare, the original sponsor of the deal before the property was transferred to Flow. This information was disclosed in the investment memo, but in his haste to invest, he didn't see it until the main offering page.

“If I had known Adam Neumann had anything to do with it, I would never have put my money into it,” he said, citing Neumann's track record in running WeWork.

This investor says he is done with real estate crowdfunding.

“To me, these crowdfunding platforms are for the deals that the big guys don't want to be involved in, the bottom-tier deals,” he said. “They know that through volume they can attract some small investors, they can close some of these deals and then collect their management fees. They're not acting as fiduciaries; they're just trying to close these deals as best they can.”