WeBroke WeWork, WePromise WeFix it: How subleasing giant hopes to survive bankruptcy
Coworking gambit divided office space – and got conquered
WeWork, once valued at $47 billion, filed for bankruptcy on Monday, even as its recently appointed CEO David Tolley reassured tenants the business is "here to stay."
The world-spanning office subleasing outfit applied for protection under Chapter 11 of the US Bankruptcy Code and plans to take similar action in Canada. According to that paperwork, WeWork said it had $19 billion of liabilities and $15 billion of assets.
It told investors in a note last night that it intends to ditch some of its office leases to help save itself, and has already warned customers using those locations:
WeWork has a deliberate and value maximizing lease rejection plan that is expected to position the company for operational and financial success ... WeWork is requesting the ability to reject the leases of certain locations, which are largely non-operational and all affected members have received advanced notice.
The biz said these efforts will "further rationalize its commercial office lease portfolio" while continuing business as usual outside the US and Canada.
WeWork previously "rationalized" its office leases by declaring in a letter from Tolley in September it would renegotiate them – convince landlords to accept less because the company can no longer afford its prior commitments.
WeWork's current market capitalization is about $44 million, with its stock trading around $0.84 per share. It had peaked at $520, in October 2021.
"Following a period of unsustainable hypergrowth, WeWork has been on a years-long transformation to resize our cost structure, grow sustainable revenue and strengthen our balance sheet," said Tolley at the time. "All this while navigating a global pandemic."
The global COVID-19 pandemic hit office rentals hard as workers, when they had the option, often chose to work from home and their employers, when they had the option, took the opportunity to reduce their real estate commitments.
Yet in its March 29, 2023 annual report, WeWork pitched the global health crisis as beneficial rather than baleful – the financial filing's disclaimer about the uncertainty of forward-looking statements gives the firm legal cover to say more or less anything without being held to it.
Citing the company's 43.9 million rentable square feet globally as of December 31, 2022, 18.3 million of which was in the US and Canada, the coworking biz said, "We believe the COVID-19 pandemic has accelerated the shift to flexible workspace, and will increase total flexible workspace penetration beyond these levels. In many markets, we witnessed accelerated leasing activity in recent months."
Whatever the corporation saw in terms of leasing activity, it wasn't enough: In October, WeWork failed to pay $95 million in interest payments. The company reportedly plans to close about 1.9 million square feet of office space in Boston, New York, and San Francisco, representing about 35 percent of its footprint in those cities.
- Salesforce to let two-thirds of space in SF high-rise
- SoftBank to stop investing 'randomly' after losing billions of dollars
- 'Lots of failed startups came out of Campus': Google axes London hub because startup scene 'doesn't need' another 7 floors of workspace
- WeWork Won'tWork in China, at least not as majority owner
Basically, things have not been going well for WeWork since its 2019 initial public offering imploded and co-founder Adam Neumann resigned as CEO. In retrospect, perhaps more attention should have been paid to the risk boilerplate in the firm's S-1 filing which warned that the company might never achieve profitability under generally accepted accounting principles.
The Register began renting WeWork space in San Francisco and London back in 2017 when the corp provided free beer and wine on tap. Your humble vultures did their duty, and helpfully thoroughly drained those kegs dry.
We saw the diminishment of amenities in the years that followed when the biz shut its "honesty markets" – in which tenants could grab snacks and take it upon themselves to pay – for lack of honesty. WeWork also began scaling back on free booze following a sexual harassment lawsuit in 2018 and a separate $2m settlement of similar claims, not to mention significant layoffs toward the end of 2019.
As Bloomberg put it, WeWork's downfall has revealed "breathtaking flaws in the investment style of Japanese billionaire Masayoshi Son, damaging his professional reputation far beyond the money he lost." Son being the founder of SoftBank, which has torched more than $11 billion on WeWork as an investor so far.
“I fell in love with WeWork,” Son reportedly told shareholders in June. “I may be more at fault than Adam, for telling him to be more aggressive," he added, meaning he had pushed Neumann, when he was CEO, to go big and spend big to succeed.
WeWork certainly was a hype bubble of its own, filling office spaces with gimmicks and perks for members, and burning through cash at a rapid rate seeking endless growth and expansion until it all came crashing down. It never turned a profit.
Tolley, WeWork's current leader, sent an email to tenants, including El Reg, to reassure them that the company will survive.
"Chapter 11 is a valuable legal tool that enables companies to restructure their financial position while they continue day-to-day operations in the ordinary course," explained Tolley.
"For WeWork, we expect this process to best position our company for stronger operational and financial success, and best enable us to continue to deliver world-class services to our members." ®
Our favorite WeWork anecdote comes from the Wall Street Journal, which reported the following about then-CEO Adam Neumann to give you an idea of the corporate atmosphere back then:
A few weeks after Mr Neumann fired seven percent of the staff in 2016, he somberly addressed the issue at an evening all-hands meeting at headquarters, telling attendees the move was tough but necessary to cut costs, and the company would be better because of it.
Then employees carrying trays of plastic shot glasses filled with tequila came into the room, followed by toasts and drinks.
Soon after, Darryl McDaniels of hip-hop group Run-DMC entered the room, embraced Mr Neumann and played a set for the staff. Workers danced to the 1980s hit “It’s Tricky” as the tequila trays made more rounds; some others, still focused on the firings, say they were stunned and confused.