WeWork, the company founded by visionary Adam Neumann that wanted to revolutionize the office market, has filed for bankruptcy. Its model, aimed at entrepreneurs and emerging businesses, made coworking popular, but it never succeeded as a business. What revolutionized the way we work was the pandemic. The generalization of teleworking has had an impact on the office market, but especially on shared spaces. Many of WeWork’s branches are virtually empty or even closed. After losing more than 99% of its stock market value and failing to meet its financial obligations, the company, once worth $47 billion, filed for bankruptcy on Monday. The bankruptcy documents put the company’s total debt as of June 30 at $18,656 million (around 17,400 million euros).
The company announced the move in a statement, noting that it has signed an agreement to support the company’s restructuring with the holders of approximately 92% of its secured notes in order to dramatically reduce debt. There will be an exchange of debt for shares. At the same time, WeWork will rationalize its office rental portfolio: “WeWork is requesting the ability to terminate the leases for certain premises, most of which are non-operational, having notified all affected parties in advance,” the statement said. Filing for bankruptcy makes it easier to break these contracts. In the meantime, try to maintain business continuity. “Global operations are expected to continue as usual,” the company said.
The decision to enter bankruptcy proceedings will impact operations in the United States and Canada, but not the rest of the world, at least for now. The group has rental space in 660 properties in 37 countries. According to documents filed in a New Jersey court, the number of creditors exceeds 100,000. The most important of all is US Bank Trust with just over $180 million.
WeWork’s rise was spectacular and its fall was resounding. It was founded in 2010 by Israeli Adam Neumann and American Miguel McKelvey, who opened their first office space in New York’s SoHo district in April 2011. From then on, the company began to grow, opening shared office spaces first in the United States and then in all parts of the world, without worrying about the millions of dollars in losses it suffered. In various rounds of financing, the company raised funds that increased the value of the company by posing as a technology company, which was actually a successful but unprofitable version of the real estate business. The Japanese group Softbank was added as a reference shareholder, investing more than $10 billion in WeWork – one of the most ruinous investments in its history.
The company peaked at $47 billion in January 2019 and then prepared to go public. When he submitted the brochure with detailed company information in the summer of that year, it failed the market test. Neither its balance sheets, its business model nor its future prospects supported the valuation achieved. Added to this was Neumann’s unorthodox management style, a lover of excess who installed a swimming pool and sauna in his office and whose parties were legendary. In addition, he had activities related to the company, from which he profited by renting properties purchased from the company. The IPO was canceled.
Softbank decided to save the company and fire Neumann, who received millions of dollars in compensation for his departure, but even with that he couldn’t straighten the company’s course. To make matters worse, the pandemic and lockdown restrictions have completely changed working patterns. With the spread of teleworking, many offices were no longer staffed after the health crisis ended.
WeWork had losses of $3,129 million in 2020; According to their annual reports, it is 4,439 million in 2021 and 2,034 million in 2022. This 9.6 billion dollars in three years (about 9.1 billion at the current exchange rate) exceeds what the company earned in the same years. In the first half of this year, it managed to reduce the red numbers to $613 million, 39% less than the same period in 2022, but debts exceed the value of assets and the company has been depleting available cash at an unsustainable pace. According to its latest quarterly report, the company had negative equity of $3,718 million as of June 30. It is technically bankrupt and the business is still not operational. The company, which stopped trading that Monday, was worth just $45 million, a thousandth of what it was in its heyday.
Despite its disastrous results, the company managed to enter the market through the back door by merging with a Spac, a company created specifically to run a corporate operation. Back in August he admitted that there were “significant doubts” about its feasibility. Then, on October 2, she was unable to pay interest on a series of debts. It began discussions about selling assets, renegotiating leases and trying to clean up its balance sheet. Last week, the company told the U.S. Securities and Exchange Commission that negotiations would continue after the 30-day grace period expired and that it had agreed to a new additional seven-day moratorium, which also helped it prepare for its bankruptcy declaration .
The fired Neumann did not hold back from releasing a statement blaming his successors for the failure: “As a co-founder of WeWork who spent a decade building the business with an incredible team of determined people, the Company’s bankruptcy filing disappointing.” It’s been challenging for me to watch from the sidelines since 2019 as WeWork has failed to capitalize on a product that is now more relevant than ever. I believe that with the right strategy and the right team, WeWork can emerge successfully through a reorganization.”
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