NEW YORK (News21USA) — WeWork has filed for Chapter 11 bankruptcy protection, marking a stunning fall for the office-sharing company once seen as a Wall Street darling that promised to change the way that people were going to work all over the world.
In an announcement late Monday, WeWork said it entered into a restructuring support agreement with most of its stakeholders to “dramatically reduce” the company’s debt while further evaluating WeWork’s commercial office leasing portfolio WeWork.
WeWork is also requesting the “ability to decline leases for certain locations,” which the company says are largely non-operational, as part of the filing. Specific estimates of total affected locations were not disclosed Monday, but all affected members received advance notice, the company said.
“Now is the time to drive the future by aggressively addressing our legacy leases and dramatically improving our balance sheet,” CEO David Tolley said in a prepared statement. “We defined a new category of work and these steps will allow us to remain the world leader in flexible working.”
The specter of bankruptcy has been hanging over WeWork for some time. In August, the New York company raised the alarm about its ability to stay in business. But cracks had begun to emerge several years ago, shortly after the company was valued at $47 billion.
WeWork is paying the price for aggressive expansion in its early years. The company went public in October 2021 after its first attempt to do so two years earlier failed spectacularly. The debacle led to the ouster of founder and CEO Adam Neumann, whose erratic behavior and exorbitant spending spooked early investors.
Japan’s SoftBank stepped in to keep WeWork afloat, acquiring majority control of the company.
Despite efforts to turn around the company since Neumann’s departure, including significant cuts in operating costs and increased revenue, WeWork has struggled in a commercial real estate market that has been shaken by the rising cost of borrowing money, as well as a changing dynamic for millions of office workers now check into their offices remotely.
In September, when WeWork announced plans to renegotiate nearly all of its leases, Tolley noted that the company’s lease liabilities accounted for more than two-thirds of its operating expenses for the second quarter of this year, and remained “too high” and “dramatically superior” in accordance with current market conditions.
At the time, WeWork also said it could exit more underperforming locations. As of June 30, the last date ownership numbers were disclosed in securities filings, WeWork had 777 locations in 39 countries.
Beyond real estate costs, WeWork has pointed to higher member turnover and other financial losses. In August, the company said its ability to remain in business depended on improving its overall liquidity and profitability over the next year.
WeWork’s bankruptcy filing comes at a time when leasing demand for office space is weak overall. The COVID-19 pandemic notably caused a rise in office space vacancies as working from home became increasingly popular, and major US markets from New York to San Francisco are still struggling to recover.
In the United States, experts note that WeWork’s 18 million square feet are a small fraction of the country’s total office inventory, but on a building-by-building level, landlords with exposure to WeWork could take significant hits if it is terminated. their lease contracts. Closing select WeWork locations to cut costs is not new. In some past cases, homeowners’ construction loans were converted to special servicing after losing WeWork as a tenant, credit research and rating firm Morningstar Credit previously told The News21USA.
While the full impact of this week’s bankruptcy filing on WeWork’s real estate footprint is still uncertain, the company struck an optimistic note late Monday.
“Our spaces are open and there will be no changes to the way we operate,” a WeWork spokesperson said in a statement to The Associated Press. “We plan to remain in the vast majority of markets as we move into the future and remain committed to providing an exceptional experience and innovative flexible workspace solutions for our members.”
WeWork and certain entities filed for Chapter 11 bankruptcy protection in the U.S. District Court in New Jersey, with plans to also file recognition proceedings in Canada, according to Monday’s announcement.
WeWork locations outside the U.S. and Canada will not be affected by the process, the company said, as will franchisees around the world.