WeWork, the SoftBank Group-backed startup whose meteoric rise and fall reshaped the office sector globally, sought US bankruptcy protection on Monday, after its bets on firms using more of its office-sharing space soured.
The move represents an admission by SoftBank, the Japanese technology group that owns about 60% of WeWork and has invested billions of dollars in its turnaround, that the corporate cannot survive unless it renegotiates its pricey leases in bankruptcy.
Profitability has remained elusive as WeWork grapples with its expensive leases and company clients canceling because some employees make money working from home. Paying for space consumed 74% of WeWork’s revenue within the second quarter of 2023.
The corporate reported estimated assets and liabilities starting from $10 billion to $50 billion, in accordance with a bankruptcy filing.
“WeWork could use provisions of the U.S. bankruptcy code to rid itself of onerous leases,” law firm Cadwalader, Wickersham & Taft LLP said in a note to landlords on its website in August. Some landlords are bracing for a significant impact.
Under its founder Adam Neumann, WeWork grew to be the most beneficial US startup, price $47 billion.
It attracted investments from bluechip investors, including SoftBank and enterprise capital firm Benchmark, in addition to the backing of major Wall Street Banks, including JPMorgan Chase.
Distant work has hurt WeWork considerably, contributing to its bankruptcy. REUTERS
Neumann’s pursuit of breakneck growth on the expense of profits, and revelations about his eccentric behavior, led to his ouster and the derailment of an initial public offering in 2019.
SoftBank was forced to double down on its investment in WeWork, and tapped real estate veteran Sandeep Mathrani because the startup’s CEO. In 2021, SoftBank cut a deal to take WeWork public through a merger with a blank-check acquisition company at an $8 billion valuation.
WeWork managed to amend 590 leases, saving about $12.7 billion in fixed lease payments.
But this was not enough to compensate for the fallout from the COVID-19 pandemic, which kept office employees at home.
Distant work and WeWork’s pricey real estate caused its demise. Getty Images
Lots of its landlords, who were also feeling the squeeze, had little incentive to present WeWork a break on the terms of their leases.
While WeWork had some success in signing up large conglomerates as clients, a lot of its customers were startups and smaller businesses, which cut their spending as inflation soared and economic prospects soured.
Adding to WeWork’s woes was competition from its own landlords.
Business property firms that traditionally only entered into long-term rent agreements began offering short and versatile leases to deal with the downturn within the office sector.
Mathrani was succeeded as WeWork CEO this yr by former investment banker and personal equity executive David Tolley, who as chief executive of Intelsat helped the debt-stricken satellite communications provider emerge from bankruptcy in 2022.
WeWork engaged in debt restructurings, yet this was not enough to stave off its bankruptcy.
The corporate last week secured a seven-day extension from its creditors on an interest payment, to win more time to barter with them.
