Valued at $47 billion in 2019, WeWork was recently among the United States’ most valuable startups. But this week, the company filed for Chapter 11 bankruptcy. A lot has happened between 2019 and now: a pandemic, the end of Modern Family, and a presidential election, to name a few. But what happened in the last four years to alter WeWork’s promising trajectory so drastically?
WeWork started in 2010 in SoHo, NYC. In the following years, the company racked up over 700 locations internationally. However, things seemed to take a turn for the worse in 2019 when the company filed for an IPO, but its public filings highlighted large losses. WeWork then delayed its IPO and changed its estimated market valuation from $10 billion to $47 million. Shortly after, CEO and cofounder Adam Neumann stepped down after criticism and allegations of self-dealing from board members.
From bad to worse
Then, in 2020, the pandemic added further strain on the company’s operations. Fortune Magazine estimated that office vacancy is now 1.5 times the amount it was at the end of 2019.
Cushman & Wakefield noted that as “the death of the office” is upon us, there is “an unprecedented imbalance in supply and demand which, by the end of the decade, will result in a surplus of 330 million square feet of vacant office space that hasn’t kept pace with demands to support hybrid working and efficiency/ESG priorities.”
As a result of the pandemic and its disenfranchisement of office work, WeWork faced a drastic decrease in demand for its product and thus was unable to see returns on its many real estate investments. After signing hundreds of long-term leases, 80% of company’s revenues flowed into rent and interest payments in June 2023. It seems that WeWork’s aggressive growth efforts might have actually stunted its success in the long run. WeWork had accumulated 43.9 million rentable square feet—only 18.3 million of which were in North America—all over the world by the end of 2022. Accordingly, WeWork’s filings suggest it has over 600 landlord relationships globally. With locations in 39 countries, WeWork’s bankruptcy filing is limited to its spaces in the U.S. and Canada. And on Monday, over 400 of its other entities also filed.
Ann K. Chandler, a real estate attorney at Hall Estill in Denver, CO, noted that “Decisions by landlords over how to address WeWork’s situation may be compounded by the difficult task of trying to find similar tenants,” and that renegotiating leases will likely be an uphill battle for WeWork due to “growing competition in the coworking industry.” Still, WeWork announced in September its plans to renegotiate “nearly all” of its leases. By abandoning underperforming locations, cutting operational costs, and and reinvesting in better-performing markets, WeWork suggested it would continue to chug along. However, this plan is hot on the heels of WeWork’s August expression of “substantial doubt” about its ability to continue operating.
Interim CEO David Tolley said that 90% of their lenders have agreed to convert their debt into equity. WeWork has also shared its intention to break 69 leases in the initial days of its bankruptcy, including 41 in New York City, and it could seek to reject additional leases later in its bankruptcy. Will WeWork seek to renegotiate the terms of those its other leases? Yes.
Cofounder Neumann’s goal of “elevat[ing] the world’s consciousness” through WeWork might still be reachable, albeit defined differently than in 2019; the WeWork bankruptcy has certainly raised consciousness about the seemingly impending plight of commercial real estate in cities. It seems that vacancies are likely coming in many cities across the country.