WeWork was founded in 2010 by Adam Neumann and Miguel McKelvey, entrepreneurs who used funds from the sale of their previous co-working business, Green Desk.
WeWork’s idea was to create a “physical social network” that would attract a new class of self-employed or work-from-home workers.
The business model was to sign long-term leases in office buildings, redevelop those spaces, and rent them out to self-employed people and businesses. The company planned to attract customers by offering perks like beer, kombucha and fancy decor, and charge them enough to make a profit once WeWork paid its rent.
The good feelings didn’t last.
In 2019, when WeWork became the largest private tenant in Manhattan, investors questioned the financial strength of the company. It had posted big losses for years, including nearly $2 billion in 2018.
Its IPO in October 2019 was aborted, investors disdaining its shares. Banks have become more reluctant to lend him money.
Since then, he has collected more than $700 million from the sale of his shares to SoftBank and cash payments.
In February 2020, Sandeep Mathrani was appointed CEO. Under his leadership, WeWork went public in October 2021 through the reverse takeover of a special purpose acquisition company.
But three months ago, after a financial restructuring, Mr. Mathrani abruptly resigned. The company’s stock had fallen since going public. Mr. Mathrani’s departure has reignited doubts about WeWork’s viability.
Aswath Damodaran, a professor of finance at New York University, was skeptical of WeWork’s business model from the start.
“In good times, you’ll have plenty of tenants,” he said. In tough times, they’ll leave, and you’ll have an empty building on your hands and a payment to make. »
Last Tuesday, WeWork questioned its ability to maintain going concern. In accounting terms, going concern refers to a company’s ability to earn enough money to stay afloat.
Typically, this term only appears when a company is at risk of going bankrupt within a year. Companies are required by law to disclose these doubts.
WeWork says it aims to reduce rental costs and other expenses, increase revenue, and obtain “additional capital through debt, stock issuance, or asset sales.”
But one wonders if the end is near for WeWork. But disclosing that she’s doing so badly could actually boost her bargaining power with landlords and other creditors, allowing her to cling on for life, Damodaran says.
In a statement to investors last Wednesday, WeWork said it is considering “various operating plans” to continue operations, including “targeted investments to retain members, drive new space sales and increase occupancy.”
WeWork had more than 18 million square feet of lettable office space in Canada and the United States at the end of 2022, according to its annual report. Its bankruptcy could have a major impact on the commercial real estate sector.
WeWork’s decline is being driven by the same forces that have driven down commercial real estate prices in recent years — including working from home since the COVID-19 pandemic — says Stijn Van Nieuwerburgh, professor of real estate at Columbia Business School.
Van Nieuwerburgh said his research currently predicts a decline of up to 45% in the value of office space between 2019 and 2029.
According to real estate services company JLL, the office vacancy rate has increased in the United States since the pandemic, reaching around 20% in the first quarter of 2023.
