WeWork, the co-working company that sought to transform office life by bringing employers of all sorts together in slick communal spaces, has filed for bankruptcy protection after years of losses and a glut of commercial office listings.
The company said 92 percent of its creditors have signed off on a restructuring plan that would drastically reduce its debt and allow it to “reject” leases at certain locations, many of which are already sitting dormant. Monday’s Chapter 11 filing in U.S. Bankruptcy Court in New Jersey allows WeWork to “pull the future forward” by aggressively addressing its legacy office leases and improving its balance sheet, according to chief executive David Tolley.
“We defined a new category of working, and these steps will enable us to remain the global leader in flexible work,” Tolley said in a news release.
The real estate start-up that billed itself as a tech company grew exponentially under co-founder and longtime CEO Adam Neumann. WeWork amassed hundreds of offices in more than 30 countries, and became the single-largest private tenant in Manhattan. It raised billions from investors as start-ups, established companies, nonprofits and independent workers flocked to properties featuring glossy conference rooms and trendy phone booths. Tenants could rent space for as short as an hour.
At its peak, it was worth close to $47 billion. Its valuation has since shriveled to $44.5 million.
The company planned an initial public offering in 2019, then reversed course after investors raised concerns over Neumann’s erratic behavior and exorbitant spending, leading to his resignation that year. Later it opted to go public through a less-conventional Special Purpose Acquisition Company, or SPAC.
The coronavirus crisis further mangled its outlook, as a business model dependent on in-person collaboration was suddenly confronted with social distancing. The pandemic also ushered in seismic shifts in workplace culture and the rise of remote work, as many employers opted for smaller footprints or realized they could do without offices - saving on rent - altogether, striking at the heart of the office economy that is central to WeWork’s business.
Though many companies have repopulated or are repopulating workplaces, office occupancy rates remain well below pre-pandemic levels: As of Oct. 30, the average occupancy rate in 10 U.S. cities tracked by Kastle Systems stood at 50 percent.
WeWork warned it was at risk of bankruptcy in August after recording a net loss of $700 million in the first six months of the year and $10.7 billion in net losses in the previous three years. Weeks later, Tolley said the company would renegotiate “nearly all” of its leases to cut costs.
Monday’s filing is intended to further “rationalize” the company’s real estate footprint, giving the company new ways out of its leases. WeWork “is requesting the ability to reject the leases of certain locations, which are largely non-operational and all affected members have received advanced notice,” the company wrote in its announcement.
Last week, credit ratings agencies S&P Global Ratings and Fitch downgraded WeWork after it failed to meet interest payments due in early October. Fitch said WeWork in 2021 and 2022 had projected growth and cost reductions that would lead to break-even results, but that WeWork’s performance had been “consistently worse than projections.”
WeWork is “still burning cash,” despite recent cost-saving moves through “reduced head count and lease terminations,” Fitch said.
Neumann, in a short statement issued Monday, chided the more recent management of WeWork while calling the bankruptcy filing “disappointing.”
“It has been challenging for me to watch from the sidelines since 2019 as WeWork has failed to take advantage of a product that is more relevant today than ever before,” Neumann wrote in a short statement.
He added that a reorganization will enable WeWork to emerge successfully “with the right strategy and team.”
“I think we could pick that as one of the last dominoes to fall,” Garrett Pendergraft, a professor at Pepperdine University who teaches business ethics, said of the missed interest payment.
“It’s always easy, in retrospect, to point out the signs that [the bankruptcy filing] was going to happen,” Pendergraft said. “But the signs were there.”
John Bringardner, the head of Debtwire, which provides data on fixed-income markets, said he expected WeWork’s bankruptcy filing to be “an orderly affair.”
“The company and its advisers have been orchestrating the process for months,” he wrote in a note last week released to reporters before the bankruptcy announcement.
What is “clear is that WeWork will emerge from its restructuring with a far smaller footprint,” Bringardner wrote.
The company filed a similar reorganization plan in Canada, but emphasized that its locations elsewhere are unaffected. The company said it intends to function as usual while it reorganizes. WeWork will focus “on business continuity and delivering best-in-class services to its members, as global operations are expected to continue as usual,” according a company announcement.
The Wall Street Journal reported that the company’s shares were halted before the opening bell on Monday. As of Friday afternoon, it was considered a penny stock, closing at 83 cents per share.
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Alice Crites, Kelly Kasulis Cho, Bryan Pietsch and Taylor Telford contributed to this report.