US: WeWork files for bankruptcy, signaling crisis in commercial real estate – Financial Post

The real estate crisis isn’t just affecting China, it appears to be global and knocking on the US door too, as struggling real estate giant WeWork filed for bankruptcy under US law on Monday.

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Trading halted in WeWork shares ahead of the stock market opening on Monday morning. At that time, the stock was at 84 cents.

The bankruptcy filing was expected after a Wall Street Journal article on Oct. 31 said the company planned to file for bankruptcy.

WeWork said it had reached an agreement with creditors to extend a 30-day grace period on some of its debt until Nov. 6.

The company said in a statement on Monday that it has entered into a restructuring agreement with shareholders representing about 92% of its guaranteed bonds. Monday’s bankruptcy filing will not affect WeWork’s operations outside the US and Canada. He also added that its premises remain open and functional.

However, it is said to be “further streamlining its commercial office leasing portfolio” as part of the restructuring.

According to Businessinsider, its property portfolio spans 777 locations in 39 countries.

“Now is the time to pull forward by aggressively addressing our legacy leases and dramatically improving our balance sheet,” said David Tolley, CEO of WeWork.

“Frustration,” says the former CEO

For his part, the company’s co-founder and former CEO Adam Neumann, who stepped down in 2019, citing intense public scrutiny that made it difficult to run the company, called the news of impending bankruptcy “disappointing.”

“It has been challenging for me to watch from the sidelines since 2019 as WeWork failed to capitalize on a product that is more relevant today than ever,” he commented in a statement. “I believe that, with the right strategy and the right team, a reorganization will allow WeWork to emerge successfully.”

At its peak, the company was valued at $47 billion unlisted. But the startup has been in turmoil since plans to go public in 2019 collapsed amid concerns about the company’s profitability and some inappropriate behavior by Neumann.

Japanese funds

According to Insider, Japanese investment firm SoftBank has poured billions of dollars into the real estate startup and remains its majority shareholder. However, WeWork has never turned a profit. In the first half of the year, the company lost $696 million.

As of 2019, the company’s valuation has continued to fall. In April, the stock price fell below $1 and faced the possibility of delisting from the New York Stock Exchange. And in August, WeWork announced that it “substantially doubted” whether it could survive much longer.

The end of the pandemic

WeWork’s bankruptcy comes amid a multi-year reorientation for the office leasing industry. Commercial real estate firms have struggled to recover from the world-record pandemic-driven shift to remote work that has weakened office demand worldwide, even as many companies have shifted to a hybrid model or required employees to return to the office full-time.

Bankruptcy may not be the end for WeWork, which currently operates more than 300 locations around the world. The process of the US bankruptcy code allows companies to write off part of the debt and reorganize. (WeWork’s competitor Regus filed for bankruptcy in the US in 2003 and has continued to operate successfully.)

WeWork was already in trouble

The failed IPO attempt in 2019 led to SoftBank’s “embrace”.

SoftBank needed WeWork to survive. At the time, the Japanese company was raising money for a second major venture capital fund (the first had raised $100 billion), and WeWork’s downward spiral did not inspire confidence among potential investors.

To save WeWork, SoftBank poured billions into the company and installed an experienced executive team tasked with turning it around. In 2019 and early 2020, WeWork laid off thousands of employees, cut dozens of office leases and cut employee benefits, all while facing multiple government investigations.

“We failed in our investment in WeWork, and I have admitted many times that I was a fool,” SoftBank founder Masayoshi Son said when announcing financial results in May 2020. At the time, SoftBank had cut its valuation on WeWork to 2.9 billions of dollars.

The pandemic

WeWork’s woes continued. Less than a month after its new CEO began 2020, the pandemic hit (one of the first public cases of coronavirus in New York was traced to a man working in a WeWork office.) Around the world, offices emptied and a once stable real estate industry plunged into unprecedented chaos, from which it has not recovered.

WeWork’s new leadership team presented the pandemic as an opportunity: companies would seek more flexible arrangements than decades-long leases, and workers would seek workspaces outside their homes.

As the world reopened after lockdowns, some WeWorks branches came back – but the company still had too many locations.

CEO Sandeep Mathrani continued to cut the leases Neumann had signed and found new financing.

In 2021, WeWork went public through a special purpose vehicle, a common way for startups to enter the public markets beyond the traditional IPO process. The deal valued the company at $9 billion.

“Certainly, this is a story where a lot of people wrote doomsday for WeWork,” the company’s chairman at the time, Marcelo Claure, told CNBC on the first day of trading. “The tenacity of these people is incredible. This company is here, stronger than ever, and there is no doubt that we will celebrate many more milestones.”