WeWork files for bankruptcy protection

WeWork has filed for Chapter 11 bankruptcy protection, marking a stunning fall for the office-sharing company once seen as a Wall Street darling that promised to upend the way people went to work around the world.

In a late Monday announcement, WeWork said it entered into a restructuring support agreement with the majority of its stakeholders to “drastically reduce” the company’s debt while further evaluating WeWork’s commercial office lease portfolio.

This agreement is expected to erase about $3 billion US of WeWork’s debt, CEO David Tolley told The Associated Press.

WeWork is also requesting the ability to reject the leases for some of its locations, which the company says are largely non-operational, as part of the filing. More than 70 leases will be rejected right at the beginning of the process, according to Monday’s filing. WeWork says all affected members have received advanced notice.

How many WeWork locations will remain operational going forward is not known. Tolley said Tuesday he expects WeWork to exit additional locations as talks continue with landlords, but hopes to leave as few as possible.

Lease liabilities, which currently account for about two-thirds of WeWork’s operating costs, “continues to be the company’s primary challenge,” Tolley said, pointing to the need of establishing “a more efficient footprint.”

Filings show the company is looking to get out of two leases in Toronto, two in Vancouver, and one in Burnaby, B.C., as part of its efforts to improve its balance sheet.

The five Canadian locations make up a small portion of the 69 total leases it sought permission to leave early, with most in New York.

The spectre of bankruptcy has hovered over WeWork for some time. In August, the New York company sounded the alarm over its ability to remain in business. But cracks had begun to emerge several years ago, not long after the company was valued as high as $47 billion US.

Rocked by rising interest rates, remote work

WeWork is paying the price for aggressive expansion in its early years. The company went public in October 2021 after its first attempt to do so two years earlier collapsed spectacularly. The debacle led to the ouster of founder and CEO Adam Neumann, whose erratic behaviour and exorbitant spending spooked early investors.

Japan’s SoftBank stepped in to keep WeWork afloat, acquiring majority control over the company. WeWork shareholders are largely wiped out though SoftBank, which owns nearly 80 per cent of the equity distributed in the company and is likely still in negotiations after losing billions of dollars.

In a prepared statement Monday ahead of WeWork’s official announcement, Neumann called the bankruptcy filing disappointing and said it’s been challenging for him “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.”

He believes a strong reorganization could allow WeWork to emerge successfully.

Despite efforts to turn the company around since Neumann’s departure — including significant cuts to operating costs and rising revenue — WeWork has struggled in a commercial real estate market rocked by the rising cost of borrowing money, as well as a shifting dynamic for millions of workers now checking into their offices remotely.

In September, when WeWork announced plans to renegotiate nearly all of its leases, Tolley noted the company’s lease liabilities accounted for more than two-thirds of its operating expenses for the second quarter of this year — remaining “too high” and “dramatically out of step with current market conditions.”

At the time, WeWork also said it could exit more underperforming locations. As of June 30, the latest date with property numbers disclosed in securities filings, WeWork had 777 locations in 39 countries.

Beyond real estate costs, WeWork has pointed to increased member churn and other financial losses. In August, the company said its ability to stay in operation was contingent upon improving its liquidity and profitability overall in the next year.

Locations in U.S., Canada impacted

WeWork’s bankruptcy filing arrives at a time when leasing demand for office space is weak overall. The COVID-19 pandemic notably led to rising vacancies in office space as working from home became increasingly popular — and major U.S. markets, from New York to San Francisco, are still struggling to recover.

In the U.S., experts noted that WeWork’s 18 million square feet is a small fraction of total office inventory in the country but, on a building-by-building level, landlords with exposure to WeWork could take significant hits if their leases are terminated.

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Derek Thompson, staff writer at The Atlantic, wonders how long these companies will be able to charge less than the service costs in order to subsidize the habits of urban, upper middle class millennials.

While the full impact of this week’s bankruptcy filing on WeWork’s real estate footprint is still uncertain, the company sounded an optimistic note Monday night.

“Our spaces are open and there will be no change to the way we operate,” a WeWork spokesperson said in a statement to The Associated Press. “We plan to stay in the vast majority of markets as we move into the future and remain committed to delivering an exceptional experience and innovative flexible workspace solutions for our members.”

WeWork filed for Chapter 11 bankruptcy protection in U.S. District Court in New Jersey, and the company plans to have the bankruptcy formally recognized in Canada, according to Monday’s announcement.

WeWork locations outside of the U.S. and Canada will not be affected by the proceedings, the company said, as well as franchisees worldwide.