WeWork has filed for Chapter 11 bankruptcy protection, signaling a significant downfall for the once-promising office-sharing company. WeWork was once regarded as a Wall Street favorite that aimed to revolutionize the global work culture.
In a recent announcement, WeWork stated that it has entered into a restructuring support agreement with the majority of its stakeholders. The agreement aims to reduce the company’s debt and assess its commercial office lease portfolio.
WeWork is also seeking the ability to reject certain leases, primarily non-operational locations. The total number of affected locations was not disclosed in the announcement, but all affected members have been notified in advance.
“Now is the time for us to address our legacy leases and improve our balance sheet,” said WeWork CEO David Tolley. “We invented a new category of working, and these steps will allow us to maintain our global leadership in flexible work.”
WeWork has been facing the possibility of bankruptcy for some time. The company raised concerns about its ability to stay in business back in August. Issues began surfacing years ago after the company reached a valuation as high as $47 billion.
WeWork’s aggressive expansion in its early years has come at a cost. The company went public in October 2021 after a failed attempt in 2019, leading to the removal of founder and CEO Adam Neumann. Neumann’s behavior and extravagant spending unsettled early investors.
SoftBank from Japan stepped in to save WeWork and acquired majority control of the company.
Despite efforts to turn things around since Neumann’s departure, including cost cuts and increased revenue, WeWork has struggled due to a commercial real estate market affected by high borrowing costs and remote working arrangements.
In September, WeWork announced plans to renegotiate the majority of its leases. At the time, the company highlighted that its lease liabilities accounted for over two-thirds of its operating expenses in the second quarter of that year, which was no longer sustainable.
Apart from real estate costs, WeWork has faced challenges such as increased member churn and financial losses. The company noted that its ability to continue operating depends on improving overall liquidity and profitability in the coming year.
WeWork’s bankruptcy filing comes at a time of weak leasing demand for office space, with vacancies increasing due to remote work trends caused by the COVID-19 pandemic.
In the US, while WeWork’s 18 million square feet is a fraction of the total office inventory, landlords with WeWork exposure could face significant losses if their leases are terminated. In some previous instances, landlords’ building loans were transferred to special servicing after losing WeWork as a tenant.
While the full impact of the bankruptcy filing on WeWork’s real estate presence is uncertain, the company remains optimistic. “Our spaces are open, and there will be no change to the way we operate,” said a WeWork spokesperson. The company plans to maintain its presence in the majority of markets and continue delivering exceptional flexible workspace solutions.
WeWork and its related entities filed for Chapter 11 bankruptcy protection in the US District Court in New Jersey. The company also intends to initiate recognition proceedings in Canada.
WeWork locations outside of the US and Canada, as well as franchisees worldwide, will not be affected by the bankruptcy proceedings.