WeWork filed for bankruptcy last night as the weak office market led to huge losses. From Bloomberg:
WeWork Inc. filed for bankruptcy, capping a tumultuous period that saw the once high-flying startup navigate a failed initial public offering, Covid-19 lockdowns, a blank-check merger and slow return-to-office trends.
The company — which at its 2019 peak commanded a $47 billion valuation — listed $19 billion of liabilities and $15 billion of assets in its bankruptcy petition in New Jersey on Monday. The Chapter 11 filing allows WeWork to continue operating while working out creditor repayment terms.
Even founder Adam Neumann weighed in — and he’s not wrong!
A Broken Business Model
WeWork has been a capital incineration machine. Once the most valuable startup in America, it raised $22 billion in investor money.
Now, all that money is likely gone.
When I popped into a WeWork in New York last month for a meeting, the place was empty. Perhaps a dozen people occupied a space meant for at least 50 — even at 4:30pm.
This was Lexington Avenue in the 50’s…prime Manhattan real estate. But workers were at home on their couch, not at WeWork.
Part of the problem is there are just too darn many of them. In western Midtown, there are 2 WeWorks just two blocks from each other: one at 37th and 7th Ave, and another at 36th and 8th.
Bankruptcy: Just What the Doctor Ordered?
WeWork could probably close at least half their locations with no impact on members. And bankruptcy will actually let them do that.
WeWork is trying to renegotiate almost all its leases, according to CoStar. The company should be able to secure much lower rents for the locations it keeps open.
Many of WeWork’s leases were signed at the top of the market, from roughly 2019-2021. The rents for office space today are far lower.
With lower rents, WeWork may be able to lower prices from an already low $149/month. Since it’s almost impossible to renegotiate a lease without going through bankruptcy, this is an advantage many of its competitors won’t have.
WeWork could also improve its footprint.
Today, it’s heavy in business districts like Midtown Manhattan. In the future, WeWork could move into dense residential areas.
Think Williamsburg, not Wall Street. The shorter commute might finally get people out of their jammies and into an office.
Wrap-Up
People like getting out of the house. But they don’t want to go far, and they’re stingy.
If WeWork can renegotiate leases, winding up with better locations at lower prices, it could be a solid business.
What do you think the future holds for WeWork? Leave a comment and let us know!
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Photo: “WeWork” by Open Grid Scheduler / Grid Engine is marked with CC0 1.0.
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