At the beginning of 2019, coworking/real estate giant WeWork had been in business for nearly a decade and was at the pinnacle of the global tech startup community, heading for what was expected to be an epic public stock offering and enjoying the fervor that accompanied a fresh $47 billion valuation.
But that moment would unravel in rather epic fashion as details of the company’s actual operations came to light in federal financial reporting and, in the space of just a few months, WeWork’s value would tumble dramatically, the IPO would be unceremoniously scrapped and the company’s charismatic co-founder and figurehead, Adam Neumann, would find himself ousted, albeit buoyed by a golden parachute worth hundreds of millions of dollars.
On Monday, WeWork filed for Chapter 11 bankruptcy protections in a bid to consolidate debt and salvage a functional business in the face of billions of outstanding financial obligations and amid a commercial real estate market that’s been upended by the last few years of U.S. economic turbulence.
Since Neumann’s departure, WeWork has struggled to find a profitable operating model for its nearly 800 coworking spaces around the world, including about 200 in the U.S. In a Monday press release, WeWork said it had over 500,000 current users and 2,500 employees globally and is hoping a “lease rejection” plan will allow the company to terminate leases on mostly nonoperational locations in a bid to “position the company for operational and financial success.”
WeWork CEO David Tolley said the company has “a strong foundation, a dynamic business, and a bright future” in Monday’s press release but just a few months ago was sounding less optimistic about the company’s chances for sustained existence.
“As a result of the Company’s losses and projected cash needs, combined with increased member churn and current liquidity levels, substantial doubt exists about the company’s ability to continue as a going concern,” Tolley said in an August release following the company’s second quarter earnings report.
A post-COVID work space dynamic that has seen millions of employees remain in at least part-time remote work positions and a commercial real estate market that’s seen valuations tumble amid high vacancy rates and rising interest rates have all contributed to WeWork’s business challenges.
“We’ve only seen a limited recovery in office space utilization, and hybrid work patterns are becoming more entrenched than I think many people the market would have expected a couple of years ago,” Sam Chandan, director of the Chao-Hon Chen Institute for Global Real Estate Finance at New York University’s Stern School of Business, told The Associated Press. “So there’s a long term, very significant impact on office space demand overall.”
WeWork reports it is carrying over $18 billion in debt against about $15 billion in assets. Over 400 WeWork affiliated corporate entities also filed for bankruptcy on Monday.
Neumann, who launched another real estate-centric startup called Flow in 2022, said he was disappointed in his former company’s decision to pursue bankruptcy protections.
“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 said in a statement to CNBC. “I believe that, with the right strategy and team, a reorganization will enable WeWork to emerge successfully.”