On Monday night, WeWork, the once high-flying shared-office giant valued at $47 billion, filed for Chapter 11 bankruptcy reorganization in the United States and Canada. The move comes as the company seeks to rationalize its lease portfolio and position itself for sustainable, long-term growth, all in its stakeholders’ best interest, according to a statement from the firm.
Rumors of WeWork’s impending bankruptcy had swirled for months, reflecting the challenges it had been facing since its disastrous attempt to go public in 2019. Founder and former CEO Adam Neumann’s controversial behavior and extravagant spending were early red flags for investors. As a result, WeWork’s valuation plummeted, and Neumann was ousted from his leadership role. Japan’s SoftBank stepped in to salvage the company by acquiring majority control.
WeWork’s rapid expansion during its early years is a major contributor to its current woes. The company aggressively acquired office space, taking on substantial lease liabilities that proved unsustainable in the long run. These lease commitments significantly burdened WeWork’s balance sheet, accounting for over two-thirds of its operating expenses.
The COVID-19 pandemic further exacerbated WeWork’s troubles as millions of office workers shifted to remote work. This change in the office landscape made WeWork’s business model less appealing as companies began reassessing their office space needs. Commercial real estate costs also surged due to rising borrowing costs, further squeezing WeWork’s finances.
In the aftermath of Neumann’s departure, WeWork made concerted efforts to salvage the company. Operating costs were significantly reduced, and revenue began to rise. However, the company continued to struggle with its lease liabilities, which remained “too high” and “dramatically out of step with current market conditions,” according to CEO David Tolley.
WeWork’s Chapter 11 bankruptcy filing is seen as a strategic move to address its unsustainable lease commitments. The company has emphasized that during the reorganization process, its workspaces will continue to operate without disruptions for its members. However, industry reports from several markets across the U.S. have indicated that WeWork has stopped paying rent in a number of locations. Therefore, the sustained ability to operate workspaces and the company’s future are in question.