WeBankrupt: Crumbling co-working firm goes bust

As a famous economist once said, if something cannot go on forever, it will stop.

WeWork could not lose billions of dollars year after year without going bankrupt, and late Monday afternoon, it finally did.

The firm filed in New Jersey for Chapter 11 protection, which will allow it to exit its money-losing leases without paying much, if anything, to its forlorn office landlords. Other creditors stand to get pennies on the dollar.

Five years ago, WeWork was the highest-flying firm in real estate. Driven by a charismatic but enigmatic CEO, Adam Neumann, the firm spent the 2010s signing leases as fast as it could draw up the documents. Before long it controlled more office space than anyone in New York City — and was making workplaces hip for the first time ever.

In 2019, it prepared for an initial public offering that was supposed to make truckfuls of money for the investors who had valued the startup at a ridiculous $47 billion. But punctures began to appear in WeWork’s hot-air balloon.

The disclosures it had to make to potential public investors revealed that Neumann was renting some buildings he personally owned to WeWork. The company attempted to justify it, chiding journalists who dared call it self-dealing, but it might as well have told them the sun is a giant ice cube.

Meanwhile it engaged in frivolous side ventures, such as WeGrow, a school hatched by Neumann’s wife Rebekah. Magazine and online stories cast Neumann as a cult-like leader who kept his employees and investors spellbound when he was not walking barefoot on the streets of Manhattan and buying luxury homes.

Critics also took issue with WeWork’s strategy of inking long-term leases and re-renting the space on a short-term basis to individuals, small employers and large companies.

The real problem, though, was that it lost money on so many of the deals. WeWork’s grow-at-all-costs approach involved paying high rents from a pot filled by Masayoshi Son’s SoftBank and other investors. Making matters worse, the leases were concentrated in New York and San Francisco, the two cities hardest hit by the pandemic, which shut down offices in March 2020 and ushered in an era of remote work.

Wresting control of the firm from Neumann, one of WeWork’s two co-founders, required a golden parachute from SoftBank. In February 2020, just before the first Covid cases popped up in New York, WeWork brought in turnaround specialist Sandeep Mathrani to right the ship and professionalize its operation. He managed to exit some locations and renegotiate debt, but proved powerless against the relentless math of lopsided leases.

The company did eventually go public in October 2021, but its stock has been sliding ever since. From its debut at $13, the share price fell 99 percent to 13 cents in August.

To avoid delisting by the New York Stock Exchange, the company then executed a 1-for-40 reverse stock split. But the reprieve was short-lived, as the momentarily inflated share price kept plunging. WeWork’s market capitalization ended last week at $45 million, less than one-thousandth of its $47 billion peak. The stock closed at 84 cents Monday, down 68 percent in five days, and will be zeroed out by the bankruptcy.

Mathrani moved on this May and was succeeded by David Tolley, who had become a board member in February. WeWork vetted other candidates for the job, but the post was not so attractive with the firm cascading toward bankruptcy.

Tolley was hired not to avoid bankruptcy but to steer WeWork through it. During his tenure as CFO of Intelsat, the satellite operator went into bankruptcy in May 2020 to restructure. It emerged as a private company in February 2022.

The past three months have been akin to a death march for WeWork. In August, it acknowledged “substantial doubt” that it could continue operating. In September it informed its landlords that it intended to renegotiate nearly all of its leases and gave itself an unrealistic 45 days to do so. Hilco Global was hired to conduct the effort.

October brought more bad news. WeWork skipped $95 million in debt payments and its credit rating was downgraded, crippling its already dubious ability to borrow money. On Halloween, the 30-day grace period on the overdue payments expired, but WeWork negotiated for a seven-day extension. Six days in, it pulled the plug.

Neumann, who has moved on to multifamily investing, called the company’s filing “disappointing.”

“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,” he said in a statement. “I believe that, with the right strategy and team, a reorganization will enable WeWork to emerge successfully.”