Commercial Magazine

The story of WeWork has yet to find an ending

By Jeff Bond

It’s rare that the staid world of commercial real estate is rocked by a sexy scandal that captures the public’s imagination. But that’s what happened with the troubled coworking business WeWork.

The subject of at least two books that was also mythologized in a Hulu documentary, WeWork — which at one point was estimated to be worth $47 billion — filed for chapter 11 bankruptcy this past November. The charismatic co-founder Adam Neumann, with his rock-star hair and flair for excess, is long gone, fired by the company’s board of directors in 2019 and walking away a billionaire, at least on paper.

When it comes to studying what went wrong with WeWork, the list is long, including a flawed business model in which the company made long-term leases on office space and then offered short-term rentals to individuals, startups and small businesses. The operation lost money during the best of times, leaving it unable to cope with the COVID-19 pandemic and changing attitudes about office work.

“WeWork is going to reject more leases than ‘The Golden Bachelor’ rejected potential suitors.”

Eric Sussman, adjunct professor of accounting, UCLA Anderson School of Management

There are many ironies to this story, including how some of the most powerful investors in the world were sucked into the WeWork vortex. They apparently believed Neumann’s hype that his operation would be a disruptive force in commercial real estate. But surely one of the most surprising twists is that the story doesn’t seem to be ending — at least not yet. WeWork, which still maintained 777 locations across 39 countries as of June 2023, is still alive and may end up coming out of bankruptcy as a viable company.

“The purpose of chapter 11 reorganization is to give the business a second chance at life,” says attorney Anthony Sabino, who specializes in bankruptcies. “Under chapter 11, a debtor company is explicitly allowed to continue to operate its business and maintain possession of its assets.”

Sabino says that WeWork will be able to accept or reject each of its unexpired leases. The accepted leases will either be paid or sold off while the rejected leases will become unsecured debts. “They will go to the back of the line with all the unsecured debtors scrambling for pennies,” Sabino says.

Additionally, the management team stays intact. “That is one of the zany things about chapter 11,” Sabino says. “The incumbent management team is allowed to stay in place, unless creditors unite and go to court to have them removed.”

All indications are that WeWork’s management team is moving fast on the reorganization. The Wall Street Journal reported that WeWork was proposing to reject 69 poorly performing leases, including 40 locations in New York City, and was negotiating with more than 400 landlords to amend existing leases.

“WeWork is going to reject more leases than ‘The Golden Bachelor’ rejected potential suitors,” quips Eric Sussman, adjunct professor of accounting at UCLA’s Anderson School of Management, referring to ABC’s hit dating show. As for whether the company’s fall will cripple the coworking sector, Sussman, who started a business in a coworking space, doesn’t believe so.

“Coworking has been around for decades,” he says. “WeWork was a flash in the pan with a new variant of the model, with beer kegs, pingpong tables and video games, but I don’t think there is any issue with the traditional coworking space.”

When it comes to lessons learned from this debacle, the last word goes to Aswath Danodaran, a professor of finance at New York University’s Stern School of Business. He made it clear in an email response that he was ready to move on from the WeWork story.

“The bottom line is simple: WeWork has always been a bad business with an awful management team,” Danodaran writes. “One VC (Softbank) pushed their pricing up to $47 billion before they fell apart, brought down by arrogance. It was deserved and no tears are being shed.

“If there are lessons to be learned, they are don’t be arrogant and [then] compound that arrogance with greed. But that lesson will never be learned. There will be more WeWorks in the future, with different players and different motives.” ●


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