WeWork files for Chapter 11 bankruptcy protection
The company has struggled amid the rising costs of borrowing money and more people opting to work from home.
There has been another twist in the WeWork saga as the office space rental company has filed for bankruptcy protection. Following reports last week that the company was expected to file for Chapter 11 protection, WeWork's shares were halted on the New York Stock Exchange (NYSE) on Monday. According to The New York Times, it described its bankruptcy filing as a "comprehensive reorganization" of its business. "As part of today’s filing, WeWork is requesting the ability to reject the leases of certain locations, which are largely nonoperational, and all affected members have received advanced notice," the company told the publication in a statement.
A number of factors played into WeWork's fall, including trying to grow too fast in its early days. The company has attempted to cut costs in recent years (including by closing several co-working spaces in the wake of COVID-19 lockdowns) while its revenue has grown.
However, WeWork has been toiling in a real estate market that has felt the pinch of inflation and the rising costs of borrowing money. It has also been contending with another pandemic-accelerated change as millions more people are opting to work remotely instead of going to their company's offices. In its most recent earnings report in August, WeWork said it had "substantial doubt" about its ability to remain operational.
WeWork first attempted to go public in 2019, though it withdrew plans for an initial public offering after investors expressed concerns over profitability and corporate governance. Its S-1 filing showed losses of over $900 million for the first half of 2019 and indicated that WeWork was on the hook for over $47 billion worth of lease payments — WeWork takes out long-term leases on office space and rents it to workers and companies on a short-term basis.
That fiasco led to Softbank, which at one point led an investment round into WeWork when it had a valuation of $47 billion, taking control of the company. Softbank pushed out co-founder and CEO Adam Neumann with an exit package that was said to be worth $445 million.
The business eventually went public in 2021 after it merged with a special-purpose acquisition company. WeWork shares cost more than $400 two years ago, but by Monday the price had dropped to under $1.
WeWork has made more attempts to steady the ship. In September, the company completed a reverse stock split. It said this was conducted to help it continue to comply with the $1 minimum share closing price required to stay listed on the NYSE.
Later that month, WeWork said it would try to renegotiate the vast majority of its leases. At the time, CEO David Tolley pointed out that the company's lease liabilities amounted to over two-thirds of its operating income in the second quarter of this year.
On October 31, WeWork said it would withhold some interest payments — even though it had the cash to make them — in an attempt to improve its balance sheet. The company then entered a 30-day grace period before an event of default.
Meanwhile, Neumann has a new real estate venture, this time focused on residential rentals. It emerged last year that he had bought more than 3,000 apartments in Miami, Fort Lauderdale, Atlanta and Nashville. Flow, the company that will manage those properties, has reportedly received an investment of $350 million from venture capital firm Andreessen Horowitz.
