NEW YORK (AP) — WeWork has filed for Chapter 11 bankruptcy protection, marking a stunning fall for the office sharing company once seen as a Wall Street darling that promised to upend the way people went to work around the world.
On Monday evening, WeWork declared that it had reached a restructuring support agreement with most of its stakeholders in order to significantly decrease the company’s debt. The agreement also includes a review of WeWork’s commercial office lease holdings.
WeWork has also asked for the “ability to decline the rental agreements for specific locations,” which they claim are mostly not in use, as stated in the filing. The exact number of affected locations was not revealed on Monday, but all members who will be affected have been notified in advance, according to the company.
In a statement, CEO David Tolley emphasized the importance of proactively dealing with our past leases and significantly enhancing our financial standing in order to propel ourselves towards the future. By introducing a new type of work, we aim to maintain our position as the top provider of flexible work on a global scale.
The specter of bankruptcy has hovered over WeWork for some time. In August, the New York company sounded the alarm over its ability to remain in business. But cracks had begun to emerge several years ago, not long after the company was valued as high as $47 billion.
WeWork is paying the price for aggressive expansion in its early years. The company went public in October 2021 after its first attempt to do so two years earlier collapsed spectacularly. The debacle led to the ouster of founder and CEO Adam Neumann, whose erratic behavior and exorbitant spending spooked early investors.
SoftBank from Japan intervened to save WeWork, taking over the majority ownership of the company.
Although there have been attempts to improve the company’s performance since Neumann’s exit, such as reducing operating costs and increasing revenue, WeWork has faced challenges in a commercial real estate industry affected by increasing loan costs and a changing work environment where many employees now work remotely from their offices.
In September, WeWork declared intentions to revise the majority of its lease agreements. Tolley pointed out that these lease obligations made up over two-thirds of the company’s operating expenses in the second quarter of this year, which was deemed excessive and significantly mismatched with current market conditions.
At that time, WeWork also mentioned the possibility of leaving additional underperforming sites. As of June 30, the most recent date for which property figures were revealed in financial reports, WeWork had a total of 777 locations across 39 different countries.
Aside from the expenses of real estate, WeWork has also highlighted a rise in member turnover and financial deficits. In August, the company declared that its survival depended on enhancing its overall liquidity and profitability within the next year.
The declaration of bankruptcy by WeWork comes during a period of low demand for leased office space. The impact of the COVID-19 pandemic has resulted in a higher number of vacant office spaces due to the growing trend of remote work. Many major cities in the United States, including New York and San Francisco, are still facing challenges in their recovery.
Experts in the United States have observed that while WeWork occupies 18 million square feet of office space, this is only a small portion of the overall office inventory in the country. However, individual landlords who have leases with WeWork could face significant losses if those leases are terminated. WeWork has a history of closing certain locations in order to reduce expenses, and this has resulted in some landlords’ building loans being transferred to special servicing. This was reported by credit rating and research firm Morningstar Credit to The Associated Press in previous cases.
Although the exact consequences of WeWork’s bankruptcy filing on its real estate holdings are not yet known, the company expressed a positive outlook on Monday evening.
A representative from WeWork stated to The Associated Press that our locations will remain open and our operations will continue as usual. We intend to stay in most of our markets and uphold our dedication to providing exceptional experiences and cutting-edge flexible workspace options for our members.
On Monday, it was announced that WeWork and some of its associated organizations have submitted for Chapter 11 bankruptcy protection in the U.S. District Court in New Jersey. They also intend to initiate recognition procedures in Canada.
The company stated that the WeWork locations in countries other than the U.S. and Canada will not be impacted by the proceedings, along with franchisees globally.