Office assessment company WeWork Inc. filed for bankruptcy protection in New Jersey on Monday, after a decade of financial turmoil and four years after it was valued at $47 billion.
In a statement Monday evening, WeWork said it has entered into a restructuring agreement with lenders holding about 93% of the secured notes to “dramatically reduce” its debt burden. The company also said it is requesting the ability to deny certain leases at locations it called “largely non-operational.” Most branches will continue to operate as usual.
“WeWork has a strong foundation, a dynamic company and a bright future,” CEO David Tolley said in a statement. “Now is the time for us to advance the future by aggressively addressing our existing leases and dramatically improving our balance sheet.”
Israeli entrepreneur Adam Neumann is co-founder of WeWork WE,
in 2010 in New York City, where he served as CEO of the fast-growing company until he was ousted nine years later, a rise and fall that inspired the miniseries “WeCrashed.”
Neumann often spoke about reinventing the way people work. But his company’s business plan was simple: charge members more for office space than they owed to major landlords.
At its peak, the company amassed a pile of nearly $50 billion in lease obligations, with an average term of 15 years. It has yet to become a consistently profitable company.
Here are the big numbers that help tell WeWork’s story, from venture capital enthusiast to today:
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Peak valuation of $47 billion in 2019
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As of this summer, $25 billion is owed to landlords in outstanding full-term lease obligations
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According to the New York Times, there have been $15 billion in losses since the end of 2017
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$12.5 billion in savings on restructured leases from 2019 to 2023
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Valuation of $9 billion upon IPO via SPAC merger in 2021
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$6.8 billion in commercial mortgage bonds with WeWork exposure, per KBRA
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Of which $3.3 billion is in New York City
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$2.9 billion in WeWork’s long-term debt as of June
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$680 million in liquidity in June
Although WeWork partially owns a portfolio of buildings, it has far fewer assets than the company’s outstanding lease obligations.
Read: WeWork landlords could suffer large losses on rejected leases in the event of bankruptcy
“When a major tenant goes bankrupt, they typically have a pretty clear idea of which leases are profitable and which are not,” said Douglas Mintz, co-chairman of the corporate reorganization group at law firm Schulte Roth & Zabel, in a telephone interview. .
But WeWork’s bankruptcy filing comes as the value of office buildings and leases is rarely harder to discern. A few months after Neumann’s departure, the pandemic broke out. It led to remote working, emptying the downtowns of many major cities and rapidly changing the number of people going about their workday.
Then came the Federal Reserve’s rate hikes, which took effect in March 2022, making it even harder to finance half-empty office buildings. Barclays recently estimated that any distressed office properties are likely to be worth only the price of the land or development costs.
The volatility of 10-year government bond yields this fall has not helped landlords. The benchmark interest rate is a link for new real estate loans, but also for the broader economy.
“WeWork’s bankruptcy will certainly have a negative impact on the market and the ability to finance these buildings, but that pain will not be equally distributed,” said Jeffrey Havsy, commercial real estate practice leader at Moody’s Analytics, in an emailed commentary mail. .
Leases in prime buildings that are still in high demand could ultimately have little impact on landlords, he said, while also noting that the need for “flexibility” in the office landscape is increasing.
Havsy also said, “It is a mistake to take one data point from a single company that has been struggling for a decade and use that write-off across the entire industry.”