WeWork’s rapid rise transformed it into one of the world’s most feted startups, valued at $47bn in 2019. Its fall has been faster. Just four years after clinching that peak valuation, the business has filed for bankruptcy.
Dressed in the cloak of a technology company, WeWork turned out to be an office rental business – one that was undone by problems of its own making and finally by forces beyond its control.
During WeWork’s ascent, it spent heavily to acquire a mass of long-term leases in some of the world’s most expensive real estate markets. These commercial properties were then subdivided into smaller spaces for tenants, usually on a short-term basis.
But its pitch to customers was more than cheap desks and tech. It sought to present itself at the heart of myriad utopian ideals, in pursuit of a “mission” to “elevate the world’s consciousness”.
After WeWork announced its bankruptcy filing on Monday, the co-founder Adam Neumann said in a statement that the move was “disappointing”. He said that since he had been sidelined from the company since 2019 it had been “challenging” to “watch WeWork [fail] to take advantage of a product that is more relevant today than ever before”.
WeWork was driven to the brink by two crises: the end of its venture capital-fueled heyday, and the upheaval of office work sparked by the pandemic. Its collapse now shifts its name towards those of Theranos and FTX, associated with an era of cheap money that fueled an array of unicorns unable to survive when the cash ran out.
“First, and most obvious, this was the pandemic,” said Anthony Sabino, a bankruptcy expert at the law firm Sabino & Sabino and a law professor at St John’s University’s Tobin College of Business. “Who anticipated that no one would be permitted to go to the office like in the old days? The pandemic not only directly caused vacant offices, it decimated the market for office space.
“It forced companies to go to remote work, and some have even embraced it. Whether voluntary or not, the result is the same: a marked decrease in the need for office space, WeWork’s sole commodity,” Sabino added.
For months, there have been signs the company has been teetering. Back in September, it engineered a reverse one-for-40 stock split in an attempt to avoid being de-listed from the New York Stock Exchange. Last month, WeWork said it would miss interest payments totaling $95m.
It filed for bankruptcy protection in a last-ditch attempt to address its massive debt load and right-size its real-estate portfolio. “Chapter 11 can provide many benefits to WeWork as it navigates a restructuring,” said Sarah Foss at Debtwire, “including the ability to reject financially burdensome leases and to use these rejection rights as leverage in negotiating more favorable lease terms”.
Once the largest leaseholder of office space in London and New York, WeWork promised nothing short of a revolution in the way companies and tens of thousands of employees worked – beer on tap, free coffee and snacks, comfy furnishings, discreet lighting, loads of socializing and other employee-friendly amenities – all for a monthly fee.
But the business started to unravel in 2019, when investors balked at its vast valuation on the eve of a stock market listing. When it ultimately went public, via a “blank cheque” merger two years ago, WeWork was valued at $9bn; less than a fifth of its private market peak. Before trading of its shares were halted in the early hours of Monday morning, it had been valued at less than $50m.
The company, which as of June maintained 777 locations across 39 countries, including 229 locations in the US, according to securities filings reviewed by the Wall Street Journal, has been buckling under $10bn in lease obligations coming due and another ($15bn starting in 2028) as the value of post-pandemic commercial real estate plummets.
Amid frantic efforts to restructure, and a turnover of board members, WeWork burned through $530m during the first half of this year and had just $205m of cash on hand as of June. In August, the company warned there was “substantial doubt” it would stay in business.
WeWork – or The We Company, as it was renamed at the height of its pomp – was the brainchild of Neumann, 44, an Israeli-American entrepreneur who started his career promoting Krawlers, a line of baby clothes with sewn-in knee pads. In 2010, in the aftermath of the 2008 financial crash, Neumann and his American business partner Miguel McKelvey came up with the idea of leasing office space and renting it to freelancers and startups.
Branded as real-life social network, WeWork set about transforming the way we work. At times, work itself appeared to be an add-on. WeWork envisaged a “WeUniverse” of gyms, co-living spaces and schools. Venture capitalists loved the play, and poured in billions.
But that all came crashing down when investors started to comb through the company’s prospectus to take WeWork public on the New York Stock Exchange. It was not, they concluded, the hybrid tech company Neumann had projected, but a property company.
Soon after, Neumann was ousted amid controversy over his management style. The executive “would convince employees to take shots of pricey Don Julio tequila, work 20-hour days [and] attend 2am meetings”, according to the New York Times. “He’d convince them to smoke marijuana at work, dance to Journey around a fire in the woods on weekend excursions, smoke more pot [and] drink more tequila.”
The S-1 filing ahead of its failed IPO had also revealed how Neumann had, in fact, leased the “We” trademark to the company, along with buildings he personally owned. In the aftermath, Neumann mostly disappeared. He now lives in the Greenwich Village neighborhood of New York City with his wife and their six children.
But Neumann was not done. With a considerable remaining fortune – some $2.2bn, according to Forbes – he ploughed money from his family office into another real estate company Alfred in 2020. Another, called Flow, raised $350m in investment from Andreessen Horowitz, one of the largest VC firms in Silicon Valley, last summer.
Was WeWork ever a tech company? Soon after the business filed to go public first time around, the Harvard Business Review shot down those pretensions, arguing that it had none of the transformative hallmarks of a budding tech giant – except rapid growth and big losses of $1.6bn, on revenues of $1.8bn, in 2019 – and was instead a real estate company, albeit a “disruptive” one.
“In our opinion, a successful modern tech company can transform whole industries, achieve expansion of scale and scope at breakneck speeds, and make enormous profits, without requiring significant capital investments,” the magazine wrote.
The Review listed low variable costs, low capital investment, a lot of customer data and customer intimacy, network effects and ecosystems that boost expansion with little cost as among the attributes it would expect to see in tech play. But WeWork had none.
Last week, representatives for the company declined to comment on “speculation” WeWork was about to go into Chapter 11 bankruptcy protection, telling the Journal agreements provided “time to continue in the positive conversations with our key financial stakeholders”.
If WeWork was never a tech firm, but merely traded on tech’s lifestyle illusions, was the company’s idea to secure long-term leases on favorable terms and then market into a then growing demand for rentals necessarily wrong? Only when market conditions reverse does the stratagem backfire, according to Sabino.
“It’s nothing more than supply and demand, and guessing wrong, in this instance, betting that the demand for your commodity (office space) will be high and lucrative, while the price you pay for your supply (leases) is secured at a lower number,” he said.
“It turned out just the opposite for WeWork: low demand for its product, and being stuck with paying on leases on space that WeWork could not rent.”
