WeWork filed for U.S. bankruptcy protection on Monday. This move marks an acknowledgment by SoftBank, the Japanese technology conglomerate owning approximately 60% of WeWork and having invested billions in its recovery, that the company’s survival hinges on the renegotiation of its costly leases within the bankruptcy framework.
WeWork currently holds three floors of coworking space on a 14-acre campus of the Red Building in the Pacific Design Center, located at 750 N San Vicente Blvd. It is not yet known what impact the bankruptcy will have on the PDC space, which boasts a unique multi-use venue that is a beacon for entertainment, fashion, technology, and design businesses.
Reuters reports that WeWork has struggled to achieve profitability as it contends with expensive leases and corporate clients canceling their commitments due to employees working remotely. In the second quarter of 2023, 74% of WeWork’s revenue went toward covering its space expenses.
According to bankruptcy documents, the company reported estimated assets and liabilities ranging from $10 billion to $50 billion.
Founded by Adam Neumann, WeWork soared to become the most valuable U.S. startup, valued at $47 billion, attracting investments from renowned investors like SoftBank, venture capital firm Benchmark, and major Wall Street banks, including JPMorgan Chase.
However, Neumann’s pursuit of rapid growth at the expense of profits, coupled with revelations about his unconventional behavior, led to his ouster and the derailment of an initial public offering in 2019.
SoftBank found itself compelled to increase its investment in WeWork and appointed real estate veteran Sandeep Mathrani as the startup’s CEO. In 2021, SoftBank orchestrated a merger with a blank-check acquisition company, valuing WeWork at $8 billion.
WeWork succeeded in amending 590 leases, saving approximately $12.7 billion in fixed lease payments. Nevertheless, these efforts could not compensate for the challenges posed by the COVID-19 pandemic, which kept office workers at home. Many landlords, facing similar pressures, had little incentive to modify the terms of their leases with WeWork.
While WeWork did secure contracts with some large corporations, a significant portion of its clientele consisted of startups and smaller businesses that reduced their spending as inflation increased and economic prospects dimmed.
WeWork also faced competition from its own landlords, as commercial property firms that traditionally only entered long-term lease agreements began offering short and flexible leases to adapt to the office sector’s downturn.
Sandeep Mathrani was succeeded as WeWork CEO in the current year by former investment banker and private equity executive David Tolley, who previously played a pivotal role in steering the debt-laden satellite communications provider Intelsat out of bankruptcy in 2022.
Despite engaging in debt restructurings, WeWork could not avert bankruptcy. Just last week, the company secured a seven-day extension from its creditors to defer an interest payment, granting more time for negotiations.