WeWork, the co-working company that once aspired to raise our collective consciousness, now just hopes to avoid bankruptcy.
The company has long been beset by losses. It now says it is losing customers at an alarming rate.
“The recent macroeconomic environment has caused higher member churn and weaker demand than contemplated under the Company’s business plan,” We Work said in a recent SEC filing.
The word “macroeconomic” is doing an awful lot of work these days.
Going Concern?
In the filing, WeWork outlines measures it plans to take to right the ship and avoid any number of grim outcomes that might include bankruptcy. The company has raised a specter that no company ever wants to raise. Can it continue as a “going concern”?
“Our ability to continue as a going concern is contingent upon successful execution of our management’s intended plan over the next twelve months to improve the Company’s liquidity and profitability,” WeWork writes in the filing.
The “plan” includes the following measures.
“Reducing rent and tenancy expense by taking additional restructuring actions and negotiating more favorable lease terms. Increasing revenue by reducing member churn and increasing new sales. Controlling expenses and limiting capital expenditures. Seeking additional capital through the issuance of debt or equity securities, or the sale of assets.”
This is followed by the kind of gloomy language that we all know lawyers would never use unless compelled by regulators to do so.
“There can be no assurance that any such measures would be successful. If we are not successful in improving our liquidity position and the profitability of our operations, we may need to consider all strategic alternatives, including restructuring or refinancing our debt, seeking additional debt or equity capital, reducing or delaying our business activities and strategic initiatives, or selling assets, other strategic transactions and/or other measures, including obtaining relief under the U.S. Bankruptcy Code.”
Well, that’s cheerful.
Already Reeling
WeWork’s collapse, should it happen, would not be a plus for big city commercial real estate markets. It could worsen already high vacancies in an office market that is already reeling from covid and the remote work movement.
As Barclays Managing Director Lea Overby told Yahoo Finance this week, “One of the problems facing Manhattan and many cities across the country is already we are already at record-high vacancies … so this just adds one more straw to the proverbial camel of higher vacancies across the country.”
One more straw isn’t all the straws or even necessarily the final straw. But it can’t help for a large tenant to go belly up in an already down office market.
And it may take a while for the apparent corporate backlash against remote work (even Zoom is making its employees return to the office) to have a positive impact on the office rental market.
Missed Opportunity?
As the world emerged from covid, I was among those who thought coworking businesses like WeWork had an opportunity to fill what could have been an important niche. And that is to provide people who don’t want to work from home with a place to go every day.
Where companies once gave out gym memberships, they could now give out WeWork passes.
This could have become a high-value corporate perk at companies that are still remote first.
It is an option that has wide application. As Roam and Yext founder Howard Lerman likes to say, “All scaled companies are distributed.” And by definition, distributed means a combination of HQ, work-from-home, and satellite offices. The satellite office was and perhaps still is WeWork’s opportunity.
And WeWork seemed to have been pursuing just such a strategy.
Back in May, we reported that “Amazon will take over 70,000 square feet at the recently refurbished Moore Place facility in London. The space is expected to accommodate about 1,000 Amazon employees.”
This sounded like a promising avenue for WeWork. And we discussed this on Episode 23 of the “This Week in Local” podcast.
But apparently there just aren’t enough Amazon deals out there.
