Flexible workspace provider WeWork is saying that timing is now critical for it to get the money it needs to successfully emerge from bankruptcy, accusing some landlords of obstructing efforts to restructure its struggling operations.
WeWork's lawyers said its Chapter 11 reorganization efforts were at a "critical juncture" following complaints filed against the New York-based coworking operator that it was withholding rent.
The company confirmed it is looking for new financing to make it through what has become a prolonged negotiating process with landlords as it tries to reduce future rent payments. The new funds would be used to pay rent on the locations WeWork wants to keep in its portfolio, the company said in a court filing, something a growing number of landlords have accused it of trying to avoid in violation of bankruptcy rules.
Landlords have accused WeWork of dragging its feet in negotiating revised lease terms, all the while using its space and collecting membership dues. Mall giant Simon Property Group said in a recent court filing that conversations with the coworking company "continue to be unproductive," joining other landlords looking to force WeWork into meeting its financial obligations.
WeWork denied the accusations and has instead turned the blame back on landlords by claiming those who are refusing to compromise "risk causing all parties to lose the forest for the trees," lawyers said in a filing.
WeWork withheld as much as $33 million in January rent from some landlords, Steven Serajeddini, the company's attorney, said in court papers. It's a strategy he said has helped get some landlords to the negotiating table as the firm assesses which leases to retain and which to reject.
However, a "vast majority" of unpaid landlords have access to financial resources such as letters of credit and surety bonds to ensure they're paid, meaning any attempt to force WeWork to pay up before a finalized reorganization plan is a drain on its dwindling finances, lawyers said in the filing.
It was not clear how much WeWork is looking to raise or how long it could last through the bankruptcy process if those efforts fail to materialize.
“We have a clear line of sight into a profitable, sustainable WeWork, having reached numerous beneficial agreements with our landlord partners to date,” WeWork said in a statement to CoStar News. “Any new financing would serve to strengthen our ongoing operations throughout the bankruptcy process.”
Requests for Relief
Getting out from under substantial lease obligations is an important component to WeWork's financial future, the company has said, leveraging its bankruptcy filing in order to restructure operations from top to bottom.
WeWork has so far looked to reject more than 90 leases across the United States. Since it filed for bankruptcy in early November, the company has restructured upward of 60 rental agreements around the world, an effort that translates to more than $1.5 billion in total rent savings.
Some WeWork landlords have claimed the company is simply withholding rent payments while making no attempt to renegotiate terms. Along with the latest complaint from Simon Property Group, a Brookfield Properties affiliate said in a court filing earlier this month that WeWork is subleasing office space in a Washington, D.C., building to another tenant, but the operator hasn’t paid the landlord even though it is receiving “six-figure” monthly rent payments from the sublessee.
WeWork’s creditors in court papers said the company has also failed to update its business plan or provide any details about how it will emerge from bankruptcy on more solid financial footing.
Bankruptcy rules require companies to continue making rent payments unless they decide to terminate a lease. If WeWork is found to be in violation of that rule, it could jeopardize its restructuring efforts and force the company into liquidation.
The company's restructuring plan "will require everyone to shoulder some of the load," WeWork's lawyers said in a filing, and most of its landlords "have engaged in good faith and continue to be constructive business partners." However, those coming after WeWork for missed rent payments are ignoring the company's "attempts to build goodwill" and refusing to reciprocate by "making significant concessions for the benefit of the business and all of its stakeholders," something "virtually every other" landlord has been willing to do.
Neither Simon Property Group nor its legal team responded to CoStar News' requests to comment.
After becoming one of the most valued startups in U.S. history at a peak $47 billion valuation based on a SoftBank investment, WeWork filed for Chapter 11 as a result of holding too many leases at too high a cost. The company, which has since been weeding through its portfolio to get rid of underperforming locations, is credited with creating the market for coworking space but has struggled to keep up with competitors as it remains weighed down by expensive lease obligations.
WeWork adopted a formula of leasing and renovating office space to make it high-end and modern, providing a mix of spaces that allowed for some desks to be rented individually on very short-term leases, while, in others, companies could take larger portions of offices. When the COVID-19 pandemic began and lockdowns took effect, demand for coworking took an initial hit, later emerging as more people used to remote work wanted to go to an office outside city centers that were closer to where they lived.
The company grew to employ over 2,650 full-time workers around the world by 2023. However, the pandemic "and other obstacles prevented [it] from outgrowing burdensome rent obligations" and instead turned to bankruptcy as its "last clear chance to restructure the business and rationalize [its] lease portfolio."