WeWork has come to the brink of financial collapse, and professionals both in the real estate industry and beyond have strong opinions over how it got there.
In the years since co-founder Adam Neumann's forced departure in 2019, the New York-based flexible office space provider has faced a mounting pile of challenges that ultimately resulted in a long-anticipated Chapter 11 bankruptcy filing late Monday. The money-losing company has spent the past couple of months scrambling to renegotiate nearly all of its leases, following moves to shut underperforming locations and restructure a business model that meant scaling back space in parts of the United Kingdom, the United States and Canada after what critics say was nearly a decade of taking on too many leases at too high a cost.
Those efforts to curtail expenses have fallen short, however, underscoring the difficulties real estate stakeholders are having with rising interest rates, record-low leasing volume, the widespread shift to remote work, and a tough lending climate.
Neumann, though, said he still has hope for WeWork.
"As the co-founder of WeWork who spent a decade building the business with an amazing team of mission-driven people, the company’s anticipated bankruptcy filing is disappointing," Neumann told The Guardian after WeWork stock trading was halted Monday. “It has been challenging for me to watch from the sidelines since 2019 as WeWork has failed to take advantage of a product that is more relevant today than ever before. I believe that, with the right strategy and team, a reorganization will enable WeWork to emerge successfully.”
After more than a decade of maintaining its high visibility brand in the global flexible workspace industry, WeWork isn't expected to fade into the background. Here's what executives, both in and outside commercial real estate, are saying in recent days about the coworking operator's past mistakes and future possibilities.
Calum Russell, CEO of Flexible Workspace operator Covalt, in a statement to CoStar News:
"WeWork’s problems were well known. From the outset, many within the industry were saying that the company was entering into an excessive number of onerous leases and over-leveraging. The pandemic and resulting drop in occupancy hit many flex operators hard, but it also exposed the deep problems inherent in WeWork’s approach. The crucial point in all of this is that WeWork’s problems are unique to them. The recent headlines about WeWork belie just how well the flexible office market has performed recently."
Nick Bloom, a Stanford University economics professor and expert on remote work trends, on LinkedIn:
"Sad news: WeWork is dying. WeWork combined a fantastic idea with a disastrous bet. The fantastic idea was flexible office space by the day, perfect for hybrid [working from home]. The disastrous bet was to go long on office space before the biggest office crash since 1929."
Markus Shayeb, managing director of San Francisco-based real estate firm TRI Commercial, in a LinkedIn post:
"The flexible office has been around long before WeWork. While I saw a good use model for their enterprise model, the numbers were tough to justify. Like many other companies such as Amazon, Uber, Lyft and many others, they spent billions creating a client base versus stressing profitability. However, they relied on high density to make money. They simply ignored real estate economics and ran out of money before establishing themselves as (a) true market leader. Most flexible office operators today expand mostly as service providers for landlords to utilize otherwise tough-to-lease space."
David Olsen, principal at Chicago-based Logan Peak Consulting, which advises clients on flexible office space, workspace planning, work-from-home solutions and real estate portfolio strategies, on LinkedIn:
WeWork "will [reorganize], cherry pick leases, shore up finances and be relevant again in some form. Stinging for some landlords to be sure. Hindsight is 20/20, and while long-term lease commitments are a factor, it was an industry standard. No one could foresee what was looming ahead. It’s a solid business model with flawed execution. I’m rooting for the next chapter."
Erik Gordon, a University of Michigan professor who teaches about issues on entrepreneurship, venture capital and private equity, corporate governance and activism, and initial public offerings, to NPR's Marketplace podcast:
“I think there are two sort of surprise miracles here. One, that this company was able to get so big to begin with, and two, that it has survived on fumes all these years."
Doug Linde, president at real estate investment trust Boston Properties, to analysts on the company's recent earnings call.
"We expect to have additional portfolio vacancy from WeWork defaults as we move through the fourth quarter and into 2024. We don't expect WeWork to exit all the assets, nor do we expect them to remain in place in their current footprint."
Enrico Sanna, CEO of flexible workspace operator The Office Group, in a statement to CoStar News:
"It is important to note that the difficulties facing WeWork are in no way reflective of the underlying strength of the flexible office sector, particularly at the premium end of the marketplace."
Francis Saele, managing principal of Mortevita, which provides specialty consulting services for corporate real estate, remote and hybrid workplace design and implementation, performance analytics and other work-related issues, on LinkedIn:
"Reality and capitalism have finally caught up with WeWork. Since its inception in 2011, much has changed in office real estate and an economy that lived on free money for more than 10 years. Coworking and flex work will continue to grow, but only on a business proposition that can be supported in the new world of real estate finance. It will take time for the financial markets to once again be interested in office real estate that has any meaningful risk. And any real estate built on one-day or one-month commitments will be challenged more than ever before by lenders and investors."
Nate Johnson, founder and CEO of GLCS, a transportation and logistics technology consulting firm, in a LinkedIn post:
"I'm surprised it took this long."
Nicholas Farmakis, executive managing director at Savills North America, on LinkedIn:
"I have no knowledge of what WeWork will do regarding bankruptcy, but I have a hard time imagining Chapter 7 and a liquidation of the company. There is still an absolutely viable business and, believe it or not, an incredible brand name. Companies say 'Let’s go get a WeWork' the way you might say 'Can I have a Kleenex.' I expect they will use the opportunity to consolidate facilities and retain the higher-quality ones. I imagine they will renegotiate leases for those that remain — not only economically, but also operationally; they have learned a lot over the last few years about what lease rights are required. There will be many losers, sure, but also some winners. Ripping off the band-aid is the best thing they can do at this point."
Luis Felipe Bravo, real estate director at Gamma, a New York-based investment and development firm, on LinkedIn:
"It's the failure not only to understand the core economics of the business but to understand what business you're in. Softbank didn't understand this, neither did the investors that valued WeWork using ratios as if it was a tech company. After all, their revenue came from subleasing office space, which is never as sexy as tech!"
Mark Perchtold, director of Omba Advisory & Investments, on LinkedIn:
"It’s just shocking. Bad allocation of capital all around, and many more such stories to come. Too many companies focused on users and revenue but have loss-making, defunct business models. Higher rates and more cautious allocation of capital will result in down rounds and loss for so many investors chasing the next unicorn. Good luck to all of you. Go back to basics. Burning cash to grow revenue and users/customers is not sustainable!"