WeWork is set to become a smaller (and potentially right-sized) company. Following a final hearing on its bankruptcy plan Thursday morning, the coworking pioneer will have fewer locations, a new influx of capital and $4 billion in debt wiped from its books.
In a packed courtroom in Newark, New Jersey, Judge John Sherwood approved WeWork’s restructuring plan. WeWork hopes to finally emerge from bankruptcy in mid-June. The plan also avoided a bid from controversial WeWork founder Adam Neumann, who had tried to buy back the company he founded before being ousted.
WeWork’s clean slate will coincide with a new era of work, in which office workers have opposed returning to offices full-time. By the end of 2023, almost 20 percent of office space in the US were empty. However, workers are also experiencing more loneliness, a problem that coworking companies say they can address by bringing people together. The WeWork reboot is proof of the future of coworking.
“WeWork still believes this is a viable business model,” says Sarah Foss, global head of legal and restructuring affairs at financial services company Debtwire. “They are leaving a much more efficient company.”
WeWork filed for bankruptcy in November. Hit by high interest rates and the Covid-19 pandemic, which started a work-from-home phenomenon, it was left with too many leases and too many hot desks or flexible office spaces that it couldn’t fill. In 2023, leasing costs accounted for two-thirds of its operating expenses.
WeWork had more than 500 global locations before filing for bankruptcy and will operate about 330 WeWorks in the future, about half of which will be in the U.S. and Canada. That will save WeWork about $12 billion in rental obligations, cutting its rental costs in half, the company estimates. WeWork’s plan involves modifying or assuming many leases and rejecting or negotiating the exit of another 150. It prioritized reducing its footprint in areas where it had excess supply, either by occupying too many floors in the same building or by have multiple locations in close proximity.
Many of these changes are part of your Chapter 11 bankruptcy filings, but locations outside the US and Canada are not part of that package. In other countries, WeWork has worked with landlords to renegotiate some of its leases, including those in Singapore, Kuala Lumpur, Bangkok, Ho Chi Minh City, Jakarta, Manila and Paris.
WeWork reached out to hundreds of landlords during the process to negotiate new lease terms or building exits. Bankruptcy allows companies to renegotiate and reject leases outright, but the market conditions now impacting office landlords have given WeWork leverage to negotiate better terms to stay on site. “They have all the leverage, knowing that we’re in a terrible time for landlords,” says Eric Haber, an attorney at Wharton Property Advisors, a New York City office leasing advisory firm. Now, a leaner WeWork has a “streamlined setup that they hope to be able to make money with, but they have very optimistic projections,” Haber says. “Even with this much better setup, they still have to execute.”
