In 2010, the company “WeWork” was established. Just 13 years later, WeWork filed for Chapter 11 Bankruptcy. Lasting for just over a decade, WeWork has become a prime example of how one should not run a business.
Once a company worth 47 billion dollars, WeWork focused on leasing office spaces with short memberships to single workers, start-ups, or larger companies. WeWork’s office buildings were known to be well furnished and equipped with any office equipment and machinery a company could need [1]. With WeWork’s business model, they would make their money by leasing their office spaces for a higher price than what they bought the space for [2].
WeWork’s struggle started in 2019, when they made plans to go public. However, investors began to pull out for a variety of reasons, such as WeWork deviating from its corporate governance strategy and poor management by former CEO Adam Neumann, resulting in corporate governance lapses and large losses. [3]. For instance, because of the excess inflow of money earlier on, Neumann chose to purchase long leases for spaces that would never be able to make much profit. Neumann’s actions, rather than accumulate success along with more property, only dragged the company further and further into debt. Neumann and the WeWork company also invested itself into endeavors that were not relevant to the company’s mission or purpose. Neumann was forced out of WeWork as its CEO in 2019, replaced by David Tolley [5]. The company finally was able to go public in 2021, however, that stop the company’s decline.
The arrival of the pandemic wasn’t helpful for WeWork either, as it reduced the need for public work spaces. As WeWork was ready to reopen its offices, they had to figure out how to make their services accessible to a public that was mainly working from home or unemployed. These efforts were clearly not successful, as they lost around 696 million dollars just in the first half of the year [5].
Concerns regarding WeWork’s ability to stay afloat amongst the large debt arose in August of this year. Their debt consisted of over 2.9 billion dollars in net-long term debt and 13 billion dollars in their leases [5]. Despite this, WeWork released a statement that they would still be able to continue their operations and their spaces would still be open for members to come and use.
Amidst many of these struggles, WeWork finally declared Chapter 11 bankruptcy on November 6, 2023. Post-bankruptcy, WeWork has entered a plan where they have lowered the total amount of debt that they have to repay, as agreed upon with their stakeholders. This allows WeWork to reject the leases of select non-operational locations, meaning that they do not have to pay back the debt of these locations [5].
Former CEO Adam Neumann had to say this: “The company’s anticipated bankruptcy filing is disappointing. 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.” Despite the WeWork bankruptcy, Neumann’s departure from the company has allowed him to walk away with a 1.7 billion net worth; this doesn’t mean that he was able to escape fully unscathed, rather he was able to retain much of his assets.
WeWork’s bankruptcy will negatively affect the commercial real estate sector and market.. The cancellation of the leases that they took out could lead to lower incomes for many, and higher competition in the market. However, more importantly, WeWork’s story provides a story about being cautious in periods where low interest rates are prevalent, as seen from 2000-2010, where many investments for start-up companies were made, WeWork being one of them. Professor Erik Gordon of the University of Michigan commented that WeWork “is a testament to how damaging near-zero interest rates are to the market mechanisms that allocate capital” [2].
The company’s bankruptcy surely wasn’t because the idea couldn’t have been successful — the company had a value of 47 billion dollars at one point. However, it was the collective influence of multiple bad decisions, a shaky foundation, and wrong timing that contributed most to its ultimate downfall.
[2]https://abcnews.go.com/Business/caused-wework-bankruptcy-matter/story?id=104686140
[4] https://builtin.com/founders-entrepreneurship/wework-bankruptcy
[5] https://www.theguardian.com/business/2023/nov/06/wework-bankruptcy-debt-remote-work
Julia Koch • Dec 12, 2023 at 3:05 pm
This is a great article–WeWork’s downfall is clearly and compellingly portrayed. Nice job!