Did We Forget About WeWork?

Joshua Fraser Jan 25th, 2021 / Wework, Real Estate, Failed Ipo, Business, Pandemic

Watch Estated Ep.01 - Joshua Fraser talks WeWork.

In September 2020, WeWork, an American commercial real estate company, lost 89% of its valuation since its failed IPO in 2019. Founded in 2010, WeWork has managed to acquire over 4 million square meters since 2018, designing and constructing physical and virtual shared spaces and office facilities for startup entrepreneurs and other enterprises.

SoftBank, the parent organization of WeWork Global, decided to take majority ownership after WeWork withdrew its IPO filing in September and fired Adam Neumann, one of the co-founders of WeWork. The millennial startup, once estimated at $47 billion, is now worth less than $5 billion.

The co-founder Adam Neumann was replaced by Sandeep Mathrani as the new CEO in February 2020. On the 3rd of February, WeWork opened its first space in the Middle East. Owing to the Covid-19 pandemic, WeWork declared the immediate closure of its 100 buildings in China for a temporary period. Miguel McKelvey, the co-founder of WeWork, announced his departure at the end of June 2020. In August, the stressful WeWork also raised $1.1 billion as debt financing from SoftBank.

The pandemic could have crushed WeWork. It may have saved it instead. Irrespective of all the harsh circumstances, the company expects the Covid-19 pandemic to speed up demand for flexible workspace. “The company right-sized the organization, offloaded real estate to trim costs, sold the non-core business, and reduced cash burn,” said Mathrani.

This real-estate business has returned to its normalcy in China and South Korea and sees 70-80% occupancy in countries like France, Germany, and Italy since the economy is trying to take the formal shape.

WeWork generally operates by leasing space in buildings from landlords and re-organizing that space into a well-designed startup office. However, the main challenge WeWork is facing is that it signed many of those leases with landlords at the top of the market before the pandemic when rents were at their highest. But the company is subleasing them now when people expect to pay less for office rent since there are more available and we’re in a recession. Newer locations are also less likely to be fully occupied, resulting in WeWork paying more and bringing in less.

Now, it remains to be seen if people prefer private offices within flexible space after the pandemic is over. As CoStar’s Leonard put it, “If you can survive it, the concept is still good. The survivors of this period will probably do well and thrive again.”

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