Why WeWork failed and what's next | Cyprus Mail

Flexible workspace provider WeWork (WE.N) filed for bankruptcy in the U.S. on Monday because of its huge debt load and mounting losses due to declining demand for office space from cost-conscious customers.

WeWork was once the most valuable startup in the US, valued at $47 billion. The company attracted investment from big investors including SoftBank and venture capital firm Benchmark, as well as major Wall Street banks including JPMorgan Chase (JPM.N). Below is the story of WeWork's meteoric rise and fall that changed the global office sector.

What is WeWork?

WeWork, founded in 2010, sought to revolutionize the office market by signing long-term leases on large properties and renting''s premises for lease to a multitude of small businesses on more flexible and shorter terms. It was considered a disruptor with a cohesive business model unencumbered by real estate ownership. The company expanded at an astonishing rate, which increased revenues but also resulted in significant losses.

Who are the founders of the company?

Adam Neumann, his wife Rebecca Neumann, and Miguel McKelvey founded the company and helped it become the most valuable startup in the U.S., valued at $47 billion. The WeWork brand was closely associated with the eccentric Israeli-born entrepreneur, who stated that his company's mission was to "raise the consciousness of the world." However, Neumann's desire for rapid growth through profits and revelations about his''s eccentric behavior led to his firing and the disruption of an initial public offering in 2019. Right before WeWork filed for bankruptcy this week, Neumann said, "I am confident that with the right strategy and team, the reorganization will allow WeWork to successfully revive." "The company was the product of a boom, and during a boom, investors ignore the flashing warning signs. The term 'carimatic CEO' should strike fear into investors," Steve Clayton, head of equity funds at Hargreaves Lansdown, said Tuesday.

Why has WeWork's plummeting fortunes been so widespread?

WeWork's precipitous decline followed lavish predictions about its prospects from SoftBank founder Masayoshi Son. WeWork initially attempted to''s IPO with CEO Neumann in 2019, and parent company We Company spent months preparing for a public offering.

Why did WeWork file for bankruptcy protection in the U.S.?

The company''struggled with costly rents and canceled corporate clients as huge numbers of people began working from home after the COVID-19 pandemic. The company tried to change its lease terms and restructure its debts, but it wasn't enough to avoid bankruptcy. "Innovative financials are rarely truly innovative, but are actually a way to hide a lack of cash profit, and WeWork played that game as much as it could," Clayton said. By the end of June, WeWork's long-term lease obligations totaled $13.3 billion - a depressing burden for the company in the face of declining demand for office space since COVID-19.

What's next for the company?

WeWork said on Monday,''that about 92 percent of the company's creditors agreed to convert their secured debt into equity as part of a restructuring support agreement, reducing debt by $3 billion. "WeWork can use the provisions of the U.S. bankruptcy code to get rid of heavy rent payments," law firm Cadwalader, Wickersham & Taft LLP said in a note to landlords on its Web site in August. Sam Stovall, chief investment strategist at CFRA Research, said: "It would not be surprising to me if SoftBank is merely trying to extract as much of its own investment from the company as possible before it hits bottom like the Titanic." The global commercial real estate market could endure a tough 2024 as vacancies are expected to rise''premises in the coming months. Overall real estate values have fallen sharply due to weak demand and investors' reluctance to invest.