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Key Takeaways
- WeWork is renegotiating nearly all of its leases and plans to exit unfit and underperforming locations.
- Lease liabilities accounted for more than two-thirds of WeWork’s operating expenses for Q2 2023.
- Interim CEO David Tolley remains optimistic, stating that “WeWork is here to stay” and will grow to meet evolving workplace needs far into the future.
WeWork Fights for Survival (Renegotiation Pleas While Locations Flounder): Open Letter Begs for Lasting Business Brotherhood
WeWork, the co-working company, has declared its intent to renegotiate nearly all of its leases and is expected to exit unfit and underperforming locations.
This announcement comes just weeks after the company warned about its ability to remain in business.
WeWork’s Interim CEO, David Tolley, stated that the company’s current lease liabilities “remain too high and are dramatically out of step with current market conditions.”
As of June 30, 2023, WeWork had 777 locations in 39 countries.
Life Raft for a Sinking Vessel
The company has been negotiating lower rents for over three years, with some success, as landlords have been desperate to fill office towers emptied by the work-from-home shift that began during the pandemic.
WeWork’s lease liabilities accounted for more than two-thirds of its operating expenses for the second quarter of 2023.
Tolley said that the company will seek to negotiate terms with landlords that allow WeWork to maintain its quality of service and global network in a financially sustainable manner, adding that the company expects to exit “unfit and underperforming locations” as part of these negotiations.
Despite the challenges, Tolley remains optimistic, stating that “WeWork is here to stay” and will grow to meet evolving workplace needs far into the future.
The company has already started a process of global engagement with landlords to renegotiate nearly all its leases.
What was WeWork’s highest valuation?
WeWork, a real estate company that specializes in offering co-working spaces, was once a high-flying unicorn in the startup ecosystem.
The company achieved its highest valuation in January 2019 at a staggering $47 billion.
However, it’s crucial to understand the context and the subsequent downfall that followed this peak valuation.
The Journey to $47 Billion
WeWork was founded in 2010 by Adam Neumann and Miguel McKelvey.
It started as a trendy co-working space in New York City and quickly attracted attention from venture capital firms.
The core concept was not just to rent office spaces but to create a community among its members, offering amenities like free coffee, beer, and networking events.
Over time, the company expanded its operations globally, operating in various countries and cities.
Investors were enamored with WeWork’s rapid growth and the vision laid out by its charismatic then-CEO, Adam Neumann.
SoftBank, the Japanese conglomerate, played a significant role in WeWork’s valuation story.
SoftBank invested billions into WeWork, thereby inflating its valuation over time.
By January 2019, SoftBank’s latest investment round pegged WeWork’s valuation at $47 billion.
The Bubble Bursts
The $47 billion valuation proved to be unsustainable.
When WeWork filed for an initial public offering (IPO) in August 2019, cracks in its business model and corporate governance began to show.
Scrutiny from investors, analysts, and the media revealed glaring issues ranging from the company’s lack of a clear path to profitability to Adam Neumann’s erratic behavior and conflicts of interest.
WeWork eventually pulled its IPO, and its valuation plummeted to a fraction of its peak.
Adam Neumann stepped down as CEO, and the company underwent extensive restructuring.
SoftBank had to intervene with a multi-billion dollar bailout to keep the company afloat.
Lessons for Real Estate Investors & Media Companies
The WeWork saga offers valuable insights for those in real estate and media businesses.
A sky-high valuation based on investor exuberance rather than sound business metrics can be a risky proposition.
For a media company focusing on real estate investing, this case serves as a valuable lesson on due diligence and the importance of scrutinizing the fundamentals of an investment, beyond the hype.
Wrapping Up
WeWork’s highest valuation of $47 billion serves as both an example of startup optimism and a cautionary tale.
While the company did innovate in the co-working space, providing valuable services and creating a strong brand, its financial and governance woes led to a spectacular downfall.
The story continues to unfold, but the lessons it provides are timeless.
I hope this detailed account helps you grasp the complexities and the story arc of WeWork’s valuation journey.
It offers excellent learning points for anyone in the business of real estate, media, or investing.
Foolishness Optimism Hybrid
WeWork intends to remain in the majority of its buildings and markets, and when closing locations, it will promptly inform members and offer alternative arrangements and additional support to minimize disruption or inconvenience.
The success of these renegotiation talks is crucial for WeWork’s survival, as the company faces mounting losses and dwindling cash reserves.
Since 2019, WeWork has renegotiated or exited 590 leases, saving the company $12.7 billion in leasing costs.
