WeWork goes bankrupt: How things went out of control for the co-working space player

The company's debt-restructuring measures were inadequate to steer off its bankruptcy. Last week, it secured a seven-day extension from its creditors on an interest payment, to win more time to negotiate with them.

SoftBank Group-backed startup WeWork filed for bankruptcy in the US on November 6, following years of struggle to stay afloat.

It is learnt from a bankruptcy filing in the New Jersey Federal Court that the co-working firm reported liabilities of $10 billion to $50 billion.

Profitability has remained elusive as WeWork grapples with its expensive leases and corporate clients cancelling because some employees work from home. Paying for space consumed 74 percent of its revenue in the second quarter of 2023.

The company reported estimated assets and liabilities ranging from $10 billion to $50 billion, according to a bankruptcy filing.

WeWork gained popularity for renting out co-working spaces to start-ups and freelancers on flexible terms, which is believed to have revamped the global office sector.

"WeWork Inc and certain of its entities filed for protection under Chapter 11 of the US Bankruptcy Code, and intend to file recognition proceedings in Canada," the firm said in a statement on November 6.

Things started moving downhill for the company way back in 2019 when WeWork's desperate efforts to raise money in a public listing took a hit on its reputation, resulting in the ousting of co-founder Adam Neumann.

His pursuit of breakneck growth by leveraging profits, along with revelations of his eccentric behavior, resulted in his ouster and the derailment of the IPO.

This disaster was followed by the COVID-19 pandemic when government-imposed social and physical-distancing measures led to the long-term shutdown of most physical office spaces. Through the most part of 2020, people were restricted to their homes and had to work remotely, which acted as another primary headwind for the office leasing sector in the US.

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In fact, operators of co-working spaces in the US reported a nearly 50 percent drop in footfall in March 2020, owing to the pandemic-triggered remote-working impositions globally. In addition, skyrocketing interest rates have further acted as a dampener for the financial prospects of property firms like WeWork.

While the resumption of work from office culture later in 2021 acted as a tailwind for other companies renting out co-working spaces in the US, things spiralled out of control for WeWork.

Besides, investors have time and again expressed their skepticism about the enormous costs of WeWork’s office leases and the expenses involved in running the locations.

The company did remain in operation on the back of measures, including divesting its ancillary businesses, cutting headcounts, and cancelling or modifying multiple leases, in a desperate attempt to cap losses and avoid running out of funds.

Nevertheless, the company announced in November 2022, that it would shut down 40 “underperforming” locations in the United States. It had also tempered its revenue forecast for 2022, further highlighting the challenges it had been battling after its near collapse and subsequent bailout in 2019.

As against its expectations, in the first half of 2023, WeWork lost more than $1 billion on operational costs and other cost-related headwinds.

The bankrupt firm struggled through most of 2023 to sell off parts of its business, shut locations, as well renegotiate the terms of long-term leases and debts.

The company's debt-restructuring measures were inadequate to steer off its bankruptcy. Last week, it secured a seven-day extension from its creditors on an interest payment, to win more time to negotiate with them.

However, failing in all its efforts for a rebound, it informed investors that it would be unable to make loan payments.