WeWork has made notable efforts to turn the company around since Neumann’s departure, with executives pointing to improvements in annual revenue, significant cuts in operating costs and other growth opportunities as workplaces emerge from the COVID-19 pandemic. Still, experts say the risk of bankruptcy is on the table — bringing in questions around implications for the already-weakening world of office real estate.WeWork is a provider of coworking spaces.
“WeWork’s challenges are a legacy of its earlier and very aggressive expansion... And the costs that expansion continue,” Sam Chandan, director of the Chao-Hon Chen Institute for Global Real Estate Finance at New York University’s Stern School of Business, told The Associated Press. “By many measures, company revenues and performance is improving, but not quickly enough.”
WeWork has not filed for bankruptcy since last week’s announcement, and “anything is a possibility,” Samuel Rosen, assistant professor of finance at Temple University’s Fox School of Business, notes. “Whether or not this particular company... can actually get out of its current situation, that’s yet to be seen. History would say it’s possible, although I don’t know if I would say it’s probable.”
In last week’s earnings call, the company said that its ability to stay in operation is contingent upon improving its liquidity and profitability over the next 12 months. WeWork plans to negotiate more favorable lease terms, control spending and seek additional capital by issuing debt, stock or selling assets, the company said.
When looking at the total office inventory in the United States alone, 18 million square feet “is a small fraction,” Chandan said — but of course, if WeWork “discontinued meeting its its lease obligations, whether it’s part of a bankruptcy restructuring or some other event... for buildings that have exposure to WeWork, that would be a significant hit.”
Concerns about WeWork’s future come at a time when leasing demand for office space is weak overall, Chandan added. The COVID-19 pandemic notably led toas working from home became increasingly popular. Major U.S. markets still struggling to improve occupancy in commercial real estate include San Francisco, New York, Chicago and Washington.