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WEWORKING IT OUT

Can the pandemic save WeWork?

A WeWork building
REUTERS/Kate Munsch
We need more money.
  • Michelle Cheng
By Michelle Cheng

Reporter

In an S-1 filing ahead of its ill-fated IPO attempt, WeWork included a recession among its risk factors. What it didn’t anticipate was a pandemic.

Over the past year, offices have shuttered around the world. Downtown centers became ghost towns, and revenue dropped sharply for coworking spaces as clients ditched short-term leases. In the second quarter of 2020, US flex office space leasing activity was down 45% year-over-year, according to a report from CBRE. Just this week, coworking space Knotel filed for Chapter 11 bankruptcy.

But it’s not all bad news. Over months of Zoom calls and Slack check-ins, office workers have had plenty of time to mull what it would mean to go (back) to the office. And while demand for flexible space has fallen, commercial real estate analysts say the future for coworking looks bright—in part because big companies are now joining solo entrepreneurs in prizing office-space flexibility. Before the pandemic, commercial real estate firm JLL estimated that 30% of global offices would be on flexible terms by 2030. A year later, its prediction hasn’t changed.

Flex office providers will need to cut costs and restructure to stay afloat while IRL life remains partially on hold, according to Ben Munn, head of global flex space operations at JLL. They will also need to prepare for increased competition: In-office perks like health and wellbeing sites could become more common, and even hotels and retail sites are looking to expand into coworking.

And yet it was only 15 months ago that we witnessed the dramatic rise and fall of WeWork. Part of the class of post-2008 startups with a mission to change the world, WeWork founder Adam Neumann told anyone who would listen that an office-sharing company, complete with cold brew and standing phone booths, could “elevate the world’s consciousness.” Investors bought it, and WeWork’s valuation skyrocketed to $47 billion in 2019. But reports soon emerged of a reckless culture, excessive spending, un-CEO-like behavior, and corporate misgovernance.

Since Neumann’s exit, WeWork has kept a low profile. In one year, CEO Sandeep Mathrani has reportedly cut the company’s burn rate by half; it now has at least $3 billion in cash on its balance sheet, plus a $1 billion commitment from majority owner SoftBank. And thanks to a flurry of IPOs via special purpose acquisition companies (SPACs), this could even be the year WeWork finally goes public.

Just two years ago, WeWork was trying to realize sweeping ambitions and a sky-high valuation; in 2021, it simply needs to prove that coworking can work.


By the digits

>$20,000: Monthly expenses for a “modest co-working space” in the US

$1.6 billion: WeWork’s net loss in 2018

2%: The share of NYC’s total office inventory owned by WeWork in 2019

$47 billion: SoftBank’s valuation of WeWork in 2019

2,000+: WeWork employees laid off to staunch massive losses in 2019

$60 million: Cost of Neumann’s private jet

$1.7 billion: Value of Neumann’s golden parachute

456,820 sq feet: WeWork closures in Q2 2020, according to CBRE research

31%: WeWork’s share of the global office flex market in Q2 2020, according to CBRE

119: Cities that currently have WeWork locations

757: Active WeWork locations

$7.8 billion: WeWork’s most recent valuation, according to PitchBook data


Foot-traffic signal

While WeWork membership visits remain low in the US and Europe, China has rebounded to near pre-pandemic levels already, suggesting coworking will make a comeback.


A brief (recent) history

Aug. 19, 2019: New York-based WeWork publicly files its intent to go public, revealing corporate governance issues and a $900 million loss for the first six months of the year.

Sept. 13, 2019: WeWork slashes Neumann’s voting power from 20 votes per share to 10.

Sept. 13, 2019: The company considers an IPO valuation as low as $10 billion, down from $47 billion nine months earlier.

Sept. 16, 2019: WeWork’s IPO is officially delayed.

Sept. 24, 2019: Neumann steps down, reportedly saying “too much focus” had been placed on him. He is succeeded by two of his deputies as co-CEOs.

Sept. 25, 2019: WeWork puts three businesses up for sale, including Managed by Q (office management and cleaning), Meetup (group meetups), and Conduction (marketing services).

Sept. 30, 2019: WeWork’s IPO is postponed indefinitely.

Feb. 18, 2020: WeWork appoints a new CEO: Mathrani, former CEO of Brookfield Properties’ retail group.

Aug. 13 2020: The company gets a $1 billion commitment in new financing from SoftBank.

Sept. 15, 2020: Mathrani says the pandemic is forcing companies, universities, and the life sciences industry to “de-densify” office space, creating opportunity for WeWork. WeWork says summer leasing activity is close to pre-Covid levels.

Jan. 13, 2021: Mathrani says the company is on track to reach profitability by the fourth quarter.

Jan. 21, 2021: WeWork partners with the city of Miami to expand co-working space.

Jan. 28, 2021: More than a year after WeWork’s failed IPO, the WSJ reports that the company is in talks to either combine with a SPAC or potentially go for another round of private investment.


Close quarters

“All our common areas are completely de-densified with at least six feet of separation between people, even on our couches. All the dedicated desks are separated at least six feet apart. We’ve enhanced the cleaning and sanitization. We’ve changed the entire filtration system in all buildings with HEPA filters. And actually it feels very safe when you come into the environment and people are very respectful. If you are in a common area, they wear masks. That is our protocol and people are abiding by that. —Mathrani in an interview with CNN Business


Neumann!

Here’s a quick refresher on WeWork’s infamous founder:

  • Adam Neumann, now 41, was born in Israel, spent some of his childhood living in a kibbutz, served in the Israeli army, and lived in 13 different homes over the first 22 years of his life.
  • In 2001, he moved to New York and studied business at Baruch College. Neumann would later tell Baruch’s graduating class of 2017 that he spent his early NYC days going to clubs, figuring out how to get rich, and “hitting on every girl in the city.”
  • Before WeWork, Neumann’s entrepreneurial pursuits included a collapsible-high-heel shoe for women and baby clothes with built-in kneepads.
  • The word “Adam” appeared 169 times in WeWork’s IPO filing. Even Tesla didn’t mention “Elon” or “Musk” nearly as much when it filed to go public in 2010.
  • Adam is married to Rebekah Neumann, who formerly served as WeWork’s chief brand officer and CEO of now-defunct WeGrow. They have five kids.
  • At least two TV series based on the Neumann saga are in the works: One stars Nicholas Braun, best known as Cousin Greg on HBO’s Succession; the other stars Jared Leto as Neumann and Anne Hathaway as Rebekah.
Jackal Pan via Reuters

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