Major real estate firms suffer multi-million dollar losses as WeWork teeters on brink of collapse

Real estate firms who backed troubled shared workspace provider, WeWork, when it went public two years ago have now reportedly lost millions of dollars.

According to a report from The Real Deal, the New York Stock Exchange suspended trading of WeWork’s warrants in August, and now the company is looking to renegotiate almost all of its leases.

That’s news real estate firms like Cushman & Wakefield didn’t want to hear after investing $150 million in WeWork when it went public, with an $8 billion valuation, two years ago.

Last month, WeWork’s market capitalisation sank to $275 million, which means Cushman’s investment has also substantially dropped. 

The real-time value of Cushman’s investment isn’t clear, but at the end of the first quarter, the firm said its stake was valued at just $3.8 million.

And just this week, WeWork announced it would be renegotiating “nearly all” of its leases.

In a letter from CEO David Tolley, WeWork said its current lease liabilities accounted for more than two-thirds of its operating expenses, which was “too high” and “dramatically out of step with current market conditions”.

“We are taking immediate action to permanently fix our inflexible and high-cost lease portfolio to achieve the sustainable operating model that we need to serve our members for many years to come,” Mr Tolley said.

“By addressing this reality now, we will be able to continue investing in and innovating our business on behalf of our members.”

Mr Tolley said WeWork would engage with its landlords on a global scale to “renegotiate nearly all our leases”.

“We will seek to negotiate terms with our landlords that allow WeWork to maintain our unmatched quality of service and global network, in a financially sustainable manner.

“As part of these negotiations, we expect to exit unfit and underperforming locations and to reinvest in our strongest assets as we continuously improve our product.” 

While the company has faced skepticism from landlords in the past, this time there appears to be a sense of real urgency. 

“We’ll have to see what they come back and ask for,” an anonymous landlord told The Real Deal.

“They’ve shown some real urgency here.”

WeWork has given itself a 45-day window to complete negotiations.

In the letter, Mr Tolley also worked to allay fears WeWork would collapse, saying the process would have no impact on its commitment to members and very little change to day-to-day operations.

“WeWork is here to stay,” he wrote.

“We will remain a global flex space leader and trusted real estate partner to our members.”

The news follows a turbulent period for the shared workspace provider. 

In May, CEO Sandeep Mathrani and CFO Andre Fernandez both resigned. 

By August, the company expressed “substantial doubt” about its ability to stay in business. 

In an effort to stay afloat, WeWork renegotiated about $3 billion worth of debt earlier this year.

Other real estate firms to lose significant chunks of their investments include Starwood Capital, which owns 12.5 million shares, Cohen & Steers (8 million shares), Chinese investor Oceanwide (1 million shares), development firm Warhorse (800,000 shares) and naturally, ousted WeWork founder Adam Neumann (20 million shares).

WeWork’s financial struggles have been intensifying since 2019. 

A hefty $4.4 billion investment from SoftBank in 2017 led to a buying frenzy, as WeWork secured leases at rates above market value, primarily in urban centres like New York and San Francisco.

The Covid-19 pandemic only worsened the company’s woes. The shift to remote working hurt office markets across the US, leaving WeWork with fewer members and unsustainable lease rates. 

Since the pandemic’s onset, WeWork has lost $11.4 billion.

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Kylie Dulhunty

Kylie Dulhunty is the Editor at Elite Agent.

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