The collapse of WeWork has made headlines around the country, and outside of it. Everyone has heard of what happened, and now it is time to look to the future of the We Company subsidiary. With less than a month before the company was set to run out of money, a WeWork takeover seemed inevitable. There were two options on the board to avoid going out of business. The first offer was a bailout from JP Morgan Chase and several of WeWork’s other lenders, while the second offer was to be taken over by SoftBank.
WeWork Takeover Options
WeWork had connections to both JP Morgan and SoftBank. SoftBank was a big investor in The We Company, while JP Morgan Chase was former CEO Adam Neumann’s personal bank. JP Morgan had underwritten some of WeWork’s loans, but SoftBank’s offer included paying off some of Neumann’s debts.
Choosing one of these deals was necessary to avoid going out of business. If WeWork was to go bankrupt, it would have a significant impact on the commercial real estate industry. CNBC broke down why it would be bad for real estate if WeWork was to go bankrupt. Since WeWork deals in long-term leases, any landlord that has rented space out to them would suffer. The number of landlords is not small seeing as how the company leases tens of millions of square feet of office space across New York, San Francisco, and London.
WeWork Takeover Moving Forward
With bankruptcy off the table, WeWork decided to accept SoftBank’s offer. With this, the WeWork takeover was finally underway. While he did maintain some voting power, Neumann was removed as CEO. SoftBank now owns 80% of WeWork, and plans on advising the new CEOs moving forward.
SoftBank already controls two seats on The We Company’s board, and has tapped Bolivian-born executive and billionaire Marcelo Claure to lead 20 of its staffers in managing WeWork’s turnaround, the WSJ reports. Claure will advise co-CEOs Artie Minson and Sebastian Gunningham in deciding how to best cut costs to shorten the company’s path to profitability.
Now that the WeWork takeover is being implemented, does this save the company? WeWork had multiple deals that were still being negotiated that have now been halted. There are also business relationships that have presumably ended due to a new level of caution. A frustrated landlord, who wished to remain anonymous, had been in talks with WeWork, and commented on the current situation:
Now, the latest thing they told us after the SoftBank bailout was announced, [was] ‘we are still on hold, and we could be back to you in two days, two weeks — or never.
To some of WeWork’s business partners, they see its collapse as a new opportunity. WeWork served as a middleman to connect them with tenants, but with those relationships already formed, they can cut WeWork out of the process and deal directly with the businesses. This idea was mirrored by Steven Durels, the Director of Leasing for SL Green. He looked at one of his company’s properties, that WeWork rents out and leases to Amazon, and explained that a lease would be made directly with Amazon in a scenario where WeWork was no longer a factor.
So, if there were no WeWork, Amazon would simply be our tenant, they step into that lease next day, there would be interruption of services and no break in our income.
The coworking industry has also been thriving outside of WeWork. The Real Estate Board of New York reported on the flexible office space available in the region, and WeWork makes up 28% of it. This is a big enough percentage to cause problems by going out of business, but small enough where there are alternative options post-takeover.
Vornado Realty Trust, for example, plans to start offering flexible office space for tenants in the coming future. The president of Vornado, Michael Franco, commented on WeWork, and the Trust’s upcoming plans.
While we appreciate some of the creativity that WeWork brought to the office business, we chose to lease our space to end users with better credit over the past few years…We will brand this space under the Vornado name and, importantly, retain the bulk of the upside.
After its brush with bankruptcy, WeWork is going to have some difficulty getting back on its feet. It had a lot of relationships and partnerships with landlords around the world, but those landlords have either begun to doubt WeWork, or are enacting backup plans so that they do not have to be reliant on it. This puts WeWork in the position of having to prove itself all over again, and regain the trust of those it did business with.
SoftBank’s takeover and cash infusions may have saved WeWork for now, but there’s no telling whether its new leadership will be able to right the ship moving forward.