Report of Potential Bankruptcy Filing Further Erodes Price

WeWork’s shares lost nearly half of their value in one day after a report that the flexible office space provider may file for bankruptcy and as failed interest payments prompted some lenders, including majority shareholder SoftBank, to provide a seven-day extension.

The New York-based company's shares slumped more than 46% to close at $1.22 Wednesday, just two months after it completed a 1-for-40 reverse stock split to bring its stock well above $1 to prevent it from being delisted.

The high-profile company went public in October 2021 after corporate governance concerns led to a failed initial public offering attempt in 2019 and the ouster of co-founder and CEO Adam Neumann, a period in which its valuation tumbled to $9 billion from a $47 billion valuation by SoftBank. WeWork had gained attention in the decade after its founding in 2010, drawing attention to the business of providing coworking space.

Some investors are souring on the stock after the Wall Street Journal, citing people familiar with the situation, reported Tuesday that WeWork could file for bankruptcy protection as early as next week. Real estate professionals said a Chapter 11 bankruptcy protection filing wouldn't be surprising after the company disclosed earlier this year it was renegotiating its leases with nearly all its landlords.

The company said in a regulatory filing Tuesday that its lenders including SoftBank have entered into a forbearance agreement to prevent a default. The latest arrangement is giving WeWork a seven-day extension after the company missed interest payments totaling about $95 million due Oct. 2 with a grace period of 30 days. The money-losing company said in early October the missed payments were a deliberate attempt to help start conversations with some lenders as it's already doing with landlords.

The company's renegotiating of leases came as it warned in August "substantial doubt exists" about its ability to continue as a going concern.

“We have a clear, long-term vision for the future and over the past few months we have taken a series of decisive actions to improve our business,” a WeWork spokesperson said in an emailed statement to CoStar News. “We are confident that our ongoing and productive discussions with our key financial stakeholders will enable us to address our capital structure and position the company for long term success. This forbearance agreement provides time to continue these positive conversations as we continue to engage with them to implement our ongoing strategic efforts to enhance our capital structure. This agreement does not relate to our day-to-day operations and our top priority remains providing members with best-in-class office space and services across the globe.”

The spokesperson said the company doesn’t “comment on speculation” regarding the Wall Street Journal report about filing for bankruptcy.

Isaac Marcushamer, an attorney at Miami-based law firm DGIM, said he’s not surprised by the report that WeWork may potentially file soon for Chapter 11, not long after first disclosing it was seeking a widespread lease renegotiation with landlords.

In a potential “bankruptcy, it’s not atypical,” he said in an interview. “You think you have a lot of time, then all of a sudden, you don’t. It’s not a rush until it is. I’m not surprised.”

Marcushamer said there are likely two scenarios at play.

“It means they are either negotiating and this is part of the negotiation tactic to create pressure [with stakeholders], or they are out of runway,” he told CoStar News. It’s likely either “they have enough creditor support for a prepackaged bankruptcy [and] they are basically telling everyone ‘This is what we are doing. This is your chance to get on board,’ [or] they are telling everyone, ‘This is your time to come to the table to try to get the best deals.’ From WeWork’s perspective, the more [deals] they have prebaked, the greater the success of a bankruptcy filing. If you go to the court and don’t have any agreement, you are looking at fighting everyone at the same time. That’s a difficult thing to do.”

If WeWork ends up filing for bankruptcy, landlords are typically treated among the unsecured creditors who have a lower priority claim than secured creditors, attorneys say.

Lou Klein, a New York-based commercial real estate broker with KW Commercial, a unit of Keller Williams, billed as the world’s largest real estate franchise by agent count, said he’s also not surprised either by the reported timing of a potential bankruptcy.

“It seems rather unsustainable,” Klein, who said he’s done deals with WeWork, told CoStar News. “I don’t think their client base is as robust as they could be. … They are going to probably give back leases in centers that are least profitable. … If they survive at all, they will be half the size they are now unless someone buys them, but I don’t see anybody buying them.”

While some analysts have said WeWork still has enough liquidity to last it for at least a few quarters, credit-risk monitoring firm Creditsafe said it has observed a sharp uptick in some late payments since August.

WeWork’s days beyond terms, or how long it takes the company to pay bills after the due date, has worsened over the past three to four months to 68 days, up from 26 days in April and 22 days in November 2022, a Creditsafe study viewed by CoStar News found. Creditsafe said it considers a “significant change” with any fluctuations that are more than five to 10 days of change month to month, adding WeWork’s DBT is “unusually high.” The value of WeWork’s delinquent payments has jumped by 15347.4% between August and October, Creditsafe said.

“The fact that it takes WeWork over two months to resolve late payments is a major cause for concern,” Creditsafe said in an emailed statement to CoStar News. “It indicates there’s a larger cash flow problem behind the scenes.”

A WeWork spokesperson said that "vendors are an important part of our business. Our invoice processing has continued according to our agreements and in a timely manner." The spokesperson added that the Creditsafe data didn't look like an accurate portrayal of WeWork’s invoice payments.

With uncertainty surrounding WeWork, some of its members have looked to depart for other workplace providers.

A case in point, Codi, a flexible workplace startup backed by Andreessen Horowitz’s a16z, said the number of its clients who came from coworking firms increased by 1100% this year from last year, with a majority of them coming from WeWork. Industrious has previously told CoStar it’s signed “a lot of deals” since WeWork’s August warning about its financial condition.

“SoftBank sunk ~$20b into WeWork,” Greg Isenberg, WeWork’s former head of product strategy, said as part of a series posts Wednesday on X, formerly known as Twitter. “That’s larger than the GDP of Bolivia. Their investment is probably worth as much as a pretty nice house in San Francisco. … The valuation of your venture-backed business really doesn't mean a whole lot. ... WeWork was working on like 100 businesses at once, but never really figured out the economics of the core business.

Isenberg was at WeWork after he sold his Islands messaging app to the company in 2019 during the Neumann era.