WeWork, the flexible workspace provider, has informed its landlords that it will seek to renegotiate the majority of its leases as it grapples with substantial losses. The company has faced speculation that it may be forced to file for bankruptcy.
During a conference call with landlords, WeWork stated that its leasing costs are too high and it intends to exit underperforming locations. It emphasized the need to address its inflexible and expensive lease portfolio to establish a sustainable operating model. While WeWork intends to remain in its buildings, it requires greater flexibility with its leases to bolster its dire financial situation.
The announcement has prompted curiosity among landlords, with one noting that WeWork has previously indicated similar intentions but appears more serious this time. Landlords expressed a willingness to hear what the company has to offer during the renegotiation process. WeWork has outlined its intention to complete negotiations within 45 days, and one property owner welcomed the news, citing the fact that WeWork recently paid rent on its leases.
If WeWork were to declare bankruptcy, it could potentially exit its leases. However, as many of the leases are signed under a subsidiary LLC, the company is likely to have the option of selectively exiting leases without the parent company undergoing bankruptcy. Nonetheless, a previous ruling on a lease has cast some doubt on this possibility.
WeWork has experienced a tumultuous period, with the recent resignation of CEO Sandeep Mathrani and CFO Andre Fernandez. In May, the company expressed doubt about its ability to continue operating. WeWork had already renegotiated or exited a significant number of leases since 2019, saving billions of dollars in leasing costs.
The company’s challenges began when it acquired leases above market rates after receiving a substantial investment from SoftBank in 2017. The onset of the COVID-19 pandemic further exacerbated its troubles, as remote work became the norm, resulting in a decline in members and expensive leases.
Since the start of the pandemic, WeWork has incurred losses of $11.4 billion. Despite a significant drop in its stock price, WeWork hopes to stabilize its financial situation through renegotiated leases.
– The Real Deal