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  • WeWork Survived Bankruptcy. Now It Has to Make Coworking Pay Off

    WeWork Survived Bankruptcy. Now It Has to Make Coworking Pay Off

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    WeWork is set to become a smaller—and potentially rightsized—company. Following a final hearing on its bankruptcy plan Thursday morning, the coworking pioneer will have fewer locations, a new influx of capital, and $4 billion in debt wiped from its books.

    In a packed courtroom in Newark, New Jersey, Judge John Sherwood approved WeWork’s restructuring plan. WeWork expects to finally exit bankruptcy in mid-June. The plan also staved off a bid by WeWork’s controversial founder Adam Neumann, who had sought to buy back the company he’d founded before he was infamously ousted.

    WeWork’s clean slate will coincide with a new era of working, one in which office workers have pushed back against returning to offices full-time; as of late 2023, nearly 20 percent of office space in the US sat vacant. Yet workers are also experiencing more loneliness, a problem that coworking companies argue they can address by bringing people together. WeWork’s reboot is a test of the future of coworking itself.

    “WeWork still believes that this is a viable business model,” says Sarah Foss, global head of legal and restructuring at Debtwire, a financial services company. “They’re exiting a much leaner company.”

    WeWork filed for bankruptcy in November. Hammered by high interest rates and the Covid-19 pandemic, which started a work-from-home phenomenon, it was left with too many leases and too many hot desks and flexible office spaces it couldn’t fill. In 2023, lease costs made up two-thirds of its operating expenses.

    WeWork had more than 500 global locations before it filed for bankruptcy, and will operate about 330 WeWorks going forward, about half of which will be in the US and Canada. That will save WeWork about $12 billion in rent obligations, cutting its rent costs in half, according to the company’s estimates. WeWork’s plan comes from amending or assuming many leases, and rejecting or negotiating to exit some 150 others. It prioritized reducing its footprint in areas where it had oversupply, either from occupying too many floors in the same building or having multiple locations in close proximity.

    Many of these changes come as part of its Chapter 11 bankruptcy filings, but locations outside of the US and Canada are not part of that bundle. In other countries, WeWork has worked with landlords to renegotiate some of its leases, including those in Singapore, Kuala Lumpur, Bangkok, Ho Chi Minh City, Jakarta, Manila, and Paris.

    WeWork went to hundreds of landlords during the process to negotiate new lease terms or exits from buildings. Bankruptcy allows companies to renegotiate and reject leases outright, but the market conditions that now plague office landlords primed WeWork with advantages to negotiate better terms to stay in place. “They have all the leverage, knowing that we’re in a terrible time for landlords,” says Eric Haber, counsel at Wharton Property Advisors, a New York City office-leasing advisory firm. Now, a slimmer WeWork has a “streamlined configuration where they hope they can make money, but they have very optimistic projections,” Haber says. “Even with this much better setup, they still have to execute.”

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  • Local Coworking Spaces Thrive Where WeWork Dared Not Go

    Local Coworking Spaces Thrive Where WeWork Dared Not Go

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    The white colonial revival church with its high steeple adds an idyllic architectural touch to the affluent town of Huntington, a Long Island suburb of New York City. But a sign grabs the eye from the road: “Coworking space,” it says. “Kind of like a WeWork. Was a church, but not anymore.”

    The former church may have been leveled and replaced with condos, had Michael Hartofilis not bought it and repurposed it as a coworking venue called Main Space that opened earlier this year. What was once a sanctuary with a high ceiling has been split into two floors of coworking space, with cubicles, glass phone booths, and minimalist art. Industrial-style beams and modern, geometric light fixtures are juxtaposed with the preserved, intricate crown molding and artisan details that hug the building’s windows and doorways.

    I spent a morning working out of the bisected sanctuary, where cubicles with ergonomic desk chairs have replaced church pews. Neon signs and bright colors make it easy to forget Main Space was once a church, and it has all the amenities of a typical coworking space—a gym, ice bath, kitchen, various conference rooms with comfortable armchairs and patterned wallpaper, and an outdoor patio decorated with a string of lights. But it’s also embedded in the community. On a Thursday afternoon, people were scattered at desks throughout the building and in conference rooms, chatting with one another between their own business calls.

    “Ideally, it is local people” who sign up for the coworking space, says Hartofilis, who also heads an energy company and is working on a neighborhood social app. He’s hoping those who come feel like they’re part of something exclusive and get to know one another. But people have already come from neighboring towns, or used it as a meeting place between New York City and towns on Long Island. “There’s not a whole lot of supply as far as coworking spaces, there’s nothing like this.”

    The interior of a row of desks inside of a coworking space

    Courtesy of Main Space

    After Covid changed work patterns and styles, coworking is hanging on. The industry is growing and is expected to continue doing so—despite negative headlines about the company that brought coworking to the masses: WeWork. The coworking behemoth filed for bankruptcy in November, sparking concerns about the model after it took on office leases at a rapid pace and sought to sublease desks out at a premium. Rising interest rates and massive shifts in the office space marketplace following the Covid outbreak hammered the coworking giant, which was at one time valued at $47 billion. But WeWork is now preparing to right itself and exit bankruptcy at the end of May, getting $450 million in new investments and shedding excess office space after renegotiating leases. And industry experts say there’s lots of potential for coworking to mature.

    “Coworking is a great product,” says Jonathan Wasserstrum, a partner at Unwritten Capital, who has invested in Switchyards, a coworking company in the US southeast which shuns the title of coworking in favor of “work clubs.” The company has spaces in Atlanta; Nashville, Tennessee; and Charlotte, North Carolina. A former school, a motorcycle garage, a warehouse where elevators were tested, and a church are among its offerings. Coworking “is in high demand, and will continue to be in high demand,” Wasserstrum says.

    Many of the memberships at Switchyards’ locations are sold out. The company plans to have 25 clubs by the end of the year—with a total of 200 in the next five years. The design and music selection take inspiration from libraries, coffee shops, and hotel lobbies more than offices.

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  • Adam Neumann’s Bid to Buy WeWork Failed. Will He Now Try to Compete With It?

    Adam Neumann’s Bid to Buy WeWork Failed. Will He Now Try to Compete With It?

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    Adam Neumann’s bid to buy back WeWork essentially ended this week. A bankruptcy court on Monday approved a deal that gets WeWork out of debt. It could conclude its restructuring and leave bankruptcy by late May following a vote on the deal, thanks to $450 million in financing provided largely by WeWork creditor and real estate technology provider Yardi Systems.

    That deal would eliminate $4 billion in debt and also shut the door on Neumann. He’s been persistent in his efforts to buy the company he cofounded but was later forced out of by investors, offering more than $500 million and following up with promises to beat any other offer by 10 percent.

    A spokesperson for Neumann did not provide comment about whether he will continue to pursue a purchase of WeWork, or what this meant for the future of Flow, Neumann’s new company that aims to transform the residential rental experience.

    “After misleading the court for weeks, WeWork finally admitted it is trying to sell the company to a group led by Yardi for far less than we are continuing to propose, so we anticipate there will be robust objections to confirming this plan,” says Susheel Kirpalani, an attorney for Flow.

    WeWork is poised to move past the bid. “Over the past six months, we have worked extremely hard to develop a plan for a reorganized WeWork that is better capitalized, more operationally efficient, and positioned for continued investment in our products and services and a return to long-term growth,” WeWork CEO David Tolley said in a statement announcing the plan.

    In 2022, Neumann announced he was working on Flow, and he got $350 million in backing from venture capital firm Andreessen Horowitz, known as a16z. What exactly the startup would do wasn’t initially clear, but Neumann said it would “elevate” the experience of renting an apartment.

    So far, it’s involved rebranding condos, increasing amenities, and adding new building management tech developed by Flow. The company launched Flow buildings in Fort Lauderdale and Miami in April, rebranding existing condos that it previously bought under the Flow name. Available one bedrooms in Fort Lauderdale, Florida, start around $2,500 a month, and from $2,900 in Miami.

    Flow owns six buildings in total, including some in Nashville and Atlanta that have not been rebranded as Flow. Bloomberg reported in March that Flow is planning a $300 million development in downtown Miami that would include residential, retail, and work spaces. Neumann had previously tried to venture into housing with WeLive, a co-living idea tied to WeWork, that ultimately failed.

    Neumann has said Flow would either “compete or partner” with WeWork as more people work from home. With partnering now looking unlikely, it seems the two may compete.

    “Adam can decide to become either a wartime CEO or a peacetime CEO,” says Eric Koester, a professor of innovation and entrepreneurship at Georgetown University. The wartime route would include taking WeWork on and building a competitor of sorts quickly. The peacetime route, Koester says, would rely on differentiating Flow.

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