WeWork told its landlords on a conference call Wednesday morning that it will try to renegotiate “nearly all” of its leases. The company faces staggering losses that have led to speculation that it will file for bankruptcy.
During the five-minute call, the company said that its leasing costs remain too high and it will look to exit underperforming locations.
“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,” WeWork stated in a letter explaining its decision.
A company spokesperson added that WeWork intends to remain in its buildings, but needs more flexibility with leases to clean up its dire financial situation.
One WeWork landlord told The Real Deal that the company has cried wolf in the past, but this time it seems serious and he’s waiting to hear what the company has to offer.
“We’ll have to see what they come back and ask for,” said the landlord, who asked to remain anonymous. “They’ve been floating this on earnings calls, but now they’re showing some real urgency here.”
Another landlord told TRD that WeWork said it intends to complete negotiations within 45 days. The owner added that the company just paid rent on its leases.
“I was actually quite surprised, but pleasantly surprised,” said the landlord, who asked to remain anonymous. “Because they wouldn’t have paid the rent if they’re going to reject the leases.”
If WeWork declares bankruptcy, it will have the option of exiting any lease. But most companies sign leases under a subsidiary LLC, including WeWork. This could allow the company to be surgical in exiting leases without the parent firm going into bankruptcy, although this summer a judge cast doubt on that in a ruling on a 261 Madison Avenue lease.
The announcement to landlords continues a tumultuous few months for WeWork. Sandeep Mathrani, who had been tapped to turn around the struggling company, resigned as CEO in May. Later that month, chief financial officer Andre Fernandez resigned after just a year in his post.
In August, WeWork said there was “substantial doubt” that it could remain in business. WeWork renegotiated about $3 billion worth of debt in March.
Since 2019, WeWork has renegotiated or exited 590 leases, saving the company $12.7 billion in leasing costs. More than 250 of those 590 were exits.
WeWork’s woes have been building for years. After receiving a $4.4 billion investment from the private equity giant SoftBank in 2017, the company, under founder Adam Neumann, went on a buying spree that resulted in signing leases above market rates. The deals were concentrated in urban centers such as New York City and San Francisco.
The onset of the Covid-19 pandemic in March 2020 ushered in an era of work-from-home, which punctured office markets across the country, especially in New York and San Francisco. That left WeWork with a dwindling number of members and leases that were higher in cost than market rates.
Since the pandemic began, WeWork has lost $11.4 billion. Its stock price fell as low as 11 cents, but at midday Wednesday was $3.50, owing to its 1-for-40 reverse stock split Monday. It is down 20 percent from its Friday market close.